Why these changes matter now

Small business taxes are driven by a handful of moving parts—depreciation rules, business-structure choices, credits, and information reporting. Changes in any of these areas affect after-tax cash flow, compliance burden, and long-term planning. In my practice over the past 15 years, I’ve seen timely tax planning (not last-minute scrambling) deliver the biggest savings: accelerating or delaying purchases, documenting wages and contractor payments correctly, and choosing the right entity or payroll strategy.

Below are the practical tax-law changes small business owners should review in 2025, with action steps and links to official guidance. Where numeric limits are inflation-adjusted or changed by statute, I point you to IRS pages for the year-specific figures so you always have the current numbers.

1) Depreciation: Section 179 and bonus depreciation (what changed and how to plan)

What changed: The Tax Cuts and Jobs Act (TCJA) expanded expensing through bonus depreciation and clarified that certain used property qualifies for bonus treatment. However, the bonus depreciation percentage phases down on a statutory schedule: 80% (2023), 60% (2024), 40% (2025), 20% (2026), and 0% beginning in 2027 unless Congress acts. Section 179 remains available to immediately expense qualifying property up to an inflation‑adjusted dollar limit each tax year.

Why it matters: How you claim expensing vs. depreciation alters taxable income, basis for future depreciation, and state tax treatments. Timing purchases (e.g., buy in 2024 vs. 2025) can materially change the immediate write‑off.

Action steps:

  • Review whether a purchase should be expensed under Section 179 or handled under bonus depreciation. Section 179 lets you choose which assets to expense and can be preferable for items you want fully deducted this year (see IRS Section 179 guidance). (IRS: Publication 946 and the Section 179 page.)
  • If you’re planning large equipment purchases, model scenarios: a full Section 179 expensing vs. partial expensing plus bonus depreciation vs. standard MACRS depreciation. In my experience, a simple three-year cash-flow model clarifies the true tax benefit.
  • Keep purchase invoices, financing documents, and placed-in-service dates. The placed-in-service date determines the tax year for depreciation and bonus depreciation eligibility.

Internal reads: For background and tactical examples, see our primer on Business Depreciation Basics: Section 179 and Bonus Depreciation and the focused Section 179 Deduction page.

Sources: IRS Publication 946, “How To Depreciate Property” and IRS Section 179 page (irs.gov).

2) Qualified Business Income (QBI) deduction: thresholds and planning

What changed: The 20% QBI deduction under Section 199A remains an important benefit for many pass-through owners (sole proprietors, partnerships, S corporations). The deduction is still subject to taxable-income thresholds, service‑business limitations, and W‑2 wage/property limitations. Thresholds are inflation‑adjusted and should be checked each tax year.

Why it matters: For many small-business owners the QBI deduction is one of the largest non‑refundable tax benefits available. Phaseouts can reduce or eliminate the 20% deduction for higher-income owners or certain service trades.

Action steps:

  • Check your projected taxable income versus the IRS inflation‑adjusted thresholds for the year and model ways to reduce taxable income (retirement plan contributions, timing of income, or business retirement plan setup).
  • If you’re an S corporation owner, review your reasonable compensation policy: increasing W‑2 wages to owners can change the W‑2 limitation calculation and affect the QBI deduction — but it also increases payroll taxes. These trade-offs should be modeled with a CPA.

Sources: IRS QBI guidance and Treasury regulations (irs.gov).

3) Information reporting: Forms 1099-K and contractor/merchant reporting

What changed: Information reporting rules for payment platforms and third‑party settlement organizations expanded in recent years, increasing the number of small sellers who receive Forms 1099‑K. The increased reporting means more taxpayers receive IRS‑matching documents and the IRS may compare reported payments to business gross receipts.

Why it matters: Unexpected or unreconciled 1099‑K amounts lead to IRS notices and audits. Small sellers who don’t keep separate business records may misreport gross receipts.

Action steps:

  • Reconcile 1099‑K and 1099‑MISC/NEC amounts with your bank deposits and accounting software every quarter, not just at tax time.
  • Track refunds, fees, and non‑business transactions separately; many platforms report gross transaction volume, not net taxable receipts.
  • If you rely heavily on third‑party platforms, add a quarterly review to your bookkeeping workflow.

Sources: IRS notices on payment reporting and Small Business Administration guidance.

4) Payroll credits and pandemic-era programs: what remains and what’s expired

What changed: Many pandemic-era credits like the Employee Retention Credit (ERC) were time‑limited and have expired, but substantial retroactive claims and IRS corrections were common for tax years 2020–2021. Newer, targeted credits (for hiring certain disadvantaged workers, for energy-efficiency investments, or for paid family and medical leave) continue to exist and evolve.

Why it matters: Misunderstanding which credits are available or claiming expired credits can trigger audits and penalties. Conversely, missing available credits (e.g., energy or hiring credits) is a missed tax and cash-flow opportunity.

Action steps:

  • If you think you qualify for retroactive credits (for years 2020–2021), speak with a CPA; many taxpayers are still filing adjustments.
  • Review federal and state hiring and energy credits each year; some are refundable or can be carried forward.

Sources: IRS and Department of Labor guidance; Tax Policy Center resources.

5) Entity choice, state conformity, and state-level changes

What changed: Federal law changes interact with state tax codes, and many states do not conform automatically to federal changes. Starting in 2024–2025 some states adjusted their conformity rules or introduced specific business tax relief measures.

Why it matters: Federal optimization (e.g., taking Section 179 or bonus depreciation) can produce different state tax results. States may decouple from bonus depreciation or allow add-backs, affecting state taxable income and estimated tax payments.

Action steps:

  • Review your state’s conformity rules with your CPA or state tax advisor.
  • When planning depreciation or major transactions, run state-level tax scenarios in addition to federal projections.

Sources: State department of revenue websites; Small Business Administration state tax guidance.

Common mistakes I see

  • Failing to document placed‑in‑service dates for assets (this determines whether Section 179/bonus depreciation applies).
  • Treating platform-reported gross receipts as identical to taxable income (platform 1099s often overstate gross receipts).
  • Waiting until year-end to plan large purchases or entity changes (many opportunities are visible and actionable months in advance).

Practical planning tips

  • Keep a rolling 12‑month tax plan: project income, expenses, and major purchases quarterly.
  • Use a bookkeeping system that tags capital purchases, refunds, and platform fees for easy reconciliation.
  • Meet with your CPA at least once mid-year before major purchases or structural changes.

Where to confirm the current numbers

Related FinHelp content

Professional disclaimer
This article is educational and based on federal guidance available to the public. It is not individualized tax advice. Tax rules change and state conformity differs; consult a qualified CPA or tax attorney before making decisions that affect tax liabilities.

Authoritative references

  • Internal Revenue Service (IRS), Publication 946, “How To Depreciate Property” and Section 179 guidance (irs.gov)
  • Small Business Administration (sba.gov) small business tax resources
  • Tax Policy Center (taxpolicycenter.org) analysis and summaries

Bottom line
Tax law changes through 2025 continue to favor immediate expensing for many capital purchases but also include important phaseouts, reporting expansions, and state-level variations. Proactive planning—documenting placed-in-service dates, reconciling platform payments, and modeling the QBI tradeoffs—delivers the clearest, lowest-risk tax outcomes for small businesses.