Key 2025 Business Tax Updates: What You Need to Know
Major Changes and Opportunities Under Recent Tax Legislation
With the passage of the “OBBBA” bill and recent legislative updates, businesses face significant changes in tax policy starting in 2025. Below, we break down the most important 2025 business tax updates: reforms, relief opportunities, and new deductions impacting business owners and tax professionals.
Research and Experimental Costs (Section 174)
There are several key changes to the treatment of research and experimental (R&E) expenses under Section 174 for the 2025 tax year:
- Immediate Expensing: Domestic R&D costs can now be expensed in the year incurred, effective for tax years after 12/31/2024.
- Capitalization Options: Taxpayers may still choose to capitalize and amortize over five years; non-U.S. costs must be amortized over 15 years.
- Relief for Previously Capitalized Costs: Small businesses may retroactively amend returns for 2022–2024, while larger businesses can deduct unamortized costs prospectively in 2025–2026.
- Software Development: Software-related costs are included under Section 174.
Depreciation and Cost Recovery
Key depreciation and expensing provisions for 2025 include the return of 100% bonus depreciation, higher Section 179 limits, important state-level differences, and a new full expensing option for qualified U.S. production property.
- Bonus Depreciation: 100% deduction restored for qualified property placed in service in 2025 and beyond.
- Section 179: Expensing limit increased to $2.5 million, with phase-out starting at $4 million.
- State Differences: Many states have decoupled from federal rules—check local law.
- Qualified Production Property: New 100% expensing option for certain U.S. non-residential real property (construction after 1/19/2025, in service before 1/1/2031).
Other Key Tax Updates
- Qualified Business Income Deduction: Up to 20% deduction extended for small business owners and self-employed individuals, with AGI phase-outs indexed for inflation.
- Excess Business Loss Limits: Continued limits for losses passed through to individuals ($500,000 for joint filers).
- Pass-Through Entity Taxes: Deduction at entity level with credits for owners in 36 states plus NYC.
- Business Interest Deduction: Calculation method changes in 2026—plan expense timing accordingly.
- Estate and Gift Tax: Lifetime exclusion increases to nearly $14 million per individual in 2025; annual gift tax exclusion rises to $19,000.
- Electronic Payments: Paper checks phased out for federal refunds after 9/30/2025.
- State and Local Changes: Maryland introduces a tech sales tax and a capital gains surcharge for higher earners.
GRF Can Help
Stay tuned for additional clarifications and ensure your business and personal tax strategies align with these new provisions. Contact us if you would like to discuss your business tax planning.
