The tax code is rarely static. Each year, the IRS makes adjustments for inflation, introduces new rules, and phases out old ones. For small business owners, staying on top of these changes isn’t just good practice—it’s a critical part of financial strategy. What you don’t know can lead to missed opportunities or, worse, unexpected tax bills and penalties.
As you close the books on 2025 and prepare for the filing season in early 2026, it’s time to get familiar with the latest updates from the IRS. These changes can affect everything from your income tax bracket to the deductions you can claim and the forms you need to file.
This guide will walk you through the most significant IRS updates for the 2025 tax year. We’ll break down what’s new and explain how these changes could impact your business’s bottom line.
For a complete guide to all your tax season needs, from deadlines to deductions, make sure to bookmark our comprehensive 2025 Small Business Tax Season Toolkit.
1. Inflation Adjustments to Tax Brackets and Deductions
Every year, the IRS adjusts key tax figures to account for inflation. This prevents “bracket creep,” where inflation pushes you into a higher tax bracket even though your real purchasing power hasn’t increased. For 2025, these adjustments mean you can earn more before jumping to the next tax rate.
2025 Federal Income Tax Brackets (for taxes filed in 2026)
Here are the tax brackets for Single filers as an example:
- 10% for income up to $11,600
- 12% for income over $11,600
- 22% for income over $47,150
- 24% for income over $100,525
- 32% for income over $191,950
- 35% for income over $243,725
- 37% for income over $609,350
(Note: These brackets are for Single filers. Brackets for Married Filing Jointly, Head of Household, etc., have also been adjusted accordingly.)
Key Takeaway for Business Owners
If your business is a pass-through entity (Sole Proprietorship, Partnership, S-Corp), your business profits are taxed at your individual rate. These expanded brackets mean you can have slightly more profit before hitting the next marginal tax rate.
Standard Deduction Increases
The standard deduction has also increased for 2025:
- Single filers: $14,600 (up from $13,850 in 2024)
- Married filing jointly: $29,200 (up from $27,700 in 2024)
For business owners who don’t have enough itemized deductions (like mortgage interest and state/local taxes) to exceed this higher threshold, taking the standard deduction might be the more beneficial option.
2. Updated Standard Mileage Rate
For businesses that rely on vehicles, the standard mileage rate is a crucial number. It provides a simplified way to deduct vehicle expenses without tracking every single cost like gas, oil changes, and repairs.
For 2025, the IRS has announced a new standard mileage rate for business use of a vehicle.
- 2025 Standard Mileage Rate: The IRS has set the rate at 68.5 cents per mile for business travel. (This is an increase from 67 cents in 2024).
How to Apply This
If you drive 10,000 miles for your business in 2025, you can claim a deduction of $6,850 (10,000 miles x $0.685).
Action Item: Ensure your mileage log is meticulous. The IRS requires a contemporaneous record that includes the date, starting point, destination, purpose of the trip, and total miles driven. Apps like MileIQ or Everlance can automate this process.
3. Changes to Form 1099-K Reporting Threshold
This has been one of the most talked-about and delayed changes in recent years. Form 1099-K is used by third-party settlement organizations (like PayPal, Venmo, Stripe, and Square) to report payments for goods and services.
After several delays, the IRS is moving forward with a lower reporting threshold. For the 2025 tax year, the threshold is set to be significantly lower than the old rule of over 200 transactions AND $20,000. While the final details have been subject to change, the trend is toward much broader reporting. The anticipated threshold is expected to be around $5,000 for 2025, with plans to drop to $600 in future years.
What This Means for You
If you accept payments for your business through these platforms, you are much more likely to receive a Form 1099-K, even for relatively small amounts of income.
- Crucial Tip: It is more important than ever to have a separate business account for these payment apps. Do not mix personal payments from friends and family with business income. If you receive a 1099-K that includes personal transactions, it’s your responsibility to prove to the IRS which funds were not business income. Clean bookkeeping is your best defense.
4. Expiring Provisions from the Tax Cuts and Jobs Act (TCJA)
The 2025 tax year is the last year for many of the key provisions from the Tax Cuts and Jobs Act of 2017. Unless Congress acts to extend them, several popular tax benefits are set to expire or change after this year.
Key Changes to Watch for After 2025:
- Individual Tax Rates: The current tax rates are set to revert to their higher, pre-TCJA levels in 2026.
- Qualified Business Income (QBI) Deduction: The 20% pass-through deduction is scheduled to expire. This is a massive deduction for many small businesses, and its potential disappearance makes tax planning for 2025 even more critical.
- Bonus Depreciation: The 100% bonus depreciation, which has allowed businesses to write off the full cost of qualifying assets in the first year, has already begun to phase down. For 2025, it is 60%. It will continue to decrease each year unless extended.
Strategic Impact: The “use it or lose it” nature of these provisions means that 2025 may be the last chance to take full advantage of them. Work with a tax professional to see if accelerating income or deductions makes sense for your business.
5. Continued Emphasis on Clean Energy Credits
Thanks to the Inflation Reduction Act, many of the expanded tax credits for clean energy are still in full effect for 2025. Small businesses can find significant savings by investing in green technology.
Key Credits to Explore:
- Commercial Clean Vehicle Credit: If you purchase an electric vehicle for your business, you may qualify for a credit of up to $7,500 for smaller vehicles or up to $40,000 for heavier ones.
- Energy Investment Tax Credit: Installing solar panels, geothermal systems, or other renewable energy sources on your business property can yield a substantial tax credit, often 30% of the cost.
Action Item: If you are considering upgrading your vehicle fleet or commercial property, factor these valuable credits into your decision-making process for 2025.
Conclusion: Preparation is Your Best Strategy
Tax laws are not set in stone. The changes for 2025 highlight the importance of staying informed and proactive. From inflation adjustments to new reporting rules and expiring deductions, each update presents both challenges and opportunities.
The best way to navigate this landscape is with a solid foundation of organized bookkeeping. When your financial data is clean, accurate, and up-to-date, you can easily adapt to new rules, calculate your tax liability, and make strategic decisions that benefit your bottom line. Don’t wait until the filing deadline to get your books in order. Start now to ensure a smooth and profitable tax season.
To learn more about how to navigate deductions, credits, and filing requirements, explore our complete 2025 Small Business Tax Season Toolkit.