The tax picture for 2026 is unknown at this time because many of the tax rules fixed by the Tax Cuts and Jobs Act expire at the end of 2025. But the rules for 2025 are largely in place, although Congress could tweak some of them. One of the factors that helps to settle tax rules and enable planning is to know precisely what the numbers are for the year…and now we know. The IRS released its annual list of cost-of-living adjustments (COLAs) of more than 60 tax items, including tax brackets. The increases are modest, but are still helpful.
Here is the list of business-related COLAs that you can use now to plan ahead.
Increased tax brackets and capital gains rate breakpoints.
These have been adjusted so that more income can be received without resulting in a higher tax rate. Hopefully, business profits will mean more money for owners, and, due to the COLAs, may not push them into a higher tax bracket. Business owners contemplating the sale of their company, or their interest in it, may want to take advantage of the COLAs to minimize the tax on their profits. Just a word of caution if the sale is arranged on an installment basis: installments are taxed according to the applicable tax bracket or capital gains rate for the year in which they are received, even though a lower ordinary or capital gains rate applied in the year of the sale.
Breaks related to health coverage.
You probably want to help employees with their health care costs, and there are various ways to do this that do not bust the budget.
- Small employer health insurance deduction. If you pay at least 50% of the premiums for your staff and meet certain conditions, you may claim a tax credit. Eligibility is conditioned on having employees who earn on average less than a set amount, with a phaseout to a higher amount. The full credit applies if the average 2025 is no more than $33,000 (up from $32,500 in 2024).
- Health FSAs. Your company may enable employees to pay for their out-of-pocket health care costs through a health FSA with their pre-tax contributions; you merely pay administrative costs. The maximum salary reduction contribution for 2025 is $3,300 (up from $3,200 in 2024). These FSAs are usually a use-of-lose-it option for employees, but plans can offer a carryover to as late as March 15 of the next year or allow unused amounts to be carried over up to a set limit. For 2025, the carryover limit is $660, up from $640 in 2024.
- QSEHRAs. Employees can obtain their own health coverage and you then reimburse them up to a set limit through a qualified small employer (fewer than 50 employees) health reimbursement arrangement (QSEHRA). For 2025, the maximum reimbursement is $6,360 for self-only coverage and $12,800 for family coverage. This is up from the 2024 limits of $6,150 for self-only coverage and $12,450 for family coverage.
Other employee benefit plans.
In addition to health coverage and retirement plans (not discussed here), there are some other options for 2025:
- Adoption assistance. Company-paid adoption costs up to a set limit are not income to the employee (although still subject to FICA). For 2025, the limit is $17,280, up from $16,810 in 2024. The exclusion applies only if modified adjusted gross income is not more than a set amount—the same limit for married and single employees; the limit is slightly higher in 2025 than in 2024.
- Transportation assistance. Transportation fringe benefits that employees can receive tax free (although not deductible by the employer) are free parking, monthly transit passes, and van pooling. For 2025, the limit is $325 per month, up from $300 per month in 2024.
Capital assets and improvements.
Is your business going to invest in more capital equipment? Buy an SUV? Upgrade an office building, retail store, or warehouse? There may be greater tax savings for actions in 2025.
- First-year expensing. An immediate deduction for the cost of buying equipment, machinery, and other eligible things is limited to $1,250,000 in 2025 (up from $1,220,000 in 2024). This election to expense the cost begins to phase out when purchases in 2025 exceed $3,150,000 (up from $3,050,000 in 2024).
- Heavy SUVs. The cost of buying an SUV weighing more than 6,000 pounds for business can be expensed up to a dollar limit–$31,000 in 2025 (up from $30,500 in 2024). This deduction can be claimed after bonus depreciation, which is set to be 40% in 2025 (down from 60% in 2024), with any additional cost deducted through regular depreciation.
- Energy efficient commercial buildings deduction. The maximum allowance for achieving top energy savings and meeting wage and apprenticeship requirements in doing the work is $5.81 per square foot (up from $5.65 per square foot in 2024).
Other matters.
Not all COLAs fall neatly into a category. Examples:
- Qualified business income (QBI) deduction. Owners of pass-through entities may claim a personal deduction based on up to 20% of business income, but there are taxable income limits. In 2025, a full deduction is allowed if taxable income is no more than $394,600 for joint filers and $197,300 for other filers (up from $383,900 for joint filers and $191,950 for other filers in 2024).
- Gross receipts test. The test used to determine whether a corporation or partnership is automatically allowed to use the cash method of accounting, be exempt from inventory reporting, and other rules is average annual gross receipts in the 3 prior years not exceeding a set limit: $31 million in 2025 (up from $30 million in 2024).
- Excess business losses. Owners of pass-through entities cannot currently claim losses in excess of a set limit. The losses that can’t be claimed currently carryover as part of a net operating loss. The limit for 2025 is $313,000 for singles and $626,000 for joint filers (up from $305,000 and $610,000 respectively for 2024).
Final thought
When meeting with your CPA or other tax adviser to discuss year-end tax planning and to get ready for filing returns next year, include a review of the COLAs and how they may impact you. COLAs for retirement plans in 2025 are yet to come.
Find additional information about year-end tax planning here.
