Why these changes matter

Small businesses often operate on thin margins. Federal tax changes made since 2020 — including pandemic relief programs, temporary credit expansions, and modest adjustments to depreciation and retirement incentives — directly affect cash flow, hiring decisions, and capital spending. This article summarizes the most consequential federal developments over the last five years, explains who they affect, and outlines practical steps to apply them correctly.

Note: This page is educational and not a substitute for personalized tax advice. Consult a CPA or tax attorney about your specific facts. (See authoritative sources at the end.)

Major federal tax changes and what they mean

Below are the primary categories of change that small business owners should understand.

1) Pandemic relief: PPP loan rules and tax treatment

  • What changed: From 2020–2021, the Paycheck Protection Program (PPP) provided forgivable loans to qualifying small businesses. The initial CARES Act and later legislation affected forgiveness rules and tax treatment. Congress clarified that forgiven PPP loan amounts are excluded from gross income and that taxpayers may deduct ordinary and necessary business expenses paid with PPP proceeds (see Consolidated Appropriations Act, 2021). The Small Business Administration (SBA) and IRS issued guidance on forgiveness applications and tax reporting.
  • Why it matters now: Many businesses received forgiveness after 2020, and some still need to complete forgiveness paperwork or respond to IRS or SBA inquiries. Incorrect reporting can trigger audits or repayment. For more on tax rules around forgiven loans, see FinHelp’s coverage of loan forgiveness tax treatment.

Internal resource: read more on tax reporting after loan forgiveness here: “Tax Reporting After Loan Forgiveness: Forms and Pitfalls” (https://finhelp.io/glossary/tax-reporting-after-loan-forgiveness-forms-and-pitfalls/).

Authoritative sources: SBA PPP program page and IRS PPP guidance: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program and https://www.irs.gov/newsroom/ppp-loan-forgiveness-tax-treatment.

2) Employee Retention Credit (ERC) – expansions and later wind-down

  • What changed: The ERC began as part of the CARES Act (2020) and was substantially expanded for 2021. It offered refundable credits against employment taxes for certain employers who kept employees on payroll despite economic hardship. The credit’s eligibility rules, calculation method, and qualifying periods changed over 2020–2021, and the IRS subsequently issued guidance on claiming the credit and on interactions with PPP funds.
  • Why it matters now: Although the ERC program effectively ended for most employers after 2021, many businesses remain eligible to claim retroactive credits by filing amended payroll tax returns (Form 941-X). Due to the program’s complexity and later fraud-related scrutiny, work with a trusted tax professional. For deeper background on that credit, see our dedicated page on the Employee Retention Credit.

Authoritative source: IRS ERC Q&A and guidance: https://www.irs.gov/newsroom/employee-retention-credit-questions-and-answers.

3) Section 179 and bonus depreciation updates

  • What changed: Section 179 expensing and bonus (first-year) depreciation rules remain powerful tools for accelerating tax relief on qualifying capital purchases. Congress and the IRS have periodically adjusted the annual maximum Section 179 deduction, and bonus depreciation (100% through 2022) has been set to phase down thereafter. These limits are adjusted for inflation or phased down per law, so amounts and phase-outs vary by tax year.
  • Why it matters now: Timing purchases near year-end, bundling qualifying assets, or electing bonus depreciation can substantially lower taxable income in a given year. Because dollar limits and phase-down schedules change, confirm the applicable limit for the tax year before making large capital purchases.

Authoritative source: IRS Section 179 information and publication guidance: https://www.irs.gov/taxtopics/tc704.

4) Corporate tax rates and pass-through taxation (TCJA effects continuing)

  • What changed: The Tax Cuts and Jobs Act (TCJA) of 2017 established a flat corporate rate for C corporations and introduced the Section 199A qualified business income (QBI) deduction (20% for many pass-through owners). Although passed earlier, these provisions continued to shape small-business tax planning across the last five years.
  • Why it matters now: Owners must evaluate entity choice (S corp, C corp, LLC, partnership) in light of current rates, the QBI deduction’s limitations (wage and capital thresholds), and state-level responses. Entity selection affects payroll tax exposure, retained earnings tax rates, and access to benefits like the 20% QBI deduction.

Authoritative source: IRS summary of TCJA provisions and guidance on QBI (Section 199A): https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-questions-and-answers and https://www.irs.gov/businesses/small-businesses-self-employed/qualified-business-income-deduction.

5) Retirement-plan incentives for small employers (SECURE Act 2.0 and related)

  • What changed: Recent federal retirement legislation (commonly referred to as SECURE Act 2.0, enacted in late 2022) increased incentives for small employers to adopt retirement plans, including enhanced tax credits for startup costs and optional automatic enrollment features. These credits were expanded and temporarily increased to encourage plan adoption.
  • Why it matters now: Offering a retirement plan can be a competitive hiring tool. Small employers should review new credits and simplified startup rules that reduce administrative friction. See IRS guidance on the Small Employer Pension Plan Startup Costs Credit for current parameters.

Authoritative source: IRS small-employer plan credit guidance: https://www.irs.gov/retirement-plans/small-employer-pension-plan-start-up-costs-credit.

6) State-level changes and decoupling

  • What changed: Some states have ‘decoupled’ from federal provisions (for example, choosing not to follow federal bonus depreciation rules or making separate choices regarding PPP tax treatment). State-level conformity decisions since 2020 can change taxable income and filing requirements.
  • Why it matters now: Federal tax savings do not automatically equal state tax savings. Check your state’s department of revenue for guidance and whether your state decoupled from federal changes.

Common pitfalls and how to avoid them

  • Filing mistakes on forgiven PPP loans: keep copies of forgiveness applications, payroll records, and SBA correspondence; match amounts claimed for forgiveness to payroll tax returns and tax returns.
  • Missing ERC claims: employers may be eligible to file amended payroll returns (Form 941-X) but must use accurate calculations and supporting documentation to withstand IRS scrutiny.
  • Overlooking state conformity: review state adjustments to federal income, particularly regarding depreciation or forgiven debt exclusions.
  • Misapplying Section 179: know the definition of qualifying property and the taxable income limitation that can limit Section 179 claims.

Practical checks: maintain contemporaneous documentation for payroll and eligible expenses; reconcile bookkeeping to tax filings; use a third-party payroll provider or trusted CPA to help reconstruct wages and eligible periods.

Action plan for small-business owners

  1. Inventory 2020–2024 relief you received: PPP loans, ERC claims, NOL carrybacks, etc. Confirm whether you completed forgiveness or filed the right amended returns.
  2. Reassess capital expenditures: coordinate Section 179 or bonus depreciation elections with your CPA near year-end.
  3. Review entity structure: model tax outcomes for your business structure under current corporate and pass-through rules.
  4. Consider adopting a retirement plan: evaluate the increased startup credit for small employers and whether payroll systems can support auto-enrollment.
  5. Check state conformity: confirm your state’s position on federal changes and prepare to make any required adjustments.

Real-world examples (anonymized)

  • A neighborhood restaurant used ERC to claim credits for 2020–2021 payroll, recovering tens of thousands in payroll taxes after carefully documenting full or partial suspension of business operations.
  • A small IT services firm accelerated software and equipment purchases and used Section 179 and bonus depreciation to reduce taxable income in a high-revenue year, improving cash flows for hiring.

Frequently asked questions

Q: Are PPP loan forgiveness proceeds taxable? A: Forgiven PPP loan amounts are excluded from gross income, and expenses paid with forgiven PPP proceeds can be deductible following the Consolidated Appropriations Act, 2021 (see IRS guidance). Always confirm final position with your tax advisor.

Q: Can I still claim the Employee Retention Credit? A: The ERC program ended for most employers after 2021, but many businesses can still claim retroactive credits by filing amended payroll returns (Form 941-X) for the applicable quarters. Work with a professional to ensure eligibility and documentation.

Q: How do I determine whether to take Section 179 or bonus depreciation? A: The decision depends on taxable income, future income expectations, and state conformity. Both accelerate deductions but have different limits and eligibility rules. Run scenario analyses with your CPA.

Important documents and links (authoritative sources)

Internal FinHelp resources

Final notes and professional disclaimer

Tax law changes since 2020 include temporary pandemic relief programs and ongoing adjustments that affect deductions, credits, and tax planning choices. This article summarizes the highest-impact federal developments over roughly the last five years. It is educational only and not tax advice. For tailored recommendations, consult a licensed CPA or tax attorney who can model outcomes using your business’s books and facts.