7 Practical Steps Small Business Owners Should Take Now to Prepare for 2025 Trump Tax Changes -part 3

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Key Highlights:

• In part 1 Tuesday May 13th we discussed the proposed tax changes for small business owners.

• In part 2 Friday May 16th we examined the potential affects on different business structures.

• In part 3 today, we’ll summarize the core changes and discuss the 7 practical steps business owners can take to prepare.

Core Changes

7 Practical Steps to Prepare for 2025 Tax Changes

Now that you understand the potential changes and have assessed their impact on your business, it's time to take concrete action. Here are seven practical steps every small business owner should consider implementing before the 2025 tax changes take effect.

Step 1: Review Your Business Structure

With potential changes to corporate tax rates and pass-through entity deductions, now is the time to evaluate whether your current business structure remains optimal for tax purposes.

Action Items:

• Schedule a consultation with your tax professional to compare tax liabilities under different entity structures

• Calculate the potential impact of the 15% corporate tax rate if you manufacture products domestically

• Assess whether converting from a pass-through entity to a C-corporation (or vice versa) would be beneficial based on proposed changes

Real-World Example: A manufacturing business with $1.2 million in annual revenue could save approximately $72,000 in taxes by switching from an S-corporation to a C-corporation if the 15% corporate tax rate for domestic manufacturing is implemented.

Step 2: Accelerate or Defer Income Strategically

Timing is everything when it comes to tax planning. With potential rate changes on the horizon, strategically accelerating or deferring income could yield significant tax savings.

For Income Acceleration:

• Invoice clients earlier to recognize income in the current tax year if rates are expected to increase

• Collect outstanding receivables before year-end

• Consider converting traditional IRAs to Roth IRAs if personal tax rates are expected to rise

For Income Deferral:

• Delay sending invoices until the new year if tax rates are expected to decrease

• Maximize contributions to tax-deferred retirement accounts

• Consider installment sales for major assets if beneficial under the new tax regime

Strategic Insight: If you expect the corporate tax rate to drop to 15% in 2025, deferring income into that tax year could result in substantial savings. For a business with $500,000 in taxable income, deferring just 20% of that income ($100,000) from 2024 to 2025 could save $6,000 in taxes if the rate drops from 21% to 15%.

Step 3: Audit Your Deductions and Credits

With potential changes to deductions and credits, conducting a comprehensive audit of your current tax benefits is crucial to maximize savings before and after the 2025 changes.

Focus Areas:

• Review equipment purchase plans in light of potential changes to Section 179 expensing and bonus depreciation

• Document R&D activities meticulously to prepare for potential changes to R&E expense treatment

• Identify industry-specific tax credits that may be affected by the proposed changes

"The difference between tax avoidance and tax evasion is the thickness of a prison wall. The key is to be proactive but compliant in your tax planning strategy."

— Tax planning maxim

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Step 4: Update Payroll Systems for Potential Changes

If the proposed elimination of taxes on tips and overtime pay is implemented, your payroll systems will need significant updates. Preparing now can prevent compliance issues later.

• Consult with your payroll provider about their readiness for potential 2025 tax changes

• Create separate tracking mechanisms for tips and overtime pay in your payroll system

• Develop a communication plan to inform employees about potential tax benefits

• Review and update employee handbooks and compensation policies to reflect potential changes

Step 5: Consult a Tax Professional ASAP

The complexity of these potential tax changes demands professional guidance. Scheduling a consultation with a tax professional, at your earliest, before the end of 2025 will give you some time to implement strategic changes.

Preparation Checklist:

• Gather at least two years of tax returns for review

• Prepare a list of specific questions about how the 2025 changes might affect your business

• Bring financial projections for 2025-2026 to facilitate strategic planning

• Request a written tax planning strategy document with specific action items

Don't Wait! Tax professionals will be overwhelmed as 2025 comes to a close. Scheduling your consultation earlier ensures you'll have time to implement recommended strategies before year-end deadlines.

Step 6: Create Scenario-Based Financial Projections

Developing multiple financial scenarios based on different potential tax outcomes will help you make informed decisions regardless of which changes are ultimately implemented.

Scenario 1: Full Implementation

Model your financials assuming all proposed Trump tax changes are implemented, including the 15% corporate rate, extended QBI deduction, and elimination of taxes on tips and overtime.

Scenario 2: Partial Implementation

Create projections assuming only some changes are implemented, such as the extension of TCJA provisions without new proposals.

Scenario 3: No Implementation

Develop a contingency plan assuming no changes are implemented and TCJA provisions expire as scheduled.

Step 7: Consider Advocacy and Lobbying Options

Small business owners have a collective voice that can influence tax policy. Engaging with industry associations and advocacy groups can help ensure your interests are represented as these tax changes are debated.

• Join industry-specific associations that advocate for small business tax interests

• Participate in small business advocacy days organized by the Small Business Administration

• Contact your congressional representatives to share how proposed tax changes would affect your business

• Collaborate with other small business owners in your community to amplify your message

Conclusion: The Time to Act Is Now

The 2025 Trump tax changes represent both opportunities and challenges for small business owners. By taking proactive steps now, you can position your business to minimize tax liabilities and maximize available benefits regardless of which proposals are ultimately implemented.

Remember that tax planning is not a one-time event but an ongoing process. Regular consultations with tax professionals, staying informed about legislative developments, and maintaining flexibility in your financial strategy will be key to navigating the evolving tax landscape.

Don't be among the 72% of small business owners who are unprepared for these significant changes. Start implementing these 7 practical steps today to ensure your business is ready for whatever tax changes 2025 brings.