2026 Indiana Tax Loopholes: Legal Strategies for Business Owners and High Earners

For the 2026 tax year, Indiana business owners and high-earning professionals face a fundamentally transformed tax landscape. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, reshapes how indiana tax loopholes work for both federal and state purposes. Understanding these changes is essential. Some traditional tax strategies are now limited, while powerful new opportunities have emerged. Business owners who fail to adapt their tax planning will leave thousands of dollars on the table. This comprehensive guide reveals the legal tax loopholes and strategies that work in 2026.

Table of Contents

• Key Takeaways
• What Changed for Indiana Taxes in 2026?
• Understanding the 90% Loss Deduction Cap
• What Legal Tax Loopholes Can Reduce Your 2026 Indiana Tax Bill?
• How Can Seniors Maximize Deductions in 2026?
• What Business Deductions Are Maximized Under OBBBA?
• Can You Spread Income Across Tax Years to Reduce Liability?
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions

Key Takeaways

• The OBBBA limits loss deductions to 90% of losses beginning in 2026, fundamentally changing tax planning strategies for high earners.
• New senior deductions provide up to $6,000 in additional annual deductions for ages 65+, available through 2028.
• Permanent 100% bonus depreciation and immediate R&D expensing create powerful business tax advantages.
• Farmers can spread farmland capital gains over four years to reduce annual tax burden.
• Strategic income timing and entity selection remain critical for maximizing the 20% qualified business income deduction.

What Changed for Indiana Taxes in 2026?

Indiana lawmakers approved conformity updates with federal tax code on January 29, 2026, ensuring that state tax treatment aligns with these sweeping federal changes. The One Big Beautiful Bill Act was signed into law on July 4, 2025, but its provisions significantly affect 2026 tax filings. Business owners who haven’t adapted their strategies face unexpected tax liabilities.

The 2026 tax year brings three major structural changes. First, loss deductions are now limited. Second, new deductions for seniors emerged. Third, permanent business incentives provide certainty that didn’t exist under prior law.

Federal Tax Bracket Certainty for Businesses

Under previous law, pass-through business owners faced uncertainty. The top individual income tax rate could increase from 37 percent to 39.6 percent when prior provisions expired. The 20 percent qualified business income (QBI) deduction was also scheduled to sunset. The OBBBA permanently locks the 37 percent top rate and makes the 20 percent QBI deduction permanent.

This certainty is enormous for business owners planning ahead. If you operate as an LLC, S corporation, or partnership, you can now confidently model your tax liability knowing that your marginal rate won’t spike unexpectedly.

Updated Indiana Conformity Rules Take Effect

Indiana follows federal tax code with a conformity update mechanism. When federal law changes, Indiana state taxes often shift accordingly. The January 2026 conformity update means Indiana will recognize the same deductions, credits, and limitations as the federal government.

This matters directly. If you claim a 90 percent loss deduction on your federal return, Indiana will recognize that same limitation. Conversely, new federal business deductions automatically become available for state tax purposes too.

Understanding the 90% Loss Deduction Cap

For decades, business owners could deduct 100 percent of their losses to offset other income. The OBBBA changes this. Starting with the 2026 tax year, loss deductions are capped at 90 percent of the amount of losses incurred.

This provision applies broadly. It affects rental real estate losses, passive business losses, trading losses, and most other loss categories. The exception is business expenses incurred by professional gamblers, which remain fully deductible.

Real Example: How the 90% Cap Impacts Your Taxes

Consider a self-employed consultant with the following 2026 scenario: You incur $50,000 in business losses from a rental property investment. Under the 90 percent cap, you can deduct $45,000 (90 percent of $50,000). The remaining $5,000 loss (10 percent) must carry forward indefinitely until you have sufficient income to absorb it.

This creates a permanent loss of deduction value for some taxpayers. The $5,000 may never become deductible if your business never generates sufficient income in future years.

Strategy: Timing Losses Across Multiple Tax Years

Tax professionals now recommend strategic loss timing. Instead of taking a large loss in a single year, spreading losses across 2025 and 2026 can maximize deduction value. Here’s why: losses taken in 2025 are not subject to the 90 percent cap (it takes effect in 2026). Losses taken in 2026 are subject to the cap.

If you’re planning a large business write-off, consider accelerating it into 2025 if possible. Discuss timing with your tax advisor before year-end.

Additionally, the operating loss limitation for 2026 is 80 percent of taxable income. This means losses cannot offset more than 80 percent of your taxable income in any single year. Combining the 90 percent loss limitation with the 80 percent offset cap creates complex planning opportunities for high-income earners.

What Legal Tax Loopholes Can Reduce Your 2026 Indiana Tax Bill?

A tax loophole is a legal strategy that takes advantage of technical language in the tax code. It’s not tax evasion or fraud. It’s strategic planning that Congress intentionally allows. The OBBBA actually expands several powerful loopholes for business owners.

Loophole #1: 100% Permanent Bonus Depreciation

Under the OBBBA, businesses can deduct 100 percent of the cost of qualified business equipment in the year it’s placed in service. This applies to tangible property like machinery, vehicles, and technology systems.

Traditionally, businesses depreciate equipment over five to seven years. Bonus depreciation allows immediate expensing. The OBBBA makes this permanent, not temporary.

For a business purchasing $100,000 in qualifying equipment in 2026, the full $100,000 is deductible immediately. This creates a massive cash flow advantage because you reduce current-year taxable income by the full amount.

At a 37 percent federal tax rate and approximately 3.4 percent Indiana state rate, that $100,000 equipment purchase saves approximately $40,340 in taxes. That’s money you can reinvest in growing your business.

Loophole #2: Immediate R&D Expensing for Domestic Research

Businesses conducting domestic research and development used to capitalize and amortize costs over five years. Under the OBBBA, domestic R&D costs are immediately deductible.

This applies to software development, product improvements, prototype testing, and similar activities. If you’re developing new products or improving existing ones, this deduction applies to you.

The OBBBA made this change retroactive to 2022. Businesses that amortized R&D in prior years can file amended returns to claim immediate deductions retroactively. Small businesses averaging less than $25,000 in gross receipts over the past three years can amend prior returns to claim this benefit.

Loophole #3: The 20% Qualified Business Income Deduction

Pass-through entities (LLCs, S corporations, and partnerships) can deduct 20 percent of qualified business income. This applies to self-employed professionals and small business owners.

If your business generates $100,000 in qualified business income, you can deduct $20,000. This reduces your taxable income to $80,000. At the 37 percent federal rate, this saves $7,400 in federal taxes alone.

The OBBBA made this deduction permanent. It was scheduled to expire in 2025. Now it continues indefinitely.

You can also use our Small Business Tax Calculator for Green Bay to model the impact of the 20 percent deduction on your specific situation.

Loophole #4: Strategic Entity Selection

Choosing between LLC, S corporation, or partnership structure dramatically impacts your tax liability. The OBBBA made S corporation status more valuable than ever.

S corporations allow you to split income between W-2 wages (subject to self-employment tax) and distributions (not subject to self-employment tax). With self-employment tax at 15.3 percent, this split creates substantial savings.

If your S corporation generates $150,000 in net income, you must pay yourself reasonable compensation (let’s say $75,000 as W-2 wages). That triggers 15.3 percent self-employment tax: approximately $11,475. The remaining $75,000 distributed as dividends avoids self-employment tax entirely.

Compare this to an LLC taxed as a sole proprietorship: all $150,000 is subject to 15.3 percent self-employment tax, costing approximately $22,950. By using S corp status, you save approximately $11,475 in self-employment tax while maintaining pass-through treatment.

How Can Seniors Maximize Deductions in 2026?

The OBBBA introduced significant new tax breaks for seniors. These provisions apply through 2028, meaning the benefit expires after the 2028 tax year (filed in 2029).

New Senior Deduction: Up to $6,000 Additional

Individuals age 65 and older can claim a special $6,000 additional deduction beginning in 2026. This stacks on top of the standard deduction and the existing senior additional standard deduction.

Standard Deduction Comparison for 2026:

Filing Status	Base Deduction	Age 65+ Add’l	New $6K Senior	Total Possible
Single	$15,750	$2,000	$6,000*	$23,750
MFJ (both 65+)	$31,500	$3,200	$6,000*	$40,700

*Phased out for income above $75,000 (single) or $150,000 (MFJ)

A married couple both age 65 filing jointly can now claim $40,700 in total deductions before itemizing. This eliminates federal income tax liability for most middle-class retirees.

The benefit phases out at higher incomes. The full $6,000 applies to single filers with modified adjusted gross income (MAGI) below $75,000. For married filing jointly, the phase-out starts at $150,000. Once income exceeds these thresholds, the deduction gradually reduces.

Real Scenario: How a Retiree Benefits from Stacked Deductions

Dorothy is a 67-year-old retiree with $85,000 in annual income (Social Security, pension, and CD interest). In 2026, she claims the following deductions: base standard deduction of $15,750, senior additional deduction of $2,000, and part of the new senior deduction (phased out partially due to her income exceeding $75,000).

Under prior law, Dorothy would be unable to use the full standard deduction effectively due to lower limits. Under the OBBBA, her total deductions can reach $21,750 or more, virtually eliminating her federal income tax obligation. This saves Dorothy approximately $2,000 to $3,000 annually.

Social Security Taxation Impact for Seniors

The new senior deductions dramatically reduce Social Security taxation. Because the deductions lower your taxable income, fewer of your Social Security benefits become taxable. The IRS reports that 88 percent of seniors will pay no federal tax on Social Security benefits under the OBBBA provisions.

What Business Deductions Are Maximized Under OBBBA?

Business owners now have unprecedented deduction opportunities. The OBBBA wasn’t designed to punish businesses; it was designed to incentivize business investment while closing certain high-income tax avoidance strategies.

Business Interest Deduction Flexibility

The OBBBA maintains generous business interest deduction rules. Businesses can deduct interest on loans used for business purposes. This applies to equipment financing, working capital loans, and acquisition debt.

For a business with $500,000 in loans at 6 percent interest, that’s $30,000 in annual interest deductions. At a 37 percent federal rate, this saves approximately $11,100 in federal taxes annually.

Qualified Small Business Stock Exemption

Investors in qualified small business stock receive preferential capital gains treatment. If you invest in a small business and it grows substantially, the OBBBA enhances exclusion provisions for gains on qualified small business stock sales.

This benefits high-net-worth individuals and entrepreneurs who invest in early-stage companies. Gains on qualifying stock sales receive preferential tax treatment, sometimes excluding significant portions of gains from taxation entirely.

Can You Spread Income Across Tax Years to Reduce Liability?

The OBBBA introduced new income-spreading opportunities, particularly for farmers. But general strategies apply to all business owners.

Farmland Capital Gains Four-Year Spreading

Farmers selling farmland can now elect to spread capital gains over four tax years. Here’s how it works: if you sell qualified farmland in 2026, you can report the gain in equal installments over 2026, 2027, 2028, and 2029.

Example: A farmer sells 160 acres of farmland with a $200,000 capital gain. The buyer signs a covenant to farm the land for 10 years. The farmer elects the four-year spreading option and reports $50,000 in capital gains annually for four years instead of $200,000 in year one.

At a 15 percent long-term capital gains rate, spreading the gain saves the farmer from being pushed into a higher tax bracket and reduces overall tax liability significantly. This is a legitimate planning opportunity written into the OBBBA specifically for farmers.

General Income Timing Strategies for Business Owners

All business owners can manage income timing. If you expect lower income in 2026 compared to 2027, accelerate income recognition into 2026. If you expect higher income in 2026, defer income to 2027 if possible.

This requires careful planning. You cannot arbitrarily defer income under IRS rules. But installment sales, timing of large transactions, and strategic deferral of bonuses are legitimate tools.

Consult with tax strategy professionals before year-end to model your optimal filing approach. The difference between strategic planning and no planning can easily reach $10,000 to $50,000 in tax savings.

 

Uncle Kam in Action: Sarah’s Business Restructuring Saves $22,500

Sarah owned a consulting business generating $150,000 in annual net income. She operated as an LLC taxed as a sole proprietorship, paying 15.3 percent self-employment tax on all earnings.

The Challenge: Sarah’s self-employment tax bill was approximately $23,000 annually. Additionally, she wasn’t taking advantage of the 20 percent qualified business income deduction effectively because her entity structure was suboptimal. She was leaving significant tax savings on the table.

The Uncle Kam Solution: We restructured Sarah’s business as an S corporation. She maintains pass-through taxation benefits while splitting her income strategically. Sarah now pays herself $80,000 in W-2 wages (triggering 15.3 percent self-employment tax: $12,240). The remaining $70,000 distributes as dividends (no self-employment tax).

Additionally, we optimized her use of the 20 percent qualified business income deduction through her S corp structure. Her total federal and state tax liability decreased from approximately $67,000 to $44,500 in year one.

The Results:

• Tax Savings (Year 1): $22,500 in federal and state tax reduction
• Investment Required: $2,000 for entity restructuring and professional guidance
• Return on Investment: 1,125 percent in year one alone
• Ongoing Benefits: $22,500 annual tax savings continue indefinitely

Sarah’s case demonstrates how understanding Indiana tax loopholes directly translates to significant bottom-line savings. The OBBBA permanence of the 20 percent QBI deduction and permanent bonus depreciation rules made this strategy even more valuable. Visit our client results page to see similar success stories.

Next Steps

1. Review Your 2026 Entity Structure: Contact a tax professional specializing in entity structuring to determine if S corp, LLC, or partnership status optimizes your situation.
2. Model Your Deductions: Calculate your potential deductions under the OBBBA to understand your tax liability before filing.
3. Plan Large Purchases: If you’re purchasing equipment or taking major deductions, time them strategically for maximum benefit under bonus depreciation rules.
4. Document Everything: Keep detailed records of business expenses, capital purchases, and losses to substantiate deductions.
5. Schedule a Tax Strategy Consultation: Discuss your specific 2026 tax situation with a tax advisor familiar with OBBBA provisions before year-end.

Frequently Asked Questions

Does the 90% Loss Deduction Cap Apply to Real Estate Investors?

Yes. Real estate investors are subject to the 90 percent loss cap for rental property losses, passive losses, and similar deductions. The exception applies only to professional gamblers’ business expenses. Real estate investors must plan carefully for 2026 given this limitation.

Can I Amend 2025 Returns to Claim Immediate R&D Deductions Retroactively?

Yes, if you qualify as a small business (averaging less than $25,000 in gross receipts over the prior three years). You can file amended returns for 2025 and earlier years to claim the immediate R&D deduction retroactively. The IRS provided guidance on amendment procedures in September 2025.

What is “Reasonable Compensation” for S Corporation Owners?

The IRS requires S corporation owners to pay themselves “reasonable compensation” for services rendered. This means you cannot pay yourself minimum wage while taking the rest as distributions if your business generates substantial profits through your efforts.

What’s “reasonable” depends on your industry, business size, and personal effort. A financial advisor or tax professional should help you establish appropriate W-2 wages to withstand IRS scrutiny.

Do Indiana State Taxes Conform to the OBBBA Changes?

Indiana updated its conformity with federal tax code on January 29, 2026. Indiana now recognizes OBBBA changes at the state level. This means the 90 percent loss cap, new senior deductions, and business incentives apply to both federal and Indiana state tax purposes.

How Long Do the New Senior Deduction Benefits Last?

The $6,000 additional senior deduction is temporary. It applies for tax years 2025 through 2028 (filed in 2026 through 2029). After 2028, this provision expires unless Congress extends it. Seniors should plan strategically knowing this benefit window is limited.

Is 100% Bonus Depreciation Really Permanent Now?

Yes. The OBBBA made 100 percent bonus depreciation permanent. Prior law scheduled this benefit to phase down (80% in 2023, 60% in 2024, etc.). The OBBBA locked in 100 percent indefinitely, eliminating uncertainty. This benefits business owners significantly for long-term planning.

This information is current as of 2/9/2026. Tax laws change frequently. Verify updates with the IRS or a tax professional if reading this later.

Related Resources

• 2026 Tax Strategy Planning for Business Owners
• Entity Structuring: LLC vs S Corp vs Partnership
• Comprehensive Business Tax Solutions
• 2026 Tax Preparation and Filing Services
• See How Much Other Clients Save on Taxes

Last updated: February, 2026