Have you been wondering what tax cuts expiring in 2025 will mean to you, a small business owner, and your business? I have and will share what I’ve learned about them as that deadline fast approaches within a year.
Knowing now what you can do to prepare for the end of 2025 will help your small business prepare for these changes. The tax cuts set to expire could significantly impact your business’s finances.
Table of Contents
Overview of Tax Cuts Expiring in 2025
Several key tax cuts, including changes in individual and corporate tax rates and various deductions and credits, are set to expire in 2025.
These changes could affect your business’s financial health and operations. Start thinking about what you can do now to avoid the most economic pain associated with higher taxes.
What’s Happening Today in April 2025
As of April 6, 2025, Congress remains in flux: Republicans, with slim majorities, are pushing to extend the TCJA via budget reconciliation but face tight deadlines and deficit concerns, while Democrats advocate for reforms targeting higher earners and corporations.
With no bill finalized, the outcome hinges on post-election negotiations—stay tuned and plan for uncertainty. You may want to contact your congressperson about this passage.
Individual Tax Rates and Their Impact
If your small business is a pass-through entity, changes in individual tax rates will directly impact your personal income. Pass-through entities like sole proprietorships, partnerships, and S-corporations benefit from lower individual tax rates.
However, these rates are scheduled to increase, potentially leading to higher taxes on your business income.
What Tax Cuts Expiring in 2025 Will Do For Corporate Tax Rate Changes
While many small businesses are pass-through entities, some are structured as corporations. The corporate tax rate, which was lowered to 21% in recent years, might increase if the expiring tax cuts are not extended.
A higher corporate tax rate means your business needs to allocate more of its budget to taxes, which impacts your profit margins.
In 2024, I knew I needed to save 35% of my business income to pay taxes. I had to prepare to save at least 45% and find a way to cut expenses by 10% to avoid losing income.
After all, we are in business to make money, not to give it all away in taxes. We just did our taxes; my husband owns a Scorp, and I have an LCC, and we had to pay more after doing the quarterlies for my business.
Not only that, but not all of our deductions could be used, and we weren’t told til after we got our return. We will look for a new accountant for next year after April 15.
I’ve heard from other business owners that they also use a bookkeeper, which is something to keep in mind.
Deductions and Credits Affected
Several vital deductions and credits for small businesses are also set to expire. These include Section 179 expensing and the Qualified Business Income deduction.
Section 179 Expensing
Section 179 allows you to expense the cost of new equipment in the year it is purchased rather than depreciating it over several years. This expensing limit will be reduced after 2025.
Without this benefit, it might be harder to make immediate investments in new machinery or equipment, which can hinder growth and efficiency.
What Tax Cuts Expiring in 2025 Mean For Qualified Business Income Deduction
The Qualified Business Income (QBI) deduction allows eligible businesses to deduct up to 20% of their qualified business income. This deduction is particularly beneficial for pass-through entities.
With its expiration, your taxable income might increase, leading to higher tax liabilities and less money for you and your small business.
What Tax Cuts Expiring in 2025 Mean for Small Business Owners
Consider proactive strategies and thorough planning to slow the effects of expiring tax cuts.
Financial Planning and Tax Consultation
Engage with your tax professional to understand how these changes impact your business.
Your tax consultant can help you identify the best strategies to minimize tax liabilities and take advantage of any remaining benefits before they expire.
What Tax Cuts Expiring in 2025 Means For Reassessing Business Structures
Evaluate your current business structure. Depending on the impending tax changes, it might make sense to reorganize.
For example, switching from a pass-through entity to a corporation, or vice versa, could result in better tax outcomes based on future rates and deductions.
However, making these changes between an accountant and a lawyer may cost you some money.
Conclusion: What Tax Cuts Expiring in 2025 Will Mean For You and Your Small Biz
The expiration of tax cuts in 2025 presents significant challenges for small businesses. By understanding the potential impacts on individual and corporate tax rates and the loss of crucial deductions and credits, you can take steps to prepare.
Proactive financial planning and possibly reassessing your business structure will help you navigate these changes and maintain your business’s economic health in the coming months and years.
Remember, the election is taking place in November this year. Whoever becomes president and who has the majority in the House and Senate will play a huge role in determining whether these tax cuts expiring in 2025 will take effect.
Make your vote count in November. There are less than 95 days to decide who deserves your vote.
Are you prepared for the tax cuts expiring in 2025? I’d love to hear your thoughts in the comment section.
FAQS: What Tax Cuts Expiring in 2025 Means: What Small Businesses Need to Know
What tax cuts expiring in 2025 are key?
Several tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire. Key provisions include reducing the corporate tax rate, the pass-through business income deduction, and expanded Section 179 expensing.
How will the expiration affect corporate tax rates?
The corporate tax rate, which was lowered to 21% under the TCJA, is set to increase. Specific rates will depend on new legislation, but rates could revert to pre-TCJA levels of around 35%.
What changes will happen to pass-through business income?
The 20% deduction for qualified business income (QBI) from pass-through entities, like S-corporations and LLCs, will expire.
This means pass-through business owners will lose a significant tax break, resulting in higher taxable income.
What about Section 179 expensing?
Bonus depreciation, which allows businesses to deduct a substantial percentage of the cost of qualified property upfront, will phase out when the tax cuts expire in 2025.
The 100% deduction will decrease incrementally after 2022, disappearing completely by 2027.
How will the individual tax rates impact small business owners?
Individual tax rate cuts are also set to expire. Higher individual rates could increase tax liabilities for small business owners who report business income on personal tax returns.
Are there any expected changes to tax credits?
Some business tax credits, such as the research and development (R&D) credit, may be reduced or phased out. This could increase expenses for businesses that rely on these credits for innovation.
What should small businesses do to prepare for what tax cuts expiring in 2025 will do?
Small businesses should consult with a tax advisor to understand the specific impacts on their finances. To mitigate the effects, consider strategies like accelerating income or deferring expenses.
Could there be new legislation affecting which tax cuts will expire in 2025?
As of April 6, 2025, Congress remains in flux. With no bill finalized, the outcome hinges on post-election negotiations—stay tuned and plan for uncertainty.
