Business Owners: 2025 Trump Tax Updates Explained -part 2

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Key Highlights:

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

• In part 2 today, we’ll examine the potential affects on different business structures.

• BONUS - At the end we’ll have a detailed video on all relevant proposed tax changes that may affect both business owners and personal tax filings.

Impact Analysis by Business Structure

Limited Liability Companies (LLCs)

LLCs, which can elect to be taxed as sole proprietorships, partnerships, S-corporations, or C-corporations, face varying impacts depending on their tax election:

Potential Benefits

• Permanent 20% QBI deduction for pass-through income

• Potential access to 15% corporate rate if manufacturing-focused and electing C-corporation status

• Restored bonus depreciation for equipment purchases

• Simplified tax planning with permanent provisions

Potential Challenges

• Increased complexity in determining optimal tax structure

• Potential tariff impacts on supply chains

• Uncertainty during legislative process

• Possible limitations based on industry type or income level

S-Corporations

S-corporations, which pass corporate income, losses, deductions, and credits through to shareholders, would see several significant changes:

• QBI Deduction Extension: Continued access to the 20% deduction on qualified business income

• Reasonable Compensation Requirements: Likely continued IRS scrutiny on salary vs. distribution allocations

• Potential Corporate Structure Reconsideration: Some S-corporations may evaluate converting to C-corporation status if engaged in manufacturing and eligible for the proposed 15% rate

• Capital Investment Incentives: Restored bonus depreciation would benefit capital-intensive S-corporations

Sole Proprietorships

The smallest business entities, sole proprietorships, would experience several key impacts:

• QBI Deduction: Continued access to the 20% deduction on business income

• Individual Tax Rates: Benefit from extension of lower individual tax rates that apply to business income

• Self-Employment Tax: No proposed changes to the self-employment tax structure

• Simplified Accounting Methods: Potential expansion of cash method accounting eligibility

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Industry-Specific Impacts

Trump's proposed tax changes would affect industries differently, with some sectors positioned to benefit more than others:

Manufacturing

• Reduced Corporate Rate: Potential 15% rate for domestic manufacturing

• Capital Investment Incentives: Restored 100% bonus depreciation

• R&D Expensing: Immediate deduction for research costs

• Tariff Considerations: Potential increased costs for imported components

Service Industries

• QBI Deduction: Permanent extension of the 20% deduction

• Specified Service Business Limitations: Potential relaxation of restrictions

• Tip Tax Exemption: New benefit for service businesses with tipped employees

• Individual Rate Extensions: Continued lower rates on pass-through income

Real Estate

• QBI Deduction: Continued eligibility for the 20% deduction

• Interest Deduction Limitations: Potential modifications to current restrictions

• Depreciation Rules: Potential changes to residential and commercial property depreciation schedules

• 1031 Exchanges: Likely continuation of like-kind exchange provisions

Technology

• R&D Expensing: Immediate deduction rather than five-year amortization

• International Tax Provisions: Potential modifications to GILTI, FDII, and BEAT provisions

• Intellectual Property Considerations: Potential incentives for IP repatriation

• Startup Provisions: Possible expansion of startup expense deductions

Both Business and Personal Proposed Tax changes

Watch for part 3 next week! We’ll discuss the practical steps business owners can take to prepare.