Taxes can have a profound impact on the profitability of an organization. Business leaders in many different industries may need support as they attempt to optimize their tax credits and deductions to minimize what they ultimately pay in federal taxes.
Every year, federal policy regarding business taxes changes. Evolving economic circumstances and policy priorities from different administrations and regulators influence the deductions and credits available, as well as the ultimate tax liabilities of businesses.
What tax changes in 2025 could affect this upcoming year’s tax return for a small or mid-size business?
1. The elimination of clean vehicle credits
In 2022, the Inflation Reduction Act included a clean energy tax incentive that applied to electric and hybrid vehicles. Businesses were eligible for up to $7,500 in tax credits for passenger-sized electric or hybrid vehicles. The available credit increased to $40,000 for commercial vehicles, such as school buses. That credit expired on September 30th, 2025.
2. New rules for small business stock
When business investments prove profitable, those who hold stock often pay taxes on the appreciation in value of those investments. Under new federal guidelines, people who hold stock in small businesses can potentially exempt a portion of their capital gains from taxation. The longer they hold the stock, the more they can protect. Holding the stock for three years allows for a 50% exclusion. After four years, the exclusion increases to 75%. After five years, those who hold stock in small businesses have 100% exemption from capital gains taxes.
3. State and local tax deduction increases
Federal income tax rules allow individuals who pay state and local taxes to deduct those taxes from their federal income tax returns. Historically, there was no limit imposed on the amount deducted. In 2017, federal laws established a $10,000 cap. In 2025, that cap increased to $40,000. There are workarounds available in 36 different states as well. The current rule also allows for a 1% increase in the deduction cap annually through 2029.
These changing tax rules have a profound impact on businesses. Consulting with an attorney familiar with complex business tax matters may make it easier for leaders to minimize their tax obligations, and to retain as much business revenue as possible.