Changes coming to Business Deductions and Credits in 2025

The IRS periodically updates deduction limits and tax credits that benefit small businesses. Notable updates for 2025 include:

• Bonus Depreciation Phase-Out: The 100% bonus depreciation benefit introduced under the Tax Cuts and Jobs Act is gradually reducing. In 2025, it will decrease further to 40%, affecting how businesses write off large equipment and asset purchases. This means businesses may need to plan capital expenditures more strategically to maximize depreciation benefits before the full phase-out.

  
  

• Section 179 Expensing Limit Adjustments: The deduction limit for immediate expensing of qualifying business assets is expected to increase to approximately $1.3 million, with a phase-out threshold beginning at around $3.2 million. Businesses investing in machinery, equipment, or software should evaluate how these changes affect their financial strategy.

  
  

• Work Opportunity Tax Credit (WOTC): The WOTC program, which offers tax incentives for hiring individuals from targeted groups (such as veterans and long-term unemployed individuals), is expected to be extended. Businesses should stay updated on eligibility criteria and renewal dates to take full advantage of this credit.

  
  

• Research & Development (R&D) Tax Credit Changes: Small businesses investing in innovation and product development may see refinements in how the R&D tax credit is calculated and applied, particularly for businesses with less than $5 million in gross receipts.

  
  

• Qualified Business Income Deduction (QBID): While the 20% deduction for pass-through businesses remains available, thresholds and phase-out limits may adjust. Business owners should review income projections to ensure they remain eligible for this valuable deduction.