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Tax limits for businesses increasing in 2025

Every year, tax-related limits that affect businesses are adjusted based on inflation. In 2025, many of these limits are increasing, though at a slower pace due to cooling inflation. Here are some key updates that may impact your business.

Key Tax Deductions for 2025

Section 179 Expensing:

• Deduction limit: $1.25 million (up from $1.22 million in 2024)
• Phaseout threshold: $3.13 million (up from $3.05 million)
• Expensing limit for heavy vehicles: $31,300 (up from $30,500)

Standard Mileage Rate for Business Use:

• 70 cents per mile (up from 67 cents)

Qualified Business Income Deduction (Sec. 199A) Phaseouts Begin At:

• Married filing jointly: $394,600 (up from $383,900)
• Other filers: $197,300 (up from $191,950)

Retirement Plan Contribution Limits

401(k) Plans:

• Employee contribution limit: $23,500 (up from $23,000)
• Catch-up contribution (age 50+): $7,500 (unchanged)
• Additional catch-up contribution for ages 60-63: $11,250 (new for 2025)

SIMPLE Plans:

• Employee contribution limit: $16,500 (up from $16,000)
• Catch-up contribution (age 50+): $3,500 (unchanged)
• Additional catch-up contribution for ages 60-63: $5,250 (new for 2025)

Other Retirement Limits:

• Total employer/employee contributions to defined contribution plans: $70,000 (up from $69,000)
• Maximum compensation for contribution calculations: $350,000 (up from $345,000)
• Annual benefit for defined benefit plans: $280,000 (up from $275,000)
• Highly compensated employee threshold: $160,000 (up from $155,000)
• Key employee compensation limit: $230,000 (up from $220,000)

Social Security Tax Update

• Earnings cap for Social Security tax in 2025: $176,100 (up from $168,600 in 2024)

Employee Benefit Limits

• Qualified transportation benefits (monthly exclusion): $325 (up from $315)
• Health Savings Account (HSA) Contribution Limits:
  • Individual coverage: $4,300 (up from $4,150)
  • Family coverage: $8,550 (up from $8,300)
  • Catch-up contribution (age 55+): $1,000 (unchanged)
• Flexible Spending Accounts (FSA) Limits:
  • Healthcare FSA: $3,300 (up from $3,200)
  • Healthcare FSA rollover limit: $660 (up from $640)
  • Dependent care FSA: $5,000 (unchanged)

Potential Tax Changes to Watch

While these are the confirmed tax updates, there could potentially be additional changes in 2025 such as:

• A lower corporate tax rate (currently 21%)
• Eliminating taxes on overtime pay, tips, and Social Security benefits

These potential changes could bring significant shifts for small businesses and individuals. Staying informed can help you plan ahead and make smart financial decisions. If you have any questions, don’t hesitate to reach out to a trusted tax professional—we’re here to help! You can find your closest Padgett advisor here!

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