2025 Tax Reforms: Key Changes for Businesses and Investors.

As 2025 approaches, significant changes to federal tax law are set to impact both business operations and personal tax planning. With over 100 provisions included in the “One Big Beautiful Bill” (OBBB), the tax code will become more complex, offering new opportunities and posing new risks for business owners, investors, and dealmakers. Here’s what you need to know about these reforms, including how they affect M&A transactions, estate tax planning, and business litigation.

Key Tax Changes Affecting Businesses

1. Estate Tax Portability and Planning

• Estate tax portability allows a married decedent’s unused estate and gift tax exemptions to pass to the surviving spouse. However, this is contingent upon timely filing of Form 706.

• Starting in 2025, the lifetime estate and gift tax exemption rises to $15 million.

• Small estates that fail to file on time can request relief but need to meet strict deadlines. These changes impact business estate planning in M&A transactions, particularly for family-owned businesses.

  
  

2. Business Taxes: Schedule K-2 and K-3 Requirements

• New schedules K-2 and K-3 will be required for businesses with foreign income or assets, especially in M&A transactions where cross-border activity is involved.

• Partnerships and S corporations will need to comply with expanded reporting requirements, even for smaller businesses under $250,000 in receipts, unless they have no foreign partners.

• These new tax filing rules can lead to business litigation if compliance issues arise.

  
  

Social Security and Taxation of Benefits

3. Social Security Taxation

• Changes to the taxation of Social Security benefits have far-reaching implications for many taxpayers.

• Provisional income rules now determine whether Social Security benefits are taxable, with varying rates depending on the individual’s income and filing status.

• For business owners planning for executive compensation, these provisions may impact how benefits are structured and taxed.

  
  

Disaster Relief and Tax Deductions

4. Disaster Relief

• The OBBB and Filing Relief for Natural Disasters Act bring tax relief to businesses and individuals affected by disasters.

• Businesses can now deduct state-declared disaster losses and claim tax deductions on losses from certain 2025 events even without itemizing.

• These provisions offer a tax strategy for businesses in areas frequently impacted by natural disasters, affecting M&A decisions and business continuity planning.

  
  

IRS Enforcement and Tax Audits

5. IRS Oversight and Partnership Audits

• The IRS has increased focus on partnership audits, which could lead to greater litigation risk for partnerships with over 100 partners.

• Partners are at risk of being audited individually if IRS finds discrepancies. For businesses undergoing mergers or acquisitions, the heightened audit regime could affect valuations and due diligence.

• Taxpayers under audit risk need to be prepared for additional scrutiny on partnership returns.

  
  

Penalties for Non-Compliance

6. Appeals and IRS Penalties

• The tax code now requires written supervisory approval before imposing penalties on certain taxpayers.

• Penalties for inaccuracies in tax reporting can be mitigated if approval from IRS supervisors isn’t obtained, which impacts businesses facing audits and legal challenges from the IRS.

• Litigation related to IRS penalties is expected to rise as businesses attempt to challenge these penalty assessments.

  
  

Tax Compliance and M&A Transactions

7. M&A Strategy Considerations

• The OBBB tax changes also affect mergers and acquisitions by altering how businesses structure transactions and manage cross-border investments.

• Increased filing and reporting requirements may complicate due diligence processes and lead to post-transaction disputes if compliance isn’t carefully managed.

  
  

Conclusion: Preparing for Change

The OBBB introduces new tax breaks, but it also increases complexity for businesses. For companies planning to navigate these changes—whether through M&A, estate planning, or preparing for IRS audits—it’s essential to stay proactive.

At Spizzirri Law LLC, we specialize in helping businesses manage the evolving federal tax landscape. Whether you're navigating business tax law, structuring tax-efficient M&A transactions, or facing business litigation with the IRS, our experienced team can provide the guidance you need to stay compliant and protect your business’s future.

Thanks for reading.

MD

Reference: The Kiplinger Tax Letter: Vol. 100, No.16 Pages 1-3