Tax season 2025 by the numbers: Strategic planning for businesses

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Tax season 2025 by the numbers: Strategic planning for businesses

The 2025 tax season is in full swing, and IRS data is beginning to paint a clearer picture of how business owners are faring. 95% of U.S. business owners pay their business taxes through personal tax returns, known as “pass-through entities,” and only 5% pay their taxes at the “business level.”  

Refunds are down compared to 2024. Filing is slower, and many business owners are taking a wait-and-see approach. These numbers also provide an opportunity to plan smarter and avoid costly mistakes.

Every few weeks, the IRS releases statistics that provide more than just trivia. They offer insight into the trends shaping taxpayer behavior, the processing bottlenecks, and the broader shifts affecting individuals and businesses. 

For business owners, reading between the lines of this data can unlock strategic moves that save money and reduce tax friction, Ramp explains.

So what does the IRS data tell us this year, and how should business owners respond, if at all?

Tax filings are down, but why?

As of mid-February, the IRS had received about 33 million total tax returns, nearly 5 percent fewer than at the same time last year. The number of returns being processed is also behind pace. 

While it might sound like a general slowdown, there is more to the story for business owners.

Many owners are filing extensions, not because they are procrastinating but because they are waiting on complex business K-1s, brokerage 1099s, or updated financials. Others are holding back, hoping that Congress might deliver last-minute tax relief, especially around R&D amortization or bonus depreciation (IRC 174 and 168k). 

Strategic filing delays are increasingly common among business owners who recognize that rushing to meet a March or April deadline could mean missed opportunities or overlooked deductions. Oftentimes, you have a better understanding later in the year if you need accelerated deductions for the previous year, so it can make sense for business owners to intentionally extend their tax returns. Extensions are normal and are automatically approved at the federal level. 

Refunds are smaller but not for everyone

Perhaps the most talked-about trend of the 2025 tax season is the significant drop in refund amounts. As of Feb. 14, the IRS had issued $30 billion in tax refunds, with an average refund amount of $2,170. This represents a 32% decrease from last year’s average of $3,207.

As a tax strategist, viewing a small refund as a good thing implies that you did not overpay during the year based on your business income projections.

However, most Americans see tax refunds as a forced savings mechanism and rely on this refund to pay off debt or use it toward other financial goals.

So, what’s behind the shrinking refunds?

1. Expiration of pandemic-era tax breaks

During the COVID-19 pandemic, Congress expanded several tax credits, including the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC). These expansions resulted in larger refunds for many taxpayers. However, as of 2023, these benefits reverted to their pre-pandemic levels.

For instance, in 2021 and 2022, eligible families received a child tax credit of up to $3,600 per child. Now, the maximum credit is back to $2,000 per child, meaning many families are seeing a lower tax refund this year.

2. Inflation adjustments to tax brackets

If you are a pass-through business owner, your income “flows” to your personal tax return, where your tax bracket is decided. Inflation adjustments generally benefit taxpayers as they prevent “bracket creep,” which occurs when rising incomes push people into higher tax brackets even if their purchasing power remains unchanged. 

However, these adjustments can also affect refunds in complex ways. For example, in 2024, tax brackets were adjusted for inflation.

This means that some taxpayers who previously owed less due to the standard deduction or tax credits might now find that they owe slightly more.

3. IRS anti-fraud measures causing delays

Another significant factor contributing to smaller refund amounts is the Protecting Americans from Tax Hikes (PATH) Act, which mandates that the IRS cannot issue refunds for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) before mid-February. 

The IRS and Congress believe the EITC is susceptible to fraud, and statistics from Congressional reports have shown that the IRS indeed finds fraud in this tax credit program. This provision is designed to prevent fraudulent claims, but it also means that many early filers who rely on these credits are still waiting for their refunds. As the IRS processes more returns in March, the average refund amount may increase for those with EITC. 

More taxpayers are using e-filing and direct deposit

The vast majority of taxpayers, including small to medium business owners (98% of total filers), have opted to file their returns electronically. This is a smart move, as e-filing reduces errors, speeds up processing, and makes it easier to track refunds.

Additionally, most taxpayers are using direct deposit to receive their refunds. The IRS has issued 13.5 million direct deposit refunds, with an average refund of $2,252. Those who choose paper checks could see longer delays in receiving their money. There have also been a growing amount of schemes and scams where checks can be stolen. IRS direct deposit is an efficient, fast, and secure way to receive your refund (and it is free). 

If you’re still filing a paper return or waiting for a mailed refund, switching to e-filing and direct deposit is one of the easiest ways to avoid unnecessary delays. You may not know that the IRS has to manually “key in” your paper-filed tax return, which can lead to months of processing delays. If possible, avoid paper filing. 

What should business owners be doing right now?

The data tells a story, but it is what you do with that story that matters. Business owners cannot afford to wait until the end of the year to make tax decisions. The biggest wins come from strategies deployed early and adjusted often.

Review and adjust your entity structure as a business owner

Has your business outgrown its current setup? Are you still operating as a sole proprietor when an S Corp, partnership, or LLC might yield better tax outcomes?

With pass-through deductions (IRC 199A), SALT cap workarounds, and shifting federal policies, the structure you chose five years ago might be costing you money today.

Plan around income changes … good or bad

If your income is seasonal or tied to project-based work, you should be updating your estimates throughout the year. Waiting until Q4 to fix underpayments or redirect funds is rarely the right answer. Solid bookkeeping and financial analysis are non-negotiable if you want accurate quarterly estimates. You should consider working with an accountant as your business grows to ensure your tax planning scales appropriately with your changing income levels and complexity.

Maximize employer-based retirement contributions

For self-employed owners and small businesses, contributions to SEP IRAs, solo 401(k)s, or even defined benefit plans can dramatically reduce taxable income. These contributions often come with flexible funding deadlines but only work if you plan ahead. Waiting until March of next year is not a plan, as you can lose out on time-value money. 

Use depreciation strategically

Bonus depreciation is phasing out. If you are thinking about investing in new equipment, technology, or vehicles, timing matters. 

Section 179 expensing may still be an option, but coordinating those moves with your overall tax plan is critical. Do not wait until the purchase is made to ask if it was deductible.

Putting it all together

The 2025 tax season is shaping up to be different from past years, with fewer early filings, lower refunds, and shifting tax credits. 

The key takeaway? Rather than reacting to tax situations at filing time, successful business owners are implementing year-round strategies. This means regular consultations with tax professionals, quarterly financial reviews, and timely adjustments to estimated payments.

Consider creating a tax calendar with key dates and triggers for reviewing your business structure, retirement contributions, and major purchase decisions. Many business owners are streamlining this process by integrating their tax planning with finance automation platforms that provide real-time visibility into cash flow and tax implications throughout the year.

The most tax-efficient businesses treat planning as an ongoing process rather than a once-a-year event. Remember that today’s decisions impact tomorrow’s tax bills. By addressing entity structure, income timing, retirement contributions, and strategic depreciation now, you position your business for optimal tax outcomes.

The information provided in this article does not constitute accounting, legal, or financial advice and is for general informational purposes only. Please contact an accountant, attorney, or financial advisor to obtain advice with respect to your business.

This story was produced by Ramp and reviewed and distributed by Stacker.