Taxes are always shifting, and just when you think you’ve got things figured out, a deduction disappears, or a new rule gets thrown into the mix. That’s just how it goes with tax laws—they’re constantly evolving.
As we step into 2025, there are some important tax changes that Texas small business owners need to keep on their radar. Keeping up with these updates isn’t just about staying compliant; it’s about making smart financial decisions and avoiding any unwanted surprises from the IRS.
Here’s what’s changing this year and what it could mean for your business:
Expiration of Small Business Deduction (Section 199A)
Since 2018, small businesses structured as pass-through entities—like sole proprietors, partnerships, and S corporations—have been able to deduct 20% of their qualified business income (QBI) under Section 199A. The QBI deduction provided a much-needed tax break for struggling businesses, though income limits and phaseouts were applied to certain industries.
However, this deduction was always set to expire at the end of 2025, as stated in the signed law, and lawmakers are discussing whether to extend or modify the provision. However, assuming Congress fails to act upon it this year, the QBI deduction shall no longer be effective in 2026.
Bonus Depreciation Phase-Out Continues
For years, businesses could immediately deduct 100% of the cost of qualifying equipment and property, thanks to bonus depreciation. Phase-out started in 2023 and keeps declining in 2025; the former 100% deduction dropped to 40% until it is totally phased out by 2027. The rate of decrease is 20%, so by 2026, the deduction further drops to 20% from 40% in 2025. However, the proposed Build It in America Act aims to continue the 100% deduction should it be signed into law.
Retirement Plan Contribution Limits Increase
Small business owners have used 401(k) and IRA plans to attract and retain top talent as it provides employees with retirement security. Higher contribution limits help businesses support their employees’ financial futures while also lowering taxable income. To keep up with inflation, the IRS regularly adjusts these limits, ensuring retirement plans stay competitive and effective. These increases make it easier for both business owners and employees to save more over time.
For 2025, the 401(k) contribution limit rises to $23,500, while those aged 60-63 can make catch-up contributions of up to $11,250. This means more pre-tax dollars can go toward retirement, offering long-term financial benefits. Since this adjustment happens automatically and doesn’t need congressional approval, business owners don’t have to wait for policy changes. Still, it’s a good time to reassess retirement benefits and encourage employees to take full advantage of the increased limits.
Inflation Adjustments Affecting Small Businesses
Each year, the IRS adjusts tax brackets, deductions, and credits to keep inflation from quietly pushing taxpayers into higher tax rates. The most notable change is the increase of standard deduction to $15,000 for single filers (previously $14,600) and $30,000 for married couples (previously $29,200), which is good news given the rising costs of goods and services.
The Earned Income Tax Credit (EITC) also rises to $8,046, offering indirect benefits to businesses that employ lower-wage workers. Since these updates happen automatically, they don’t require congressional approval, but they still play a role in tax planning. Even small changes can add up, making a noticeable difference in overall tax liability. Business owners should factor these updates into their financial planning to make the most of available deductions.
Texas Franchise Tax Exemption Increase
Texas has always been a business-friendly state because of its franchise tax exemption for small businesses. Previously, businesses with less than $1 million in revenue didn’t have to pay this tax, helping small companies cut costs. In 2024, that threshold jumped to $2.47 million, exempting even more businesses from filing. This change also eliminates the No Tax Due report requirement, making compliance easier for those who qualify.
Unlike federal tax laws that depend on congressional approval, this Texas exemption is already in effect and won’t change unless state lawmakers decide otherwise. For small business owners, that means fewer tax filings and lower administrative burdens. If you were previously required to file franchise tax paperwork, it’s worth checking to see if you’re now exempt. With fewer tax obligations, business owners can focus more on growth instead of compliance.
Online Marketplace and Digital Goods Taxation
For years, Texas businesses selling digital products and services dealt with inconsistent sales tax rules. Some items, like e-books and online courses, were taxed, while others weren’t, leaving businesses and customers unsure of what applied. To fix this, Texas expanded sales tax enforcement on digital goods and online marketplace transactions starting in 2025.
Unlike some federal tax changes that are still up for debate, this rule is already in effect at the state level. Business owners should check Texas Comptroller guidelines to ensure they’re handling sales tax correctly. Staying ahead of these updates can help businesses avoid penalties and unexpected tax liabilities.
Stay on Top of Your Texas Business Taxes—And Keep More of Your Money
Tax laws change often, and keeping up can be a challenge—especially when you’re focused on running your business. But staying compliant isn’t just about avoiding IRS headaches—it’s also about making sure you’re not overpaying.
At Virjee Consulting, we help Texas small businesses save an average of $20,000–$50,000 when they make the switch to us. We work year-round to build a proactive tax strategy, using advanced tax planning and industry-specific deductions to reduce your tax burden.
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Until next time!
