How New Federal Tax Changes Will Affect Small Business Owners
Updated: Dec 18, 2024
As 2025 approaches, many business owners are preparing for potential tax changes that could influence their financial strategies. King's Dream can help you navigate these changes confidently with our experienced business consultants.
With the recent Presidential election behind us, there are still questions about future tax policies, especially from the 2017 Tax Cuts and Jobs Act (TCJA). Several of these key benefits and deductions are set to expire soon unless Congress acts to extend or adjust them. Small business owners must stay informed and plan proactively now to save time, money, and stress later. By understanding and adapting to potential tax shifts, you’ll be better positioned to make strategic financial decisions in the new year.
So, what’s changed about the 2025 tax brackets? Let’s get into it!
2025 Changes to Federal Income Tax Brackets
The IRS recently announced its new inflation-adjusted tax brackets for 2025, marking an increase of about 2.8% from 2024. This is a smaller bump compared to recent years. Make sure to check if your tax bracket has been updated!
Qualified Business Income (QBI) Deduction:
If you own a pass-through business (like an LLC, sole proprietorship, or partnership), you've likely benefited from a 20% deduction on your business income. This deduction is scheduled to end in 2025 unless Congress decides to extend it. Eliminating this deduction could increase taxable income for many small business owners, meaning potentially higher taxes on what you earn.
State and Local Tax (SALT) Deduction Cap:
Now, here’s some good tax news for small business owners! SALT is also set to expire in 2025. Currently capped at $10,000, this limit restricts the amount that business owners can deduct for state and local taxes on their individual tax returns. This cap has been a major concern for many owners. If it is not extended, small business owners could see expanded deductions for state taxes, potentially reducing overall tax burdens in high-tax states.
What About Washington State? Washington is not typically considered a high-tax state in terms of personal income tax because it does not have a state income tax. However, it does have relatively high property taxes, sales taxes, and excise taxes, which can significantly impact residents and small business owners. However, because Washington’s tax structure is different from states with high state income taxes, its residents may see less direct benefit from an increase in the SALT deduction cap compared to those in states like New York, California, and New Jersey, where income taxes drive up the state tax burden significantly. |
Depreciation and Bonus Expensing:
The TCJA introduced 100% bonus depreciation, allowing businesses to deduct the cost of qualifying property like equipment in the year of purchase. However, this is already phasing out and will fully expire in 2026. Starting in 2025, you’ll only be able to deduct a portion of those costs each year. If you plan to buy equipment, it might be worth considering purchases sooner to maximize this benefit.
Estate Tax Exemption:
The current estate tax exemption is nearly doubled under the TCJA, set at over $12 million per individual, which reduces estate taxes for family-owned businesses and assets transferred at death. After 2025, this exemption is slated to revert to around $6.5 million. For small business owners planning to leave their business to family, this could lead to higher estate tax liabilities if no changes are made.
R&D Expense Deduction:
Businesses that conduct research and development can no longer write off those costs all at once and instead must spread deductions over five years. Although some legislative efforts in Congress aim to change this to allow for immediate expensing, the current rule remains. If you haven’t already, it’s time to budget for this adjustment, especially if your business heavily invests in innovation and research.
What Can You Do to Prepare for 2025 Tax Changes?
Stay Informed About Potential Tax Credits and Incentives
Seattle and Washington State often offer tax credits for business investments in areas like clean energy, technology, and R&D. Monitor local opportunities that may help reduce your tax burden, especially if federal rules around immediate R&D deductions aren’t reinstated.
Monitor Federal and State Legislation: Tax policy changes in Congress could further impact planning, and new Washington state taxes are periodically proposed to address budget and infrastructure needs. Stay up to date on both federal and local legislation so that you’re prepared for any additional tax liabilities or savings opportunities.
Collaborate With a Tax Professional: Working with a small business consultant at King’s Dream Business Consulting can be an invaluable step in navigating the upcoming tax changes in 2025, particularly if you’re a small business owner facing challenges or significant updates in federal and state tax policies. We help our business owners save time, minimize stress, and make more informed, proactive decisions to protect and grow your business as tax laws evolve. Contact a King's Dream business consultant today!
King’s Dream Will Help Stay Three Steps Ahead
Staying three steps ahead of the 2025 tax changes can make a world of difference for your business. By understanding what’s coming, you’re setting yourself up as a proactive, prepared business owner—and sparing yourself the hassle of last-minute adjustments to your tax strategy. Why not make this year’s tax planning easy?
Our team is here to help you make confident, informed financial decisions for 2025 and beyond. Schedule a Discovery Call, and let’s make tax season a little easier together.
About King's Dream Business Consulting: Founded in 2019, King's Dream Business Consulting is a small business consulting and management firm established initially in response to Seattle's gentrification and displacement of its minority business communities. To Date, King's Dream has served over 200 small businesses nationwide. King's Dream Business Consulting is a leading provider of business advisory services, offering strategic planning, marketing strategies, financial management, operational efficiency, and human resources consulting. Committed to the success of small businesses, King's Dream Business Consulting provides tailored guidance and support to drive sustainable growth.
Tyra Douyon is an Atlanta-based journalist, poet, and educator. She developed her unique writing style and media correspondence skills in print and digital publishing, specializing in education, real estate, advertising, marketing, and arts/entertainment news. She’s a graduate of Kennesaw State University, where she earned her Bachelor's in English Education and Master's in Professional Writing. Along with freelance writing, she is a published poet and staff editor for an independent press/literary arts magazine.
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