Small Business Tax Deductions 2026: Complete Guide to OBBBA Tax Changes

Every dollar you fail to deduct is roughly 30 to 40 cents you hand the IRS for no reason. Between federal income tax and self-employment tax, $10,000 in missed deductions costs a typical small business owner $3,000 to $4,000 in unnecessary tax. That is not a rounding error. That is a new piece of equipment, two months of software subscriptions, or a solid chunk of your retirement fund.

And in 2026, there is more money on the table than there has been in years. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, delivered the most significant tax overhaul for small businesses since the Tax Cuts and Jobs Act of 2017. Permanent 100% bonus depreciation is back. The Section 179 limit jumped from roughly $1.25 million to $2.5 million. The QBI deduction is no longer hanging by a sunset clause. And there are entirely new credits that did not exist 12 months ago.

The problem? Most small business owners are still operating on 2024 assumptions. They are leaving five-figure deductions unclaimed because they do not know the rules changed. This guide aims to help you understand the changes. We will walk through every major OBBBA provision that affects your bottom line, the deductions most business owners miss entirely, and a month-by-month planning calendar that keeps you ahead of deadlines instead of scrambling in December. If you have been meaning to get serious about small business tax planning, this is the year the math makes it impossible to ignore.

What Changed: OBBBA Tax Provisions for Small Business in 2026

The One Big Beautiful Bill Act, signed July 4, 2025, permanently restored 100% bonus depreciation, more than doubled the Section 179 expensing limit to $2.5 million, made the QBI deduction permanent with expanded income thresholds, brought back immediate R&D expensing for domestic research, and created a new employer childcare credit worth up to $600,000 for eligible small businesses. These provisions took effect for tax years beginning after December 31, 2024, meaning your 2025 and 2026 returns both benefit.

Let us put the scale of this in perspective. Before the OBBBA, the tax landscape for small businesses was heading in the wrong direction. Bonus depreciation had dropped from 100% to 80% in 2023, then 60% in 2024, and was on track to hit 40% in 2025 before vanishing entirely by 2027. The QBI deduction was set to expire after 2025 entirely, which would have been a devastating blow to every pass-through entity in the country. R&D expenses had been forced into a painful 5-year amortization schedule since 2022, punishing the exact kind of innovation small businesses depend on.

The OBBBA reversed all of that and then some. Here is a quick comparison of where things stood versus where they are now:

The net effect for a typical small business? Thousands to tens of thousands of dollars in additional deductions, credits, and first-year write-offs. A landscaping company buying a $200,000 truck fleet, a tech startup investing in domestic R&D, a restaurant owner building out a new location -- all of them are looking at dramatically better tax treatment than they had 18 months ago. The rest of this guide breaks down exactly how each provision works and what you need to do to claim every dollar you are entitled to. For a broader view of how tax deductions work, that resource covers the fundamentals.

QBI Deduction Made Permanent: Who Benefits and How Much

The Qualified Business Income deduction now lets pass-through business owners deduct up to 20% of their qualified business income permanently, with no sunset date. The OBBBA expanded the phase-in income ranges for 2026 to $201,750-$276,750 for single filers and $403,500-$553,500 for joint filers, and added a new minimum deduction of $400 for anyone with at least $1,000 of QBI from an active business. For a sole proprietor earning $150,000 in qualified business income, this deduction is worth $30,000 off the top.

This is the provision that should have every S-corp owner, partnership member, and sole proprietor paying attention. Before the OBBBA, Section 199A was scheduled to expire after December 31, 2025. That would have meant a sudden, brutal tax increase for roughly 25 million pass-through businesses in the United States. A sole proprietor making $200,000 in QBI would have lost a $40,000 deduction overnight. Congress made it permanent instead.

Here is how the numbers work in practice for 2026:

• Basic calculation: If you are a sole proprietor, S-corp shareholder, or partner in a partnership, you can deduct up to 20% of your qualified business income. On $100,000 of QBI, that is a $20,000 deduction. On $250,000, it is $50,000.
• Income limits for specified service businesses: If you run a specified service trade or business (think doctors, lawyers, accountants, consultants, financial advisors), the deduction phases out at higher income levels. For 2026, the phase-out range is $201,750 to $276,750 for single filers and $403,500 to $553,500 for married filing jointly. Below those thresholds, you get the full deduction regardless of business type.
• W-2 wage and property limitations: For non-service businesses above the threshold, the deduction is limited to the greater of 50% of W-2 wages paid by the business, or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property.
• New minimum deduction: If you have at least $1,000 in QBI from one or more active businesses where you materially participate, you are guaranteed a minimum deduction of $400, even if the normal calculation produces a smaller number. This floor is inflation-adjusted after 2026.

The expanded thresholds are particularly meaningful. Before the OBBBA, the phase-in range for single filers was $182,100 to $232,100. That meant a single consultant earning $250,000 was already deep into the phase-out zone. Now that same consultant has breathing room up to $276,750 before losing the full deduction. That shift alone can be worth several thousand dollars depending on your income level.

If you are not already structured to maximize this deduction, talk to your accountant about your entity selection. The QBI deduction is one of the biggest reasons many businesses choose pass-through structures over C-corp status. Our guide on business tax planning strategies digs deeper into how entity structure affects your overall tax position.

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100% Bonus Depreciation Is Back: What Qualifies

The OBBBA permanently restored 100% first-year bonus depreciation for qualified property acquired after January 19, 2025. This means you can deduct the entire cost of eligible equipment, vehicles, software, and improvements in the year you place them in service, rather than spreading the deduction over 5, 7, or 15 years. A $500,000 equipment purchase generates a $500,000 deduction in year one.

This is a massive deal for any business that buys equipment, vehicles, or builds out physical space. Under the TCJA phasedown schedule, bonus depreciation had already dropped to 60% for property placed in service in 2024, and was headed to 40% for 2025 before the OBBBA intervened. Now it is back to 100% and it is permanent -- no more counting down to an expiration date.

What qualifies for 100% bonus depreciation in 2026:

• Tangible personal property with a MACRS recovery period of 20 years or less -- this covers most business equipment, machinery, furniture, and fixtures
• Computer software that is commercially available (off-the-shelf)
• Qualified improvement property (QIP) -- improvements to the interior of nonresidential buildings (but not enlargements, elevators, escalators, or changes to the building's internal structural framework)
• Certain listed property including vehicles (subject to the luxury auto depreciation limits -- $20,400 first-year limit for passenger automobiles in 2025, likely inflation-adjusted slightly higher for 2026)
• Used property -- the property does not need to be new; it just needs to be new to you and acquired after January 19, 2025

The acquisition date is critical. Property is not treated as acquired after January 19, 2025 if it was subject to a written binding contract entered into on or before that date. So if you signed a binding purchase agreement for a piece of equipment in December 2024, the old 60% rate applies even if you did not take delivery until March 2025.

New for OBBBA: Qualified Production Property. The law also created a temporary full expensing provision for "qualified production property" -- a category of building property that typically has a 39-year recovery life and was never eligible for bonus depreciation. To qualify, the property must be used as an integral part of a qualified production activity, be located in the United States, have construction that began after January 19, 2025 and before January 1, 2029, and be placed in service before January 1, 2031. This is a significant win for manufacturers, food processors, and other production-oriented small businesses building new facilities.

The strategic question is whether to use bonus depreciation or Section 179. In many cases, using both is the right answer. We cover that decision in our comprehensive tax planning strategies guide.

Section 179 Doubled to $2.5 Million: Eligible Assets

The OBBBA more than doubled the Section 179 expensing limit from roughly $1.22 million to $2.5 million ($2,560,000 inflation-adjusted for 2026). The phase-out threshold increased to $4,090,000. This means small and mid-sized businesses can immediately write off up to $2.56 million of qualifying asset purchases in a single tax year, with the deduction beginning to phase out dollar-for-dollar only after total qualifying purchases exceed $4.09 million.

Section 179 and bonus depreciation are often confused. Here is the key difference: Section 179 is an election you make on specific assets, limited to your taxable business income for the year. Bonus depreciation applies automatically to all eligible property unless you elect out, and it can create or increase a net operating loss. In practice, many businesses use Section 179 first (because it gives you control over which specific assets to expense) and then let bonus depreciation handle the rest.

What qualifies for Section 179 in 2026:

• Most depreciable tangible personal property -- equipment, machinery, tools, furniture, fixtures
• Computer hardware and peripherals
• Commercially available software
• Certain vehicles -- SUVs over 6,000 lbs GVWR get a Section 179 deduction of up to $30,500 (2025 limit, expected to increase slightly for 2026), while heavier vehicles like trucks and vans over 6,000 lbs with no passenger limitation can be fully expensed up to the $2.56 million cap
• Qualified improvement property -- interior improvements to nonresidential buildings
• Roofs, HVAC, fire protection and alarm systems, and security systems for nonresidential real property (expanded under OBBBA)

Let us run some real numbers. Say you own a construction company and you purchase $800,000 in equipment during 2026: two excavators, a fleet of work trucks, and new jobsite trailers. Under the old $1.22 million limit, you could expense all of it through Section 179. Under the new $2.56 million limit, you could expense that same $800,000 and still have $1.76 million of headroom for additional purchases. If your total purchases stay under $4.09 million, you get the full deduction.

The income limitation is the catch that trips people up. Your Section 179 deduction cannot exceed your aggregate taxable income from all active trades or businesses. If your business earns $400,000 in taxable income and you buy $600,000 in equipment, your Section 179 deduction is capped at $400,000. The remaining $200,000 carries forward to future years. Bonus depreciation, by contrast, has no income limitation -- which is why combining both strategies is often the smartest approach. If you are exploring how to use tax planning software to model these scenarios, the newer tools can run Section 179 vs. bonus depreciation comparisons automatically.

R&D Expenses: Immediate Deduction Restored

The OBBBA restored immediate deduction of domestic research and experimental (R&E) expenses through new IRC Section 174A, effective for tax years beginning after December 31, 2024. Businesses can once again deduct domestic R&D costs in the year they are incurred, reversing the painful 5-year amortization requirement that had been in place since 2022. Small businesses with gross receipts of $31 million or less can even file amended returns to claim retroactive expensing for 2022-2024.

This provision matters more than most business owners realize. The 2022 change that forced R&D amortization over 5 years (15 years for foreign research) was one of the most complained-about provisions in the TCJA. It meant a company spending $500,000 annually on domestic R&D could only deduct $100,000 per year instead of the full amount. For cash-strapped small businesses investing in product development, software engineering, or process improvement, that created a serious cash flow crunch.

Now, immediate expensing is back for domestic R&E expenditures. Here is what you need to know:

• Domestic R&E costs are immediately deductible in the year paid or incurred for tax years beginning after December 31, 2024
• Foreign R&E costs still must be amortized over 15 years -- the OBBBA did not restore immediate expensing for research performed outside the United States
• Small business retroactive relief: If your business has average annual gross receipts of $31 million or less (over the preceding 3-year period), you can elect retroactive expensing for the 2022, 2023, and 2024 tax years by filing amended returns. You must amend all affected years -- you cannot pick and choose.
• Larger businesses cannot amend prior returns but can accelerate the recovery of previously capitalized R&E costs over 2025-2026, or continue amortizing under the old schedule
• The R&D tax credit (Section 41) still exists separately and can be claimed in addition to immediate expensing. Small businesses with gross receipts under $5 million can use the credit to offset payroll taxes.

If you spent money on developing new products, improving manufacturing processes, writing proprietary software, or designing prototypes during 2022-2024 and you meet the $31 million gross receipts test, the retroactive amendment opportunity is significant. A business that spent $300,000 on domestic R&D per year over those three years could recover substantial tax benefits by filing amended returns. Talk to your CPA about this before the statute of limitations closes on those years. Our article on tax credits and how they work covers the R&D credit specifically.

New Employer Childcare Credit: Up to $600,000

The OBBBA dramatically expanded the Section 45F employer-provided childcare credit starting in 2026. Eligible small businesses (average annual gross receipts under $31 million) can now claim a credit of 50% of qualified childcare expenses, up to a maximum of $600,000 per year. Larger businesses get a 40% credit with a $500,000 cap. The previous version of this credit was capped at just $150,000 at a 25% rate, meaning the maximum potential credit has quadrupled.

This is not a deduction -- it is a dollar-for-dollar tax credit, which makes it significantly more valuable. A $600,000 credit reduces your tax bill by $600,000. A $600,000 deduction, depending on your bracket, might save you $150,000 to $220,000 in tax.

Qualified childcare expenditures under the expanded credit include:

• Costs to acquire, construct, rehabilitate, or expand a qualified childcare facility
• Operating costs of a qualified childcare facility, including staffing, supplies, and maintenance
• Payments to a qualified childcare facility for childcare services provided to your employees
• Payments to third-party intermediaries that contract with qualified childcare facilities for services (new under OBBBA)
• Childcare resource and referral services -- the credit includes 10% of expenses for these services, up to $150,000

The economics of this credit change the math on employer-provided childcare entirely. Before the OBBBA, a small business spending $500,000 to set up an on-site childcare facility got a credit of $125,000 (25%). Now that same $500,000 spend yields a $250,000 credit (50%). And the maximum credit is $600,000 instead of $150,000, meaning businesses can spend up to $1.2 million on childcare and still get half of it back as a direct tax credit.

Even if you cannot build an on-site facility, the expansion to cover third-party intermediaries and contracted childcare services means you can partner with existing childcare providers and still claim the credit. If employee retention is a challenge for your business -- and for most small businesses in 2026, it is -- subsidized childcare backed by a generous tax credit is one of the highest-ROI benefits you can offer. Your employees get reduced childcare costs, you get a tax credit, and turnover drops. For more on leveraging employee benefits like health insurance as a retention and tax strategy, that piece covers the complementary deductions.

Tax-Free Tips and Overtime Provisions

The OBBBA created two brand-new individual tax deductions that directly affect employees of small businesses: a deduction for tip income of up to $25,000 per year (for workers earning under $150,000) and a deduction for qualified overtime pay of up to $12,500 ($25,000 for married filing jointly). While these are employee-level deductions rather than business deductions, they have real implications for how you structure compensation and attract talent.

The Tip Deduction (effective 2025, expires 2028):

• Workers who receive tips as part of their compensation can deduct up to $25,000 of tip income per year
• To qualify, the employee must earn less than $150,000 in total wages (excluding tips)
• Tips must be voluntarily paid by the customer, and the customer must determine the amount
• This is a temporary provision -- it sunsets after 2028
• The practical effect: a restaurant server, barber, or valet making $40,000 in base wages plus $20,000 in tips could deduct the full $20,000, saving roughly $3,000 to $5,000 in federal taxes depending on their bracket

The Overtime Deduction (effective 2025):

• Employees can deduct up to $12,500 ($25,000 if married filing jointly) of qualified overtime pay
• Qualified overtime pay is the extra half-time premium required under Section 7 of the Fair Labor Standards Act for hours worked over 40 in a workweek. It does not include the base hourly rate for those overtime hours -- only the premium portion.
• Overtime that is paid voluntarily by the employer, required only by state or local law, or based solely on contractual agreements does not qualify
• Example: An employee earning $30/hour who works 50 hours in a week gets paid 10 hours of overtime at $45/hour ($30 base + $15 premium). Only the $15/hour premium for those 10 hours ($150) qualifies as the deductible portion.

For small business owners, the strategic play here is communication. If your employees in tipped or overtime-eligible positions do not know about these deductions, they are leaving money on the table -- and you are missing an opportunity to demonstrate that working for your business comes with financial advantages. Consider including this information in your onboarding materials and annual benefits communication.

There is also a competitive hiring angle. A restaurant that can tell prospective servers "your first $25,000 in tips is tax-deductible" has a real recruiting advantage over one that does not mention it. Same goes for construction companies, manufacturing firms, and any business that relies on overtime-eligible labor.

15 Most Overlooked Small Business Tax Deductions for 2026

Beyond the headline OBBBA provisions, there are deductions that small business owners miss every single year. These are generally recognized deductions under the current tax code, though eligibility depends on your specific business structure and circumstances. The potential value of these commonly overlooked deductions can be significant for many small businesses. Work with your CPA to determine which apply to your situation:

1. Home Office Deduction. If you use a dedicated space in your home regularly and exclusively for business, you can deduct it. The simplified method gives you $5 per square foot up to 300 square feet ($1,500 max). The regular method -- calculating your actual expenses proportional to your business-use percentage -- often yields a much larger number, especially if you have a mortgage, high utility costs, or a large dedicated office. A 400-square-foot home office in a home with 2,000 total square feet means 20% of your mortgage interest, property taxes, utilities, insurance, and depreciation are deductible. That can easily exceed $5,000 to $8,000 per year.

2. Vehicle Mileage. The 2026 IRS standard mileage rate is 72.5 cents per mile. If you drive 20,000 business miles per year, that is a $14,500 deduction. You need a mileage log -- date, destination, business purpose, and miles for every trip. Apps like MileIQ or Everlance automate this entirely for under $10/month.

3. Health Insurance Premiums. Self-employed individuals can deduct 100% of health, dental, and vision insurance premiums for themselves, their spouse, and their dependents. This is an above-the-line deduction, meaning you get it regardless of whether you itemize. For a family plan costing $1,800/month, that is a $21,600 annual deduction.

4. Retirement Plan Contributions. A Solo 401(k) lets you contribute up to $23,500 as an employee (plus $7,500 catch-up if you are 50 or older) and up to 25% of net self-employment income as the employer, with a combined limit of $70,000 for 2026 ($77,500 with catch-up). A SEP-IRA allows contributions of up to 25% of net self-employment income, capped at $70,000. These contributions reduce your taxable income dollar for dollar. Our guide on retirement tax planning walks through which plan type makes sense for different business sizes and income levels.

5. Business Insurance Premiums. General liability, professional liability (E&O), commercial property, cyber liability, workers' compensation, and business interruption insurance -- all deductible. Most small businesses pay $3,000 to $10,000 annually in insurance premiums and forget to include all of them.

6. Professional Development and Education. Courses, certifications, conferences, industry publications, books, and coaching that maintain or improve skills required in your current business are fully deductible. This includes online courses, webinar subscriptions, and trade association membership dues.

7. Software and Subscriptions. Every SaaS tool you pay for is deductible: accounting software, CRM platforms, email marketing tools, project management apps, website hosting, domain renewals, cloud storage. These expenses add up to $2,000 to $8,000 per year for most small businesses. If you are exploring new AI tools for your small business, those subscriptions are deductible too.

8. Bank Fees and Payment Processing. Credit card processing fees (typically 2.5% to 3.5% of every transaction), monthly bank account fees, wire transfer fees, and merchant service charges are deductible. A business processing $500,000 in credit card sales pays roughly $12,500 to $17,500 in processing fees annually -- all deductible, all frequently missed on Schedule C.

9. Bad Debts. If a customer owes you money and you have made reasonable efforts to collect but the debt is genuinely uncollectible, you can deduct it. You need documentation -- invoices, collection attempts, and a determination that the debt is worthless. For businesses that extend credit or do project-based work, bad debt deductions can be substantial.

10. Startup Costs. If you launched a business in 2025 or 2026, you can deduct up to $5,000 in startup costs and $5,000 in organizational costs in your first year. Amounts above those thresholds are amortized over 180 months (15 years). Startup costs include market research, advertising before the business opens, travel to scout locations, and professional fees for setting up your business structure.

11. Meals and Business Entertainment. Business meals with clients, prospects, or employees where business is discussed are 50% deductible. Meals provided for the convenience of the employer on the employer's premises are also 50% deductible. Make sure your receipts note who you were with and the business purpose discussed.

12. Interest on Business Loans and Credit Cards. Interest paid on loans used for business purposes is fully deductible. This includes SBA loan interest, business line of credit interest, equipment financing interest, and credit card interest on business purchases. For strategies on managing debt alongside your tax-efficient investing approach, that guide connects the dots.

13. Phone and Internet. The business-use percentage of your cell phone bill and home internet is deductible. If you use your phone 70% for business, 70% of your monthly bill is a deduction. At $150/month total for phone and internet, that is roughly $1,260/year for 70% business use.

14. State and Local Taxes. State income taxes, business personal property taxes, real estate taxes on business property, and state-level business taxes are deductible on your federal return. The SALT deduction cap of $40,000 (increased from $10,000 under the OBBBA for joint filers) applies to individual filers, but entity-level SALT elections available in most states can bypass this cap for pass-through businesses.

15. Charitable Contributions Through Business. If your business is a C-corp, charitable deductions are taken at the entity level (up to 10% of taxable income). For pass-through entities, charitable contributions flow to your personal return, but donating inventory or services can produce deductions at fair market value that exceed your cost basis.

How to Maximize Your Deductions: Year-Round Tax Planning Calendar

The business owners who pay the least in tax are not doing anything clever in December. They are making smart decisions all year long, timing purchases, tracking expenses, and adjusting their strategy quarterly. Here is a month-by-month calendar that keeps you ahead of every deadline and maximizes every deduction. Pair this with a solid year-end tax planning strategy and you are covered from January through April of the following year.

January - February: Foundation Setting

• Review your entity structure with your CPA. Is your current setup (sole prop, LLC, S-corp, partnership) still optimal given 2026 thresholds? The QBI deduction changes and expanded Section 179 limits may shift the analysis.
• Set up or update your mileage tracking app. January 1 is the starting line for the 72.5 cents/mile deduction.
• Open or fund your retirement plan. The earlier you contribute, the more time your money has to grow tax-deferred.
• Review your health insurance setup. Self-employed health insurance premiums are deductible above the line -- make sure your plan is in place and properly documented.
• If eligible, file amended returns for 2022-2024 to claim retroactive R&D expensing (for businesses with $31 million or less in average annual gross receipts).

March - April: Q1 Estimated Taxes and Catch-Up

• File Q1 estimated tax payments by April 15. Factor in the permanent QBI deduction and any new OBBBA provisions that affect your projected liability.
• Review your bookkeeping for Q1. Ensure all deductible expenses are properly categorized -- software, subscriptions, insurance, professional services.
• Identify any major equipment or vehicle purchases planned for the year. Start getting quotes and decide whether Section 179, bonus depreciation, or a combination is the right approach.
• Document your home office. Take measurements, photograph the dedicated space, and calculate your business-use percentage. Do this once and you are set for the year.

May - June: Mid-Year Review

• Run a mid-year tax projection. Compare your actual income and expenses to your January estimates. Adjust quarterly payments if needed.
• File Q2 estimated taxes by June 15.
• Review your tax planning strategy with your accountant. Six months of actual data gives you a much clearer picture than January projections.
• If you are considering the employer childcare credit, start researching qualified facilities or third-party intermediaries. The credit is too valuable to leave to Q4 scrambling.

July - August: Strategic Purchases and Payroll Review

• This is the sweet spot for major equipment purchases. You have enough income data to know whether Section 179 will be fully usable (remember the taxable income limitation), and you have time to shop for the best deals.
• Review your payroll structure. If you are an S-corp owner, ensure your reasonable salary is documented. If you pay employees overtime or tips, verify your systems are tracking the deductible portions correctly.
• Evaluate your professional development spending. Conferences, courses, and certifications are all deductible -- and mid-year is when the best ones happen.

September - October: Q3 Adjustments

• File Q3 estimated taxes by September 15.
• Run a detailed year-to-date tax projection. You now have 8 to 9 months of data and a clear view of where you will land. This is when you make the big decisions: accelerate income, defer income, make major purchases, or hold off.
• Review outstanding invoices and assess bad debt deduction potential. If a receivable is genuinely uncollectible, document your collection efforts and prepare to write it off.
• Confirm your retirement plan contribution strategy. If you are behind on Solo 401(k) or SEP-IRA contributions, October is when to catch up.

November - December: Year-End Execution

• Make final Section 179 purchases. Equipment must be placed in service by December 31 to qualify for 2026 deductions. "Placed in service" means ready and available for use -- not just ordered.
• Prepay January expenses where appropriate. If your cash flow allows it, paying Q1 rent, insurance premiums, or service contracts before December 31 accelerates the deduction into 2026.
• Maximize retirement contributions. Solo 401(k) employee contributions are due by December 31. SEP-IRA and employer 401(k) contributions can be made up to your filing deadline (including extensions).
• File Q4 estimated taxes by January 15 of the following year.
• Compile all records: mileage logs, home office documentation, receipts for business meals, charitable contribution acknowledgments, and bank/credit card statements.

Consistent, year-round attention to deductions beats any last-minute strategy. The businesses that save the most are the ones that treat tax planning as a monthly discipline, not an annual emergency.

Frequently Asked Questions

What are the biggest tax changes for small businesses in 2026?

The biggest changes come from the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. Key provisions include permanent 100% bonus depreciation for qualified property acquired after January 19, 2025, the Section 179 expensing limit more than doubled to $2.5 million ($2.56 million inflation-adjusted for 2026), the QBI deduction made permanent with expanded income thresholds, immediate R&D expensing restored for domestic research under new IRC Section 174A, and a dramatically expanded employer childcare credit worth up to $600,000 for eligible small businesses. The law also created new deductions for tip income (up to $25,000) and qualified overtime pay (up to $12,500). Together, these provisions represent the most business-friendly tax environment since the original TCJA in 2017.

How much is the QBI deduction in 2026?

The Qualified Business Income (QBI) deduction remains at 20% of qualified business income from pass-through entities including sole proprietorships, S-corporations, and partnerships. The OBBBA made this deduction permanent (it was previously set to expire after 2025), expanded the phase-in income ranges for 2026 to $201,750-$276,750 for single filers and $403,500-$553,500 for married filing jointly, and introduced a new minimum deduction of $400 for taxpayers with at least $1,000 of QBI from active businesses in which they materially participate. For a sole proprietor earning $150,000 in qualified business income, this deduction is worth $30,000, saving roughly $7,200 to $9,900 in federal taxes depending on the marginal bracket.

Is bonus depreciation still available in 2026?

Yes, and it is better than it has been in years. The OBBBA permanently restored 100% bonus depreciation for qualified property acquired after January 19, 2025. This reversed the TCJA phasedown that had reduced the rate to 60% for 2024 and would have continued dropping to 40% in 2025, 20% in 2026, and 0% by 2027. Qualifying property includes tangible MACRS property with a recovery period of 20 years or less, computer software, qualified improvement property, and certain listed property. The OBBBA also introduced temporary full expensing for qualified production property (manufacturing facilities and similar assets) through 2030. Both new and used property qualify, as long as the property is new to the taxpayer and acquired after January 19, 2025.

Can I deduct home office expenses as a small business?

Yes, if you use part of your home regularly and exclusively for business. Self-employed individuals and independent contractors can claim the home office deduction using either the simplified method ($5 per square foot, up to 300 square feet, for a maximum $1,500 deduction) or the regular method (actual expenses proportional to your business-use percentage). The regular method often yields a significantly larger deduction but requires detailed records of mortgage interest or rent, utilities, insurance, repairs, and depreciation. W-2 employees cannot claim the home office deduction under current law, even if they work from home full-time. If you are a sole proprietor with a 200-square-foot home office in a 1,500-square-foot apartment, that is a 13.3% business-use rate applied to your rent, utilities, and renter's insurance.

What is the Section 179 limit for 2026?

For 2026, the Section 179 expensing limit is $2,560,000 (inflation-adjusted from the OBBBA's base of $2,500,000 established for 2025). The phase-out threshold begins at $4,090,000 of total qualifying property placed in service during the year, per IRS Revenue Procedure 2025-32. Eligible assets include most depreciable tangible personal property such as equipment, machinery, computers, office furniture, certain vehicles, and commercially available software. The OBBBA also expanded Section 179 eligibility to include roofs, HVAC systems, fire protection and alarm systems, and security systems for nonresidential real property. The critical limitation: your Section 179 deduction cannot exceed your aggregate taxable income from all active trades or businesses for the year. Unused amounts carry forward.

When should I start tax planning for 2026?

Now -- and the correct answer is always "now." The most effective small business tax planning happens year-round, not in December. January and February are ideal for reviewing your entity structure, updating tracking systems, and identifying which OBBBA provisions apply to your business. Q2 should focus on mid-year income projections and timing major purchases. Q3 is when you finalize equipment purchase decisions and retirement contribution strategies based on actual year-to-date data. Q4 is your last window for Section 179 purchases (equipment must be placed in service by December 31), final retirement contributions, and income deferral or acceleration decisions. Work with a qualified CPA or tax advisor to build a 12-month calendar specific to your business, income level, and entity structure.