Navigating the evolving tax landscape in 2025 presents unique challenges for businesses, especially in the realms of taxation and real estate. With significant provisions from the Tax Cuts and Jobs Act of 2017 (TCJA) set to expire and ongoing legislative debates, it’s crucial for businesses to proactively plan and adapt. Here are five strategic tax tips to help businesses manage uncertainty in 2025:
1. Utilize the Estate and Gift Tax Exemption for Succession Planning
The TCJA significantly increased the lifetime estate and gift tax exemption, allowing individuals to transfer up to $13.99 million tax-free in 2025. For married couples, this equates to $27.98 million. However, if these provisions expire, the exemption could revert to approximately $7 million per individual, adjusted for inflation. Businesses should consider leveraging the current exemption to transfer ownership and future appreciation out of their estates, ensuring a smoother succession process. Initiating this planning promptly is essential, as implementing such strategies can be time-consuming.
2. Evaluate Business Structure: C Corporation vs. Pass-Through Entity
The TCJA reduced the corporate tax rate to 21% and introduced a temporary 20% deduction on qualified business income for pass-through entities. If the pass-through deduction expires without an extension, while the corporate tax rate remains low, the tax benefits of operating as a pass-through entity may diminish. Businesses should assess their current structures and consider whether converting to a C corporation could offer tax advantages. This decision involves complex considerations beyond tax rates, so consulting with a tax advisor is recommended.
3. Plan Capital Asset Purchases and R&D Expenditures
The TCJA allowed for 100% bonus depreciation on qualified property, enabling businesses to deduct the full cost of eligible assets in the year of purchase. This provision is set to phase out, with bonus depreciation decreasing to 80% in 2025. Additionally, changes to the treatment of research and development (R&D) expenses now require capitalization and amortization over five years, rather than immediate expensing. Businesses should strategically plan capital investments and R&D activities to maximize available deductions and align with these changing provisions.
4. Optimize State and Local Tax (SALT) Deductions
The TCJA imposed a $10,000 cap on SALT deductions for individuals, which may impact business owners, especially those in high-tax states. One strategy to mitigate this limitation is to have the business entity pay state and local taxes directly, allowing for a full deduction at the entity level. This approach can help avoid the individual SALT deduction cap and reduce overall taxable income. It’s important to work with a tax professional to ensure compliance with state-specific regulations and to implement this strategy effectively.
5. Stay Informed on Tax Legislation Developments
The tax landscape is subject to change, with potential legislative actions that could impact various provisions, including the estate and gift tax exemption, corporate tax rates, and deductions. Businesses should remain vigilant and informed about proposed tax laws and regulatory updates. Engaging with tax advisors and participating in industry groups can provide valuable insights and help businesses adapt their tax strategies in response to new legislation.
In conclusion, proactive tax planning is essential for businesses to navigate the uncertainties of 2025. By leveraging current exemptions, evaluating business structures, planning capital expenditures, optimizing SALT deductions, and staying informed on legislative developments, businesses can position themselves for financial stability and success amidst changing tax laws.