General Tax Updates for 2025 for Small Business Owners

Summary:

• Higher Standard Deductions: Taxpayers will get higher standard tax deductions in 2025. Keep in mind that these increases will be smaller than in previous years. You can find information on the standard deduction on the IRS website.
• Federal Income Tax Brackets Adjusted: The IRS has adjusted federal income tax bracket ranges for 2025 to account for inflation. The specific details of these adjustments are not provided in the sources. You may find this information on the IRS website.
• Expanded Direct File Program: The IRS is expanding its Direct File program, a free service that allows eligible taxpayers to prepare and file their tax returns online. This program will be available in 24 states in 2025. You can learn more about Direct File and its eligibility requirements on the IRS website.

A Crucial 1099-K Tax Changes for Small Businesses in 2025

Looking ahead to the year 2025, small business owners can anticipate key updates that may impact them. Of particular significance is a crucial alteration to the 1099-K Tax Form, which will affect small businesses in the coming year. Stay informed about the important tax changes on the horizon for small businesses and self-employed individuals in 2025.

When utilizing payment services such as PayPal, Venmo, Shopify, Etsy, or other similar platforms, it is important to note that you will be issued a 1099-K form for tax-related declarations. This specific form is designed to document transactions between merchants and service providers, serving to guarantee that the earnings generated from these activities are appropriately disclosed to the Internal Revenue Service (IRS).

Commencing in 2025, the reporting threshold for Tax Form 1099-K will be established at $600 for payments pertaining to goods and services received. This adjustment signifies a significant departure from the $5,000 threshold of the previous year and a substantial shift from the longstanding threshold of $20,000. It is crucial to note that all income must be accurately reported, irrespective of whether a Form 1099-K is received or not.

Please remember that Tax Form 1099-K does not take tax deductions such as fees or refunds into consideration. It is the taxpayers’ responsibility to report their taxable income by calculating the net amounts after subtracting permissible expenses. To find further insights on Tax Form 1099-K, visit the IRS website or seek advice from a tax expert.

For the 2025 Tax Season, Several Tax Changes will Impact Small Business Owners. 

Some Key Updates to Consider:

New Tax Brackets: The IRS has adjusted tax brackets to account for inflation, meaning some income levels will be taxed at slightly lower rates. For instance, the 12% tax bracket now covers somewhat higher income thresholds for both single and joint filers, which could help some business owners avoid being pushed into higher tax brackets due to inflation-adjusted income increases​

QBI Deduction Phase-Out: The Qualified Business Income (QBI) deduction for pass-through entities like sole proprietorships and S-corporations may not be renewed after 2025 unless Congress intervenes. This could significantly impact small businesses that currently rely on this deduction to reduce taxable income​

Depreciation and Expensing Rules: Bonus depreciation is phasing out. Instead of being able to write off 100% of certain business expenses immediately, business owners will have to plan around decreasing percentages until this provision fully phases out by 2027. This could affect planning for equipment and asset purchases​

Credits for Energy and Health Benefits: The Inflation Reduction Act has introduced incentives for renewable energy and health benefits, which can apply to some small businesses. For instance, credits for clean energy investments may benefit businesses investing in sustainable infrastructure or fleet updates​

In addition to these general updates, here are some additional topics that may be relevant to small business owners filing taxes in 2025:

E-filing Business Income Tax Returns: You can e-file your business income tax return for 2025, which includes submitting federal and local taxes.

Optimizing Tax Filing for Investment Gains: Understanding tax implications can be important for maximizing the profitability of your business investments.

The IRS also highlighted the potential impact of the 2024 election on tax policies, suggesting the possibility of changes that could affect small business owners. It would be wise to stay informed about potential policy changes following the election.

With these adjustments, it’s a good idea for small business owners to consult with tax professionals to maximize benefits and adjust for upcoming changes. These updates could shape how you plan your deductions, investments, and overall tax strategy in the coming year.

To get the most up-to-date information on tax updates for small business owners in 2025, consult the free PriorTax dedicated Tax Professional.

This entry was posted on Thursday, November 14th, 2024 at 8:00 am and is filed under Tax for Business, Tax News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.