What Your CPA Wants You to Know
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What Your CPA Wants You to Know
94. Tax Law Updates to Know for Business Owners
This episode highlights significant upcoming tax changes for 2025 that every business owner should be aware of!
• Discussion of the BOI report saga
• Overview of major tax changes impacting 2025
• Depreciation Changes business owners should plan for.
• Estimated Tax Payments and the new penalties!
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In the past we had said pay it, don't pay it. The penalty is pretty small. It's not really that big of a deal. You might be earning more on your interest from your savings account by leaving it in there than the penalty anyway. Well, that's not really the case anymore. Welcome to what your CPA Wants you To Know.
Speaker 2:Tax and accounting help can be expensive, so we've created this podcast to help guide you through it all and make you feel like you have a CPA in your back pocket. I'm Carson Sands and I'm Taryn Sands.
Speaker 1:I'm a CPA with over 10 years of experience helping people start and grow their businesses.
Speaker 2:And I'm an MBA with a specialization in marketing and entrepreneurship. Taxes suck and we want to make sure you don't pay more than your fair share.
Speaker 1:We're here to share everything your CPA wants you to know in a fun and easy to understand way. Let's get started.
Speaker 2:Let's do it. Hello, hello. Tax season is now in full swing, so Carson will probably be acting a little bit weird, but that's okay. Also, he gave me a funny look, so also this episode is kind of boring, I think, but necessary. We're just going to go through, as quick as we possibly can, just the tax changes that you need to be aware of for 2025. So there's always a ton of changes. I don't think most people are aware of most of them. That's what our job is for, but it does definitely confuse people, because one year they'll think that they can do something and they can, and the next, next year, changes. So that's why it is important, especially as a business owner, to keep track of some of these changes. So we're going to bring to light some of the ones you should know about. But first, our last episode was about the BOI report saga and it was saying that you don't have to file it, but actually now you do.
Speaker 1:Guess who's back Back again BOI report's back, Tell your friends but really tell your friends that own businesses or even that don't own a business but have a rental property in an LLC. Tell them the BOI report is back on and if you haven't filed it yet, please file it, so they didn't charge you a whole lot of penalties, which I'm pretty sure is the whole reason that they have the stupid boi report in the first place yes, I think so.
Speaker 2:Big penalties if you don't file.
Speaker 1:The new filing deadline is march 21st march 21st of 2025, in case you're listening to this in the future so that's very, very quickly.
Speaker 2:Make sure that you file and, like we said, being funny, but for real, tell everyone because a lot of people didn't realize that that means, like LLCs that they've set up in the past, that they're not really doing anything. With Every LLC that you have that's active, you need to file a BOI report for.
Speaker 1:And let me tell you something about the BOI report. This is probably the fifth time they've gone back and forth on you do have to file it, you don't have to file it. So you do have to file it again as of February 18th 2025, and it's due March 21st. But let me tell you why. It's super unfair. I met a lady that she had a husband who had an LLC with three other guys or two other guys there was three of them total and he died her husband and one of the other guys died and then the third partner in that thing told her about it, like basically on his deathbed. And so that's how she found out that she owns this LLC because obviously she inherited it.
Speaker 1:According to the rules, there's not really any forgiveness for someone in that situation. I mean, maybe they won't enforce it that strictly and maybe they'll forgive that kind of penalty in that situation, but I mean, that's not what the rules say. So it is really concerning. Just try to make sure you know of everyone that has an LLC. Remember all of your LLCs or any other corporations that you have, and try to get this filed for those, because the penalties stack up pretty fast.
Speaker 2:Yeah, I'm interested to see how they're going to actually execute all of that the penalties and figuring out who didn't file, and all of that, because they've done a really poor job of letting people know that they need to file it in the first place. So we will see. I'm sure we'll have yet another update on the BOI at some point.
Speaker 1:The next time they cancel it.
Speaker 2:Or penalties start rolling out. So more to come on that, but let's dive into the changes that you need to know for 2025.
Speaker 1:Right. So 2025, the taxes and the rules will be pretty similar. Not a lot of changes specifically, but these are things that are important to know for 2026 and go ahead and start thinking about as the year ends, because most of the things from the TCJA or the Tax Cuts and Jobs Act ends at the end of 2025. Now, that was part of Trump's administration and he's back in office, so there's a chance they'll extend it. I hope they do, but if they don't, then these are some of the things that will change. The tax brackets will go back up, so about 3% to 4% increase in income tax.
Speaker 1:For a lot of people, the QBI Qualified Business Income Deduction goes away. That's where, if you have anything besides a C-Corp, an S-Corp, a partnership or a Schedule C business gets a 20% deduction on their tax return, and that 20% it's 20% of your profit from your business, so that's a really nice deduction, especially if you have a business that makes a lot of money. The standard deduction will be cut in half because it was doubled basically whenever the TCGA happened, which could be a problem now if you have a lot of itemized deductions. Property taxes and mortgage interest has gone up a lot in the last few years. That might offset that If you itemize your deductions you might be able to get almost as much as you were getting on that standard deduction. So the one positive is that that limit of $10,000 on your property taxes or state income taxes for itemized deductions that goes away. You can go back to deducting however much you pay. If you pay $40,000 for property taxes you can deduct it.
Speaker 2:Is that for all houses?
Speaker 1:Yes, actually there's limits on the mortgage interest and the number of you can deduct it. Is that for all houses? Yes, actually there's limits on the mortgage interest and the number of houses you can deduct mortgage interest for. But the old rules and who knows what they'll do but the old rules allowed that you could. If you had four vacation homes, you could deduct the property taxes from all of them.
Speaker 2:All right.
Speaker 1:And, of course, the other big change is that depreciation will change. That's already been changing, as you know. Up until 2022, you were able to do 100% bonus depreciation, just meaning any major assets that you purchased, you could deduct the full cost in the year that you purchased them, which was great. In 2023, that went down to 80%, and for 2024 tax filings it's down to 60%, and now, planning for your 2025 tax year, it's going down to 40% and then, of course, down to 20% for 2026.
Speaker 2:And it's phasing out completely as a plan.
Speaker 1:After that, yes, and so that just means that a couple of important things. Of course you won't get as large of a deduction for your equipment purchases and things like that. Necessarily you may with section 179, which we'll talk about in a minute but you won't get those big deductions. And it also means some other things, like if you are trading vehicles a lot, then you might be in a situation where your vehicle has gone down in value but you've depreciated the whole thing and now you're going to have a big gain when you trade that in and you won't have the corresponding offset of the new vehicle because you don't get to deduct it all in the first year. So you could be in a situation where you trade in a vehicle and buy a more expensive vehicle and still end up paying tax on that transaction. A more expensive vehicle and still end up paying tax on that transaction. So maybe talk to your CPA before you make that trade just to make sure it's not going to bite you in the butt.
Speaker 2:Right, this sounds a little bit confusing, but that's the best. Advice is if you're going to trade in a vehicle, especially if you're making quick trades, talk to them first so that you know what the tax consequences are before you do that, just because all of these rules have changed and it's not what you're used to in the past.
Speaker 1:Now, on that note, there is still Section 179 depreciation. It's very similar in that you get to deduct 100% of the cost of the asset that you buy in the year that you buy it. But where it's different than the bonus depreciation is that you have a lot of limitations on there. For example, the most important one is if you have a loss, you can't use section 179. You can't increase a loss with section 179. You can only bring your income down to zero. And so now that might not seem like a big deal because you're like well, if I don't make any money, I won't pay any taxes. Well, sometimes people have multiple businesses and they're using these losses generated from massive depreciation on one business to offset a whole lot of profit on another business, and this might just mean that you shift which business you buy those assets through. There's some things you can do. That would make a really big difference if you just talk to your CPA before you make those purchases.
Speaker 2:All right, what's next?
Speaker 1:And the last big change we've mentioned before. It's already happened, but some people still aren't doing this. So the estimated tax penalty. If you don't make estimated tax payments through the year and you have income where there's no withholding not a W-2, something like a business or rental income or anything like that you're supposed to pay quarterly to the IRS what you might owe for the year and if you don't, they charge you a penalty. In the past we had said pay it, don't pay it. The penalty is pretty small. It's not really that big of a deal. You might be earning more on your interest from your savings account by leaving it in there than the penalty anyway. Well, that's not really the case anymore. The interest rates have gone up and, as such, the IRS has increased that estimated tax penalty. It's around 7%, so most people aren't getting that in a savings account. It stings quite a bit more now. So I would recommend that you do pay those estimated tax payments through the year to avoid that extra penalty.
Speaker 2:Yeah, so our advice is changing on that. So if you listen to previous episodes from a while back, then now we say make your estimated tax payments.
Speaker 1:Right, and that's not really a change of principle, it's just the math. Paying less than 3% in penalty when you can have a 4% savings account is fine really, but paying 7% when the best savings accounts out there aren't even paying 5%, it just doesn't really make sense.
Speaker 2:Well, that wraps up this very super exciting episode about tax law changes, but really not too many for this year moving forward yet If there's anything big, we'll definitely have another podcast episode, but we thought these were the most important things to point out for people listening to this podcast. So until next time, thank you so much for listening to.
Speaker 1:What your CPA Wants you to Know.
Speaker 2:Podcast.
Speaker 1:This podcast is intended to provide accounting and tax information for educational purposes only. All tax situations are unique and should be handled with the assistance of a tax professional.