Each year, tax-related limits for businesses are adjusted based on inflation. While 2025 brings increases to many tax deductions and limits, the pace of these changes has slowed due to easing inflation. Understanding these updates can help business owners optimize their tax strategies and maximize deductions.
Key 2025 Business Tax Deduction Increases Compared to 2024
Section 179 Expensing Deductions
- Maximum deduction: $1.25 million (up from $1.22 million in 2024)
- Phaseout threshold: $3.13 million (up from $3.05 million)
- Heavy vehicle expensing limit: $31,300 (up from $30,500)
Standard Mileage Rate for Business Driving
- 2025 rate: 70 cents per mile (up from 67 cents per mile in 2024)
Qualified Business Income (QBI) Deduction Phaseout Limits (Sec. 199A)
- Married filing jointly: Begins at $394,600 (up from $383,900)
- Other filers: Begins at $197,300 (up from $191,950)
2025 Retirement Plan Contribution Limits vs. 2024
Maximizing retirement contributions is a tax-efficient way to plan for the future. Here are the key updates:
401(k) Contribution Limits
- Employee contributions: $23,500 (up from $23,000)
- Catch-up contributions (age 50+): $7,500 (unchanged)
- New catch-up contributions for those aged 60-63: $11,250 (not available in 2024)
SIMPLE IRA Contribution Limits
- Employee contributions: $16,500 (up from $16,000)
- Catch-up contributions (age 50+): $3,500 (unchanged)
- New catch-up contributions for those aged 60-63: $5,250 (not available in 2024)
Other Retirement Plan Limits
- Total employer/employee contributions to defined contribution plans: $70,000 (up from $69,000)
- Maximum compensation for plan contributions: $350,000 (up from $345,000)
- Annual benefit limit for defined benefit plans: $280,000 (up from $275,000)
- Highly compensated employee threshold: $160,000 (up from $155,000)
- Key employee threshold: $230,000 (up from $220,000)
Social Security Tax Changes for 2025
- Wage cap for Social Security tax: $176,100 (up from $168,600 in 2024)
Other Employee Benefit Updates for 2025
Qualified Transportation Fringe Benefits
- Employee income exclusion: $325 per month (up from $315)
Health Savings Accounts (HSA)
- Individual coverage contribution limit: $4,300 (up from $4,150)
- Family coverage contribution limit: $8,550 (up from $8,300)
- Catch-up contribution (age 55+): $1,000 (unchanged)
Flexible Spending Accounts (FSA)
- Health care FSA contribution limit: $3,300 (up from $3,200)
- Health care FSA rollover limit: $660 (up from $640)
- Dependent care FSA limit: $5,000 (unchanged)
Potential Business Tax Policy Changes in 2025
While these tax updates are already in place, additional changes may be on the horizon. With a new administration and Republican control in Congress, several tax policy proposals could impact businesses in 2025, including:
- A lower corporate tax rate (currently at 21%)
- The elimination of taxes on overtime pay, tips, and Social Security benefits
Staying up to date on these potential changes is crucial for tax planning. Consulting a tax professional can help ensure your business is prepared to take full advantage of available deductions and credits.
Need Tax Planning Assistance for 2025?
Understanding tax updates is essential for maximizing deductions and minimizing liabilities. If you have questions about how these changes affect your business, contact us today for expert tax guidance!
