Federal Tax News for Businesses: Nov. 2025

IRS Provides Penalty Relief to Businesses Reporting Tips and Overtime

The new tax law introduced deductions for qualified tips and qualified overtime compensation. Specifically, for 2025 through 2028, it creates a deduction of up to $25,000 for tip income in certain industries. It also creates a deduction of up to $12,500 ($25,000 for joint filers) for qualified overtime pay.

Because employers and payors may not yet have adequate procedures to comply with the new rules, the IRS has designated 2025 as a transition period and is providing penalty relief. IRS Notice 2025-62 offers relief to employers and payors for not filing correct information returns and not providing correct payee statements to employees and other payees.

Click here for more information.

Get Ready for New Catch-Up Contribution Rules

Is your business prepared to implement the SECURE 2.0 Act's Roth catch-up contribution rule? The rule requires that catch-up contributions made by certain high earners be invested in Roth accounts rather than traditional 401(k) plans.

Earlier IRS guidance enabled a two-year administrative transition period, but time is almost up. The rule is scheduled to take effect on January 1, 2026. You may need to program your payroll system to identify employees age 50 or older who earned more than the $145,000 FICA wage threshold in 2025 and to automatically direct their 2026 catch-up contributions to a Roth account.

You may also need to update your retirement plan documents. Contact your tax advisor for details and assistance.

Maximize Your Depreciation Tax Breaks

If you own a business, the Sec. 179 expensing election allows you to deduct the cost of purchasing eligible assets rather than depreciating them over multiple years. An annual expensing limit applies, which begins to phase out dollar-for-dollar when acquisitions for the year exceed the phaseout threshold.

For qualifying property placed in service in 2025, the One Big Beautiful Bill Act (OBBBA) doubles the expensing limit to $2.5 million. The 2025 phaseout threshold is $4 million, up from $3.13 million before the OBBBA. In 2026, after inflation adjustments, the expensing limit increases to $2.56 million and the break begins to phase out when acquisitions for the year exceed $4.09 million.

The OBBBA made 100% bonus depreciation permanent for businesses that purchase and place into service qualified new or used property after January 19, 2025. However, for 2025 only, you can choose to use the old 40% bonus depreciation rate. Why would you do this? You may want to save more tax in 2025 than you would following normal depreciation but preserve some deductions for the future.

For example, if you anticipate being in a higher tax bracket next year, deductions will be more valuable. Another reason is to prevent large net operating losses, which 100% bonus depreciation can create. Talk with your tax advisor about strategies for managing your business's 2025 taxable income.

Handling Local Transportation Costs for You and Your Employees

Most small businesses incur local transportation costs, which may be overlooked if not tracked. Commuting between home and work isn't deductible. However, the cost of local trips made for business purposes is generally deductible, including trips to suppliers, customers or your business bank.

To figure the deduction, you can use actual expenses or the standard mileage rate (70 cents per mile for 2025). Keeping an accurate mileage log that records dates, miles, purpose and costs can help ensure you get the deduction you're entitled to.

Also, for 2026, you can provide employees with monthly tax-free transportation fringe benefits of $680 per employee ($340 for parking and $340 for mass transit passes or van pooling). But your business can't deduct these costs. Your tax advisor can provide more information.

Deducting Out-of-Town Travel Costs When Doing Business

If you're a business owner or an independent contractor, before traveling for business, be sure you know what's tax deductible. To qualify, travel must take you away from home or your main place of work for business reasons, and the demands of the work must be such that you have to sleep away from home.

The expenses must be ordinary and necessary, not lavish. Deductible expenses include travel by plane, train, bus or car, as well as fares for work-related taxi rides while away. Also included are lodging, 50% of meal expenses, business communication costs and tips paid for business-related services.

Keep good records to support deductions. Click here for more from the IRS.