New Small Business Tax Laws You Need to Know

Federal and state tax laws for small businesses are frequently revised by new legislation and IRS guidance. These changes can introduce new compliance duties, alter tax strategies, and create opportunities for savings. For a small business owner, staying current with these rules is essential for sound financial management.

Understanding new tax provisions allows a business to avoid non-compliance penalties and leverage new credits and deductions. This knowledge directly impacts cash flow, profitability, and long-term growth.

Key Changes to Business Credits and Deductions

One of the most impactful changes involves the scheduled reduction of bonus depreciation. Previously, businesses could deduct 100% of the cost of certain new and used assets in the year they were placed in service, but this provision is phasing out. For qualified property placed in service in 2023, the deduction dropped to 80%.

The rate decreases to 60% for property placed in service in 2024 and then to 40% in 2025. This reduction increases the after-tax cost of acquiring assets like machinery, equipment, and software, requiring businesses to adjust their capital planning. The placed-in-service date determines the applicable percentage, not the purchase date.

Another adjustment impacts how businesses account for research and development costs. Previously, companies could immediately deduct Research and Experimental (R&E) expenditures. Now, these costs must be capitalized and amortized. Domestic R&E expenses must be spread over five years, while foreign-based research costs must be amortized over 15 years.

This change significantly affects taxable income for innovation-focused businesses. Instead of a full upfront deduction, companies now deduct a portion of these expenses annually, and a mid-year convention rule makes the first-year deduction even smaller.

The Inflation Reduction Act of 2022 introduced and expanded several energy-related tax incentives. The Commercial Clean Vehicle Credit offers a credit for purchasing qualified electric or fuel cell vehicles, providing a direct reduction in tax liability. The credit is worth up to $7,500 for vehicles under 14,000 pounds and up to $40,000 for heavier vehicles.

The Energy Efficient Commercial Buildings Deduction under Section 179D was also enhanced. For 2025, the base deduction ranges from $0.58 to $1.16 per square foot. If prevailing wage and apprenticeship requirements are met, the deduction increases to a range of $2.90 to $5.81 per square foot, with amounts tied to the level of energy efficiency improvement.

Updates Affecting Employee Compensation and Retirement Plans

The SECURE 2.0 Act of 2022 introduced tax credits to help small businesses offer retirement plans. For businesses with 50 or fewer employees, the tax credit for retirement plan startup costs is 100% of eligible expenses, capped at $5,000 per year for three years. This helps offset the administrative costs of establishing a new 401(k) or similar plan.

For businesses with 51 to 100 employees, the credit is 50% of startup costs, up to the same $5,000 annual cap. SECURE 2.0 also created a new credit for employer contributions made during the first five years of a new plan.

For employers with 50 or fewer employees, the credit covers a percentage of contributions for employees earning up to $100,000 annually. The credit is 100% of employer contributions (up to $1,000 per employee) in the first two years, then phases down to 75%, 50%, and 25% in the following three years.

The Employee Retention Credit (ERC) has entered a new compliance phase. After a moratorium on claims filed after September 14, 2023, the IRS is now processing its backlog with increased scrutiny to identify fraudulent or high-risk filings. The agency continues its enforcement focus and previously established special programs for businesses to withdraw improper claims. Any business that claimed the credit must ensure its eligibility is well-documented to mitigate compliance risks.

New Information Reporting and Compliance Mandates

New regulations have introduced requirements for businesses to report information to the federal government. One change involves the reporting threshold for Form 1099-K, used by payment apps and online marketplaces to report payments for goods and services. A provision in the American Rescue Plan Act of 2021 lowered this threshold, but the IRS has delayed full implementation.

For the 2024 tax year, a transitional threshold of $5,000 is in effect. The agency plans to implement a $600 threshold for 2025, but businesses should monitor official guidance.

The Corporate Transparency Act requires most small businesses to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This is a non-tax filing, separate from any tax return. A beneficial owner is an individual who exercises substantial control over the company or owns at least 25% of it.

The report must include the owner’s:

• Full legal name
• Date of birth
• Address
• Identifying number from a passport or driver’s license

Companies created before January 1, 2024, must file by January 13, 2025. Companies created in 2024 have 90 days to file, and those created on or after January 1, 2025, must file within 30 days. Willful failure to comply can result in civil and criminal penalties, including fines and imprisonment.

The framework for reporting digital asset transactions is being formalized. New regulations will require brokers facilitating cryptocurrency transactions to issue Form 1099-DA, Digital Asset Proceeds From Broker Transactions. This requirement begins for transactions on or after January 1, 2025, with the first forms sent in early 2026. The rule will increase the tax visibility of cryptocurrency activities for businesses that use digital assets.