Many things happened in 2025—locally, nationally, and internationally. Some of these changes directly impact small businesses. Here’s a recap of some key developments on the federal level of note. There are many more that are not included.
Some key developments include:
Administration changes
This year saw the swearing in of a new President and his appointments of new cabinet members and heads of agencies. This includes Kelly Loeffler, who is the Small Business Administrator. Administration policies—foreign and domestic—obviously affect small businesses.
During DOGE, the Small Business/Self-Employed division of the IRS lost 35% of its employees. Probationary workers who were terminated in February were returned to full work status in May, but nearly half took the Treasury Deferred Resignation Program offer or resigned.
Tax changes
The One Big Beautiful Bill Act, which was signed into law on July 4, 2025, made massive federal tax changes, and some specifically impact small businesses and owners of pass-through entities. Here are just a few key provisions.
- Qualified business income (QBI) deduction. This personal deduction for owners of pass-through entities based on their business income was supposed to expire at the end of 2025, but has been made permanent. The taxable income phaseout range has been expanded starting in 2026 to allow for higher-income owners to claim some or more of the deduction, and a minimum QBI deduction will debut.
- Expensing of research and experimentation costs. Instead of having to amortize these costs over 5 years, they can be immediately deducted (expensed). Small businesses (those with average annual gross receipts in the 3 prior years not exceeding $31 million) can file amended returns to fully expense R&E costs in 2022, 2023, and 2024.
- Excess business loss limitation. This limit on losses claimed by owners of pass-through entities was supposed to expire at the end of 2028, but has been made permanent. What’s more, the limit will reset in 2026, meaning that less of the losses will be currently deductible. Excess losses continue to be carried over as part of net operating losses.
Employment-related changes
The Department of Labor rejected a 2024 final rule on how to classify workers as employees or independent contractors. Instead, it now relies on longstanding principles outlined in Fact Sheet #13. It also reinstated Opinion Letter FLSA2019-6, which addresses classification in the context of virtual marketplace platforms.
The NLRB had a tumultuous year, with legal questions about changes in board members and the lack of a quorum while awaiting Senate confirmations of new members. In October, Crystal Carey and James Murphy were approved by a Senate committee but not the full Senate, and Scott Mayer was approved by the committee this month. This means there’s still no quorum.
Tariffs
There have been wild swings in the rate of tariffs and the goods on which they’re imposed. Have tariffs been good or bad for small businesses? It depends on who you ask. In general, tariffs can increase costs and cut profits for small businesses. But small businesses that have adopted various policies may not have experienced serious negative results. For example, those that changed vendors (buying Made in America products) or used dynamic pricing (adding tariff costs to their prices) have been able to maintain margins.
The U.S. Supreme Court was asked to decide on the legality of tariffs under the U.S. International Economic Powers Act (IEEPA) and oral arguments were in November. We’ll have to see what ultimately happens.
AI
You can’t look back on 2025 without noting the importance of AI and the changes it made for small businesses. This year, 72% of small businesses said they used AI for customer service and CRM, cybersecurity, accounting, supply chain operations, and more. The adoption rate of AI grew by 41% this year.
Natural disasters
The first half of 2025 had the costliest number on record of natural disasters (not the highest number of disasters). These included the Pacific Palisades wildfire in January. Small businesses in any disaster areas are always impacted.
Final thought
These and other developments in 2025 mean change.
Socrates said: “The secret of change is to focus all of your energy not on fighting the old, but on building the new.”
What will 2026 bring? In large part, change—and success—is up to you.
