2025 Business Tax Update

BUSINESS UPDATE

Business Organizers We will also have an electronic organizer for businesses.  The organizer will have important questions.  You also have the ability to provide us with changes of business information.

IRS Online Accounts for Business Owners: Businesses and owners of businesses that are considered to be designated officers can now establish online accounts with the IRS at https://www.irs.gov/businesses/business-tax-account.  Designated officers have full access to the business account and can view and pay balances, obtain transcripts, view digital copies of IRS notices and filing history. Business payments can be made at https://www.irs.gov/payments/pay-business-taxes-from-your-bank-account.

New Florida Laws Beginning October 1, 2025, Florida repealed the sales tax on commercial real estate rentals.  This repeal applies to both state and local discretionary sales tax. Commercial leases less than 6 months are still subject to sales tax.

Changes to Form 1099-K: Reporting thresholds revert back to previous rules where reporting is required if transactions exceed $20,000 and the aggregate number of transactions exceed 200.

Changes to Form1099-MISC/NEC: Taxpayers engaged in a trade or business who make payments in the course of their trade or business to person or non-corporate entity must file an information return with the IRS and issue a copy to the payee if the total payments are $600 or more during 2025.  Reporting thresholds for services increases to $2,000 in a calendar year in 2026, and the threshold will be indexed to inflation starting in 2027.  Form 1099-NEC is due to the payee by February 2, 2026.  This does NOT include payments made to them on a credit card or other third-party processors like Venmo and Paypal.  We do not prepare those returns anymore due to the cost effectiveness and ease at which online third parties prepare them.  Many cost less than $10 each and they take care of all filing forms.

Entertainment and Meals

Entertainment expenses are not deductible. Entertainment is defined as any activity which is a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips, including such activity relating solely to the taxpayer or for the taxpayer’s family.

Meals provided to employees related to eating facilities and meals for the convenience of the employer are no longer deductible after 2025.  The new law provides two exceptions.  For amounts paid or incurred after 2025, taxpayers are allowed a deduction for employer provided meals to employees if:

1.      The meals are provided at a facility in which goods or services (including the use of facilities) are sold by the taxpayer in a bona fide transaction for the adequate and full consideration in money or money’s worth.

2.      The meals are required by federal law to be provided to crew members of a commercial vessel, including commercial fishing vessels.

Deduction for Qualified Tips:  For tax years beginning after 2024 and before 2029, a deduction is allowed equal to qualified tips received during the tax year that are included on statements furnished to the taxpayer by the employer (or payee if the recipient is not an employee) or reported by the taxpayer on Form 4137.  The amount allowed as a deduction for any tax year is limited to $25,000.  Taxpayers do not have to itemize to take the deduction.

The deduction phases out when the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ). 

If the taxpayer is self-employed, the deduction is limited to the net profit from the taxpayer’s trade or business that received the tips.

Qualified tips means cash tips (including credit card transactions) received by the individual in an occupation that customarily and regularly received tips on or before December 31, 2024.  Qualified tips do not include amounts received in a specified service trade or business.  

Payers subject to the information return reporting requirements must separately account for the amount of qualified tips paid to the payee.  NOTE: The IRS issued transition relief in Notice 2025-62 that grants relief to employers if they do not furnish a separate accounting of Qualified Tips ONLY for 2025.  

Deduction for Qualified Overtime Pay:  Effective for years beginning after 2024 and before 2029, a deduction is allowed to equal the qualified overtime compensation received during the year that is included on statements furnished to the taxpayer by the payee.  The amount allowed as a deduction for any tax year is limited to $12,500 ($25,000 for MFJ). Taxpayers do not have to itemize to take the deduction.

The deduction begins to phase out when the taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ).

Qualified overtime means overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of1938 that is in excess of the regular rate at which the individual is employed.

Employers must separately account for the amount of qualified overtime compensation paid to the employee. NOTE: The IRS issued transition relief in Notice 2025-62 that grants relief to employers if they do not furnish a separate accounting of Overtime Pay ONLY for 2025.  

Auto Logs

Deductions for business automobile expenses should be substantiated with a contemporaneous mileage log, whether the actual or standard mileage rate is used to determine the deduction.  We have seen deductions denied upon audit because the log was not kept up throughout the year.  The IRS position is that in order to deduct those expenses taxpayers must follow the documentation rules.

Bonus Depreciation

The new law permanently extends the 100% expensing of all eligible property purchased after January 19,2025.  For property placed into service before January 19, 2025, the taxpayer may elect to have the prior law of 40% limit apply.

Section 179 Expensing

The Section 179 deduction for qualified property placed into service in 2025 is $2.5 million, adjusted annually for inflation. The Section 179 investment limit is $4 million, adjusted for inflation.  

Qualified Production Property Depreciation:  For property placed in service after July 4, 2025, a new class of property called qualified production property is eligible for expensing 100% of its adjusted basis rather than depreciating over 39 years. Qualified production property is nonresidential real property that is used by the taxpayer in a qualified production activity located in the United States and whose original use begins with the taxpayer.  Qualified production property does not include space that is used for offices, administrative services, lodging, parking, sales activities, research activities, or other functions unrelated to the manufacturing, reproduction or refining of tangible personal property.

Employer Credit for Paid Family and Medical Leave:  An employer tax credit ranging from 12.5% to 25% of wages paid while the employee is on family and medical leave is allowed. Paid leave must be designated for one of the following purposes:

·        The birth or care of a child.

·        Adoption or foster care of a child.

·        Caring for a spouse, child, or parent with a serious health condition.

·        An employee’s serious health condition that makes the employee unable to perform their job.

·        A qualifying necessity arising out of the fact that a spouse, child, or parent is a member of the U.S. Armed Services and is on covered active duty.

·        Caring for a service member with a serious injury or illness if the employee is the spouse, child, parent or next of kin for the service member.

The law permanently extends this provision and includes insurance policy premiums in regard to paid family and medical leave as qualifying for the credit.  The law also includes a minimum 20-hourwork-per-week requirement for qualifying employees.

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