Selling Your Business in 2025? Key Tax Changes That Could Impact Your Sale

We are living in a time of heightened uncertainty, and 2025 is primed for tax turmoil. Unless the US Congress intervenes, key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) will sunset at the close of the year. As a business owner or advisor, you may also be wondering how additional policy shifts—from global minimum taxes to potential tariff hikes—could further complicate mergers, acquisitions, and other transactions. Here’s a concise look at what’s changing and how it may impact your M&A strategy.

TCJA Expiration in 2025: What It Means for Business Owners

The TCJA drastically reshaped US tax rules by slashing both individual and corporate rates. To satisfy budget constraints, however, many of the law’s components were enacted with built-in expiration dates—a number of which will terminate at the end of 2025. That means your company’s after-tax proceeds could look very different if you close a deal in 2026 versus 2025.

How TCJA Changes Could Affect Your Business Sale

If you’re a business advisor or an owner who is thinking about selling your business in 2025, you’ll want to be aware of the following important changes that hinge on the future of the TCJA:

• Individual Tax Rates. The top tax rate is set to revert from 37% to 39.6% for ordinary income. If your business is structured as a pass-through and if the impending transaction is structured as an asset sale where ordinary income tax rates apply, this jump can significantly erode your net sale proceeds.
• Qualified Business Income (QBI) Deduction (Section 199A). If you own an S corporation, a partnership, or a sole proprietorship, you currently enjoy a deduction of up to 20% of qualified income. Post-2025, that advantage will disappear, subjecting more of your gain to full ordinary or capital gains tax rates.
• Enhanced Standard Deduction and Other Benefits. The TCJA nearly doubled the standard deduction while restricting itemized deductions. If tax law reverts to pre-TCJA rules, high earners selling a business may lose valuable tax offsets.

Critical Tax Deductions That Could Disappear in 2025

A number of other tax deductions will lapse if lawmakers do not extend the temporary TCJA rules. These include the following:

• Bonus Depreciation—Section 168(k). Under current law, 100% expensing of qualified assets is phasing out and will end by 2026. Absent a legislative reprieve, you may feel the impact if your business (or your acquisition target) is capital-intensive, with valuation hinging on accelerated depreciation.
• R&D Expensing—Section 174. Does your business depend heavily on technology or research? Starting in 2022, R&D costs had to be capitalized and amortized instead of fully expensed. If immediate expensing is restored as planned starting in 2026, your business might see a higher valuation.
• Interest Expense Limits—Section 163(j). The TCJA shifted from an EBITDA-based limit for interest expenses to a stricter EBIT-based one, reducing allowable interest deductions. If you’re preparing for a deal financed with significant leverage, keep an eye on further statutory adjustments.

Global Tax Changes: What Business Sellers Need to Know

If you’re buying or selling a business with cross-border structures, watch for GILTI or FDII changes, and ensure you understand local compliance requirements. Here are some other international tax-law changes that may apply in your situation:

• Global Minimum Tax. The global minimum tax under the OECD’s Pillar Two (regarding anti-base erosion) has gained traction overseas. Even if the US doesn’t adopt it outright, American multinationals could see top-up taxes applied by other jurisdictions.
• Tariffs as Another “Tax.” Policymakers may also explore tariff hikes to raise revenue. If you or your target sources heavily from overseas, new duties could reduce margins and prompt the buyer to pay less. Conversely, if importers face higher costs, a domestic-focused operation might enjoy a competitive edge.
• Federal Deficit Pressures. With the federal debt over $36 trillion, some in Congress will insist on compensating measures to offset any extension of tax cuts. Possible last-minute measures to watch for include tighter corporate deductions, a narrower SALT deduction, or higher excise taxes.

How to Prepare for M&A Tax Changes in 2025

Staying informed is crucial because certain shifts may appear late in the legislative cycle. Prepare your business by taking the following essential steps:

• Assess Timing. If you’re leaning toward a sale, closing before December 31, 2025, might help lock in current rates and deductions.
• Model Different Scenarios. Evaluate how reversion to higher rates or the loss of the QBI deduction could affect post-tax proceeds of a sale. For cross-border deals, factor in a potential 15% global minimum tax.
• Compare Deal Structures. Are you considering a stock sale or an asset sale, or a special election like an F-Reorg or Section 338(h)(10)? Your decision can drive drastically different tax outcomes, so work closely with tax counsel to compare scenarios.
• Account for Financing Constraints. If stricter interest limitations remain, it may raise the cost of debt, affecting the purchase price or availability of financing.
• Monitor Tariff Developments. Tariffs can reduce future cash flow. Whether you’re the buyer or the seller in a proposed transaction, be sure to weigh the supply-chain risks in your negotiations.
• Stay Prepared for New Bills. Congress often finalizes tax provisions as late in the game as the fourth quarter. Stay alert! A small detail in a “must-pass” bill might reshape the tax calculus for your deal.

Maximizing Your After-Tax Returns in 2025: Key Takeaways

With the TCJA’s temporary measures set to expire, global rules tightening, and a push for new revenue offsets, the tax landscape in 2025 is full of potential risks—and possible advantages. If you’re planning an M&A transaction, whether an exit or an expansion, keep a close eye on legislative developments. By modeling how individual and business rates might change, reevaluating your deal structure, and factoring in global and tariff-based shifts, you’ll be better positioned to maximize your after-tax returns in this pivotal year.

Need expert guidance? Our M&A advisors can help you navigate these changes and optimize your deal structure. Connect with us today to plan your next move.