Navigating 2025 Tax Changes: What Construction Contractors Need to Know

The tax rules for construction businesses are changing, and it’s important to stay ahead. Several tax breaks from the Tax Cuts and Jobs Act (TCJA) are being reduced or will expire by the end of 2025. These changes could affect your finances, but with good planning, you can minimize the impact and even find new opportunities. Here’s a simple breakdown of what’s changing and what it means for your business.

Bonus Depreciation
Bonus depreciation lets businesses quickly write off the cost of buying equipment and machinery. But in 2025, the deduction drops to 40%, goes down to 20% in 2026, and will disappear completely by 2027. If you’re planning to buy new equipment, consider doing it sooner rather than later to take advantage of the remaining deductions.

Qualified Business Income (QBI) Deduction
The QBI deduction allows businesses like sole proprietorships, partnerships, and S-corporations to deduct up to 20% of their income. This valuable tax break is set to expire at the end of 2025. Without it, some contractors could face higher taxes. Now is a good time to sit down with a tax expert to explore how this change might affect you and if adjusting your business setup could save money.

Individual Tax Rates
For those running businesses where income flows directly to their personal taxes, there’s another change to watch. The top personal tax rate, currently 37%, will increase to 39.6% after December 31, 2025. This could mean higher personal tax bills for many contractors. Planning ahead with a tax advisor can help you reduce the impact by exploring ways to lower your taxable income.

State and Local Tax (SALT) Deduction Cap
Right now, the SALT deduction is limited to $10,000, but this cap is set to expire after 2025. If that happens, you might be able to fully deduct state and local taxes again, which could lower your overall tax bill. Keeping an eye on these changes and working with a tax professional can help you make the most of any new opportunities.

Paid Family and Medical Leave Tax Credit
If your company offers paid family and medical leave, you may be eligible for a tax credit. However, this credit will expire at the end of 2025. Reviewing your employee benefits now can help you plan for the future and figure out how to maintain competitive benefits without the credit.

What You Can Do Now

  • Talk to a Tax Professional: Every business is different, so get advice that’s tailored to your situation.
  • Plan Equipment Purchases: If you’re planning to buy new equipment, doing it in 2025 can maximize your tax savings.
  • Review Your Business Structure: With the QBI deduction expiring, it’s worth checking if your current setup is still the best choice.
  • Stay Informed: Tax laws can change. Keeping up with the latest updates ensures you’re ready to adapt.

While these changes may sound overwhelming, they also offer a chance to fine-tune your financial strategy and plan for a stronger future. With the right preparation, you can navigate these updates smoothly and keep your business moving forward.

If you have questions or need help making sense of it all, our team is here to help. Let’s make sure you’re ready for what’s ahead!

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