2025’s Top Tax Issues for Businesses and Individuals

Article Summary

The One Big, Beautiful Bill Act holds significant tax implications for both businesses and individuals.
The OBBBA reshapes numerous federal tax credits and incentives.
State and local tax liabilities are increasing for Fortune 100 companies, startups and everyone in between.

What to Expect in 2025

Americans are facing deep economic uncertainty in 2025. With a major tax and spending package recently signed, tariff frameworks shifting rapidly and the global economy in flux, it’s important to know what you can expect this year and stay on top of long-range tax planning.

Here’s a roundup of today’s top tax issues, along with strategies to help you prepare for their myriad implications and anticipate their effect on your bottom line.

One Big, Beautiful Bill Versus the Tax Cuts and Jobs Act

After much wrangling, lawmakers in Washington managed to pass new legislation that extends many Tax Cuts and Jobs Act (TCJA) provisions and modifies others. The One Big, Beautiful Bill Act (OBBBA) holds significant tax implications for both businesses and individuals. Some highlights include:

Qualified Business Income deduction. The Section 199A Qualified Business Income (QBI) deduction is now permanent, with a minimum deduction of $400 if you have QBI of $1,000 or more. This means owners of pass-through businesses will continue to receive a 20% deduction of their qualified business income.
Bonus depreciation. The 100% bonus is in effect again for any assets placed in service after January 19, 2025. Assets before this date would be subject to the bonus sunset provisions under the Tax Cuts and Jobs Act.
Section 179 expensing. Under OBBBA, small and mid-sized businesses deduct up to $2.5 million in capital expenditures right away. The higher limit begins to phase out for companies with earnings of $4 million and above. The $4M phaseout is based on qualifying purchases (asset purchases) instead of earnings of the company. The deduction is phased out once these purchases reach $6.5M.
Interest expense deduction limitation. The limitation on deductions for interest expenses created higher tax bills for many companies, especially capital-intensive businesses and those with private equity debt to fund acquisitions. If that describes you, here’s some good news: OBBBA restores the earlier cap based on EBITDA, so you’ll be able to claim the full depreciation amortization again starting in 2026. Your amortization and depreciation will be added back to your taxable income for purposes of calculating your annual interest expense limitation under section 163(j) of the Internal Revenue Code.
Higher 1099 reporting threshold. Long established at $600, the reporting threshold for nonemployee payments will rise to $2,000 beginning in 2026, with annual adjustments for inflation in future years. The higher rate applies to Forms 1900-NEC, 1099-MISC and other IRS forms that report payments subject to backup withholding.
Personal income tax rates. Along with a higher, inflation-indexed standard deduction ($31,000 for joint filers in 2025), OBBBA makes permanent TCJA’s lower individual income tax rates. The highest rate stays at 37%.
New tax incentives for employees. The bill offers a temporary deduction of up to $12,500 ($25,000 for joint filers) for overtime pay and up to $25,000 per person in tip income during tax years 2025-2028. Commuters can also claim a deduction for interest on auto loans (New U.S.-built vehicles only) in the same period, while seniors 65 and above with adjusted gross income under $75,000 ($150,000 for joint filers) can deduct $6,000 per qualifying individual.

Research and Development Tax Credits and Section 174

Section 174 and its impact on research and development (R&D) expensing has been one of TCJA’s most controversial provisions. Originally included as a cost-cutting measure that would never go into effect, Section 174 rules survived to become a costly thorn in the side of startups, software developers and other research-intensive businesses — a problem that is now going away.

A return to immediate expensing for domestic R&D. OBBBA amends the rules by introducing Section 174A, which allows immediate expensing of domestic R&D costs beginning with the 2025 tax year. If you’re considering a development project, product improvement effort or new product, this move could provide added incentive to pull the trigger.
Changes to the 280C election. The choice to make a 280C election to take the net credit is relevant again. This election allows you to avoid the convoluted bookkeeping issues that occur when adding R&D expenses back to your taxable income before deducting them again. OBBBA tweaks the rules such that if you’re still eligible for a 280C election, you’ll need to consider whether it’s more beneficial to make the election or not.
Retroactive R&D expensing. If your company had 2024 gross receipts of less than $29 million, you have the option to amend earlier tax returns. Businesses that meet the gross revenue threshold can elect to reverse pervious capitalization of R&D expenses during 2022 and subsequent tax years, adjusting your income for affected years. If you choose to do this, you’ll need to file an amended return on or before July 4, 2026.
Transition from amortization to immediate expensing. If you don’t qualify for retroactive expensing or don’t want to revisit previous years’ tax returns, don’t worry. Another option is letting earlier returns stand and deducting any unamortized amounts that remain, either 100% in 2025 or divided evenly between 2025 and 2026.
Continued requirement to capitalize and amortize foreign R&D. The rules haven’t changed for costs associated with research R&D activities you conducted in foreign countries, which require a 15-year amortization period. This distinction means it’s very important to keep meticulous and detailed records of all your R&D expenses, paying close attention to the location where work is performed. You also need to prioritize this kind of tracking because of expanded R&D reporting rules.
Expanded R&D reporting rules. Another change, unrelated to TCJA or OBBBA, adds yet more complexity to the R&D credit. The IRS has updated Form 6765 to require granular, contemporaneous information about research activities and expenses on your 2025 tax return. You’ll need to identify qualified business components to show how they relate to your research activities.

The new requirements make it essential to track your research activities carefully throughout the year. Be ready to explain how the project meets the IRS definition of R&D, summarize your research goals, provide detailed descriptions of the research activities and present activity-specific costs (e.g., wages, contract labor, overhead, supplies, equipment or leased computing).

Philanthropic Donations

New legislation alters the math of charitable donations for individuals and corporations. Some changes to be aware of include:

Limits on the value of deductions for high earners. If you’re in the 37% tax bracket, deductions for charitable donations are capped at roughly 35% of the value of your gift.
Giving floors for individuals and businesses. Donated amounts above 0.5% of adjusted gross income (for individuals) or 1% of taxable income (for corporations) will be eligible for a tax deduction, assuming the gift otherwise qualifies as tax-deductible.
A deduction for non-itemizers. The OBBBA establishes a new, above-the line tax deduction for those who make cash donations to a public charity and claim the standard deduction. The credit is worth up to $1,000 per individual and $2,000 per married couple filing jointly. Note that donations made to a donor advised fund do not qualify for this tax credit.
Tax credits for education. Donations to a qualified scholarship-granting organization that supports K-12 students may qualify for a tax credit worth up to $1,700.

Expanded Estate Tax Exemption Permanence

The OBBBA permanently raises the estate and gift tax exclusion as well as the generation-skipping tax exemption. Limits of $15 million per person become effective January 1, 2026, and will be inflation-indexed in future years. That’s good news for high-income families and individuals, who would have been severely impacted had the TCJA expired on schedule. But don’t assume that with the permanent higher exemption, you can afford to put estate taxes out of mind. Other important issues to consider include:

Estate tax exposure. Do you have a realistic understanding of your estate tax exposure under current law? Most people lack crucial awareness around the “state of the estate.” A trust and estate tax planning advisor can (and should) use advanced software and artificial intelligence to help you understand your baseline exposure using current asset values. Applying growth rates and other variables, they can then model scenarios to inform your planning.
Estate planning strategy. The estate and gift tax exemption for 2025 is $13.99 million per individual and $27.98 million per married couple, rising in 2026 and subsequent years. Strategic trust and estate planning allows you to distribute assets in alignment with your values while limiting estate tax exposure — or eliminating it in some cases. That can include annual gifting, trusts and other tools to lock in high exemptions now, in case future legislation creates less generous rules.
Cost basis considerations. If you moved certain investments into a trust years ago, you could be sitting on high-value assets with a very low tax basis (such as that Apple stock you bought at $2 a share). The capital gains on those investments will generate a substantial tax hit for your beneficiaries if they want to sell. One option is to consider moving certain assets back into your taxable estate. If the previously shielded assets pass through the estate, your beneficiaries will get a step-up in basis to reflect the assets’ current value. That means selling $2 Apple stock that’s now worth $1,000 won’t create a taxable capital gain for beneficiaries.
Portability filing. Filing IRS Form 706 is an important tax to-do item for those who suffered the loss of a spouse this year. This form allows you to transfer, or port, the deceased spouse’s exemption for your own use. Depending on the eventual size of your estate you may or may not need it, but you don’t want to waste this historically large exemption. Once it’s locked in as your own, it’ll be there even if exemptions drop in future years.

Changes to Federal and State Tax Credits and Incentives

The OBBBA is a comprehensive bill that reshapes numerous federal tax credits and incentives, with particular focus on clean energy initiatives and the Inflation Reduction Act (IRA) of 2022.

Electric vehicle (EV) incentives. Rebates and tax credits that encourage businesses and individuals to adopt EVs will end sooner than planned. Consumer credits of $7,500 for new ($7,500) and used ($4,000) EVs disappear on September 30, 2025, along with credits for EV commercial fleets. Credits for charging stations also face an early demise, with these incentives ending June 30, 2026.
Residential clean energy credits. Section 25D of the IRA incentivizes the adoption of clean energy sources with a 30% tax credit to help cover project costs. This credit and 25C, which covers energy-efficient home improvements, ends on December 31, 2025. Credits for energy-efficient new homes under Section 45L disappear June 30, 2026.
Clean energy credits for business. Tax incentives for business investment in renewables also got the axe, as did tech-neutral tax credits. Incentives under Section 45Y and 48E will begin to phase out soonest for solar and wind; to be eligible for the credit, these projects must be placed in service before December 31, 2027. Solar and wind projects that begin before July 5, 2026, must be completed within four calendar years, while credits for other technologies start winding down in 2033.
Other changes to energy credits. The OBBBA and a subsequent executive order impose new limitations on credits for advanced manufacturing with certain materials as well as projects that involve specified foreign entities. Five-year MACRS depreciation using the 5-year MACRS designation is disallowed for solar, wind and energy storage projects beginning in 2025 or later. These and other legislative changes could materially impact the tax benefit of many different types of energy-related projects.
State-level impacts. With huge reductions to federal incentives for electric vehicles and clean energies, the business case for new investment and projects focused on these technologies has changed. It’s possible that companies making large investments in EV production could pull back, upending growth and economic development in states like Alabama, Georgia, Ohio and Texas that have strongly encouraged the EV industry.

State and Local Tax Deduction Discussions

One of the major sticking points that delayed OBBBA’s passage is the federal cap on the state and local tax (SALT) deduction. In the end, they raised the cap to $40,000 from 2025 through 2029. The expanded deduction applies only to households with AGI below $500,000. This is a big win for high-income residents in states with high income tax rates, but it’s not the only important SALT issue that businesses and individuals need to think about.

Growing SALT burden. State and local tax liabilities are increasing for Fortune 100 companies, startups and everyone in between. Many states, hungry for revenue, are escalating their enforcement efforts around nexus and taxable presence. From apportionment analysis to taxability of intangibles, business leaders need to take a strategic approach to state and local tax to reduce their liabilities in today’s SALT environment.
Pass-through entity tax (PTET) workarounds. In response to the federal SALT cap, an ever-increasing number of states began creating PTET laws that let partnerships and S-corporations elect to pay state taxes at the entity level. This strategy allowed partners and PTE owners to deduct state income taxes as a business expense on federal tax returns. OBBBA as signed does not limit PTET deductions, as some proposed versions of the bill did.
State decoupling from federal tax policy. Some states, like California, decoupled from federal R&D regulations to allow immediate expensing for the purposes of state-level R&D tax credits in contrast to IRS rules. Others chose to follow the federal policy. Because amortization of these expenses over time effectively raises revenue, some states may stick with the amortization requirement even though federal law again permits immediate expensing. Tax incentives related to EVs and clean energy are other areas where certain states are likely to diverge from federal rules.

An Evolution of International Tax Rules

The tax matrix is shifting beyond U.S. borders as well, with new rules and potential changes to tariff policies adding to the perennial international tax concerns for businesses that have foreign customers, employees or operations.

Uncertain tariffs and tax rates. The threat of higher tariffs is roiling markets and alarming business leaders. Until new tariff rates become legal fact, maintaining as much flexibility as possible is your best option. That’s also good practice once rates are established, because global trade policy is dynamic under the current administration. Rather than committing to permanent changes in supply chain or operating locations, think through alternative scenarios and determine the best strategy for each one. An if/then approach will position you to act quickly as things continue to change.
New disclosure rules. What is your company’s tax liability in each jurisdiction? This is important to know because ASU 2023-09 rules go into effect for private companies on December 15, 2025. Public companies must comply with the update for periods beginning in December 2024. Under the new rules, financial statements must present disaggregated data detailing income tax obligations at each level (international, federal, state and local) and for each individual taxing authority that represents 5% or more of total income tax for a particular period — and explain any difference between the effective rate you’re paying and the statutory tax rate.
Cash flow considerations. The most important element in international tax planning isn’t the effective tax rate; optimizing cash flow should be your primary focus. How can you move and access cash in the most tax-efficient way, while supporting smooth operations and enabling sustainable growth? Understanding how tax planning fits into the operations of the company itself can help you structure international investments and activities for maximum benefit.
Compliance concerns. IRS international tax reporting requirements are complex, and one overlooked form can mean significant fines and penalties. Leaders should also be mindful of the host country’s tax rules: Be sure you understand taxable presence triggers, local filing deadlines, requirements for collecting value-added tax (VAT) or general sales tax (GST) and other tax compliance obligations.

Navigate The Tax Moment With Confidence

Tax laws are always changing — now more than ever. With so much at stake, you can’t afford to overlook the opportunities tied to a rapidly changing tax policy. Discover how our tax consultants can help you stay ahead of tax law changes with proactive updates and expert interpretation.