How U.S. Tax Changes at the End of 2025 Could Impact Businesses and Strategic ResponsesPosted on Feb 20, 2025

Key Tax Provisions Set to Expire

• Qualified Business Income (QBI) Deduction

Currently, pass-through entities like partnerships, LLCs, S corporations, and sole proprietorships are eligible for a 20% deduction on qualified business income from personal income taxes. However, this deduction is scheduled to expire at the end of 2025, potentially increasing tax burdens for these businesses.

• Bonus Depreciation

The 2017 Tax Cuts and Jobs Act (TCJA) allowed businesses to fully deduct the cost of qualifying fixed assets, such as machinery, immediately in the year of purchase. However, this benefit is being phased out gradually—dropping to 40% in 2025—and will be completely eliminated by 2027.

• Research and Experimentation (R&E) Expense Treatment

Starting in 2022, R&E expenses can no longer be fully deducted in the year they’re incurred. Instead, they must be capitalized and amortized over five years. This policy will remain in effect beyond 2025.

• Interest Deduction Limitation

The TCJA also introduced limits on how much businesses can deduct in interest expenses, capping deductions at 30% of EBITDA. Since 2022, the limitation has become stricter, now based on EBIT (excluding depreciation and amortization), reducing the deductible amount even further.

Potential Business Impacts and Strategic Responses

These tax changes could directly affect after-tax profitability, cash flow, and investment decisions. To stay ahead, businesses should consider the following strategies:

• Analyze the Impact of Tax Changes

Conduct a thorough assessment to understand how the expiration of these tax benefits could affect your financials and anticipate potential increases in tax liability.

• Reevaluate Investment Plans

With bonus depreciation being phased out, companies should revisit their capital investment strategies and adjust the timing of major purchases if necessary.

• Manage R&E Costs Effectively

Prepare for changes in cash flow caused by the capitalization of R&D expenses by developing a robust financial strategy.

• Restructure Debt Strategically

Review and adjust debt structures in anticipation of stricter interest deduction limits, ensuring an optimized capital structure.

• Leverage Available Tax Credits

Take full advantage of available tax credits—such as R&D and renewable energy credits—to help offset increased tax burdens.

• Establish a Global Tax Strategy

Consider how U.S. tax changes might affect your international operations and reassess global transaction structures accordingly.

• Strengthen Cash Flow Management

Implement financial measures to prevent cash flow issues from higher tax costs, including better inventory management and shortening accounts receivable collection periods.

• Stay Informed on Government Support Programs

Closely monitor new government support programs or incentives and proactively apply for those that are relevant.

The tax changes set to take effect at the end of 2025 could pose significant challenges for businesses with global operations. Companies in industries deeply connected to the U.S. economy—such as manufacturing, technology, and renewable energy—need to prepare thoroughly.

It’s essential to accurately assess the impact of these changes and develop strategies to minimize potential risks. Working closely with tax experts and strengthening your internal financial team will also be key steps.

These upcoming changes don’t just represent an increase in tax liability—they could also offer an opportunity for strategic restructuring. Companies that respond proactively can not only mitigate risk but also enhance their competitiveness and drive sustainable growth.