Tax Law Changes 2025: The Big Changes Every Business Owner Must Know

Introduction

Tax laws never stand still, and 2025 is no exception. From new IRS reporting thresholds to expanded credits and revised deduction rules, the tax law changes of 2025 are reshaping how business owners file, plan, and manage finances.

Whether you run a small family-owned shop or a multi-state enterprise, understanding these updates is essential for avoiding penalties and maximizing savings. This guide breaks down the most important changes so you can plan with confidence.

1. Lower IRS 1099-K Reporting Threshold

In 2025, the IRS officially reduced the 1099-K reporting threshold for third-party payment platforms (like PayPal, Stripe, and Venmo) to $600 per year — down from the previous $20,000/200 transaction requirement.

What This Means for You:

• If your business receives payments through apps or marketplaces, expect a 1099-K for even small amounts.

• These payments must be reported as income, regardless of whether you received cash, a check, or a direct deposit for other transactions.

Action Step: Track all business-related transactions carefully to avoid double-reporting or underreporting income.

2. Adjusted Federal Tax Brackets and Inflation Changes

To account for inflation, the IRS has increased federal income tax brackets for 2025. While the percentage rates remain the same, the income thresholds for each bracket have risen.

Benefit: You may fall into a lower tax bracket even if your earnings increased slightly, potentially reducing your tax liability.

Example: A business owner making $95,000 in 2024 may now remain in the 22% bracket rather than moving into 24% in 2025.

3. Expanded Section 179 Deduction Limits

The Section 179 deduction — allowing businesses to write off the cost of qualifying equipment in the year of purchase — has increased in 2025 to $1.25 million, with a total investment limit of $3 million.

Why It Matters:

• Great news for businesses investing in machinery, technology, and vehicles.

• The deduction applies to both new and used qualifying equipment.

Pro Tip: Pair Section 179 with bonus depreciation, which remains at 60% in 2025, for maximum tax savings.

4. Changes to Bonus Depreciation

Bonus depreciation, which allows businesses to deduct a percentage of the cost of assets in the first year, is phasing down. In 2025, the deduction drops to 60% from 80% in 2024.

Impact:

• This change makes it even more important to time your large purchases strategically.

• If you plan to invest heavily in assets, doing so early in the year may be more beneficial.

5. New Research & Development (R&D) Credit Rules

For 2025, the R&D tax credit has been expanded to include certain software development costs that were previously excluded.

Key Changes:

• Applies to cloud computing expenses related to product development.

• Small businesses can still use the credit to offset payroll taxes.

Tip: Keep detailed records of qualifying projects, including labour hours, materials, and software licenses.

6. Increased Standard Mileage Rate

The IRS standard mileage rate for business use of vehicles has increased to 68.5 cents per mile in 2025 (up from 65.5 cents in 2024).

Action Step: Use mileage tracking apps to capture every eligible mile driven for business purposes.

7. Employee Retention Credit (ERC) Compliance Crackdown

While the ERC program officially ended, 2025 brings stricter enforcement of improper ERC claims from previous years.

What This Means:

• If you claimed the ERC, be prepared for IRS review.

• Have all supporting payroll and revenue documentation ready.

8. Health Insurance Premium Deduction Adjustments

Self-employed business owners can still deduct health insurance premiums, but 2025 adjusts the income phase-out limits for certain premium tax credits.

Impact: Some owners who previously qualified for credits may now see reduced benefits.

9. State-Level Tax Changes

Several states have rolled out their own 2025 tax updates, including changes to sales tax collection, payroll tax rates, and local business levies.

Examples:

• California: Expanded digital goods sales tax.

• Texas: Lower franchise tax thresholds.

• New York: Increased payroll tax for high earners.

Action Step: Review your state’s Department of Revenue website for updates relevant to your location.

10. Digital Asset Reporting Requirements

If your business deals in cryptocurrency or digital assets, 2025 brings new reporting rules. Exchanges must issue Form 1099-DA for transactions, and businesses must disclose holdings over certain thresholds.

Tip: Treat crypto income like any other business income — track acquisition costs, gains, and losses.

How to Prepare for the 2025 Tax Season

To take full advantage of the tax law changes of 2025, business owners should:

1. Update Accounting Software: Ensure it reflects the new tax brackets, mileage rates, and deduction limits.

2. Work with a Tax Professional: Especially important for complex changes like R&D credits or state-specific rules.

3. Keep Meticulous Records: From mileage logs to digital asset transactions.

4. Plan Purchases Strategically: Align large investments with Section 179 and bonus depreciation benefits.

5. Stay Ahead of Deadlines: Avoid penalties by filing estimated taxes and final returns on time.

Conclusion

The 2025 tax season introduces a mix of opportunities and challenges for business owners. While higher deduction limits and expanded credits can save you money, new reporting thresholds and compliance crackdowns mean the IRS will be watching more closely than ever.

The key to navigating these changes successfully? Stay informed, stay organized, and seek expert guidance so your business can thrive under the new rules.