2026 Small Business Taxes: Complete Guide to Deductions, Credits & New Rules

The 2026 tax filing season brings transformative changes for small business owners. The One Big Beautiful Bill Act (OBBBA) permanently extended major tax cuts, introduced new deductions for tips and overtime, and restored higher 1099-K thresholds for small business compliance. Understanding these 2026 small business taxes changes is essential for maximizing deductions and minimizing your tax liability this filing season.

Table of Contents

• Key Takeaways
• What Changed in Small Business Taxes for 2026?
• How Can You Maximize Business Deductions in 2026?
• What Is Section 179 Expensing and How Does It Work?
• When Must You Issue 1099-K in 2026?
• How Do Small Business Retirement Plans Reduce Your 2026 Tax Bill?
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions
• Related Resources

Key Takeaways

• The OBBBA made major 2017 tax cuts permanent and introduced new deductions for small business owners filing 2025 returns in 2026.
• The 1099-K reporting threshold is restored to $20,000 AND 200+ transactions, eliminating the $600 rule for small business owners.
• Section 179 expensing limits increased to $2.5 million for 2026, allowing immediate write-offs of equipment purchases.
• Solo 401(k) contribution limits increased to $72,000 for 2026, offering significant tax-deferred retirement savings for self-employed owners.
• New deductions include up to $12,500 in overtime income and up to $10,000 in vehicle loan interest for qualifying new cars.

What Changed in Small Business Taxes for 2026?

Understanding 2026 small business taxes requires awareness of the major legislative shift enacted in July 2025. The One Big Beautiful Bill Act fundamentally reshaped the tax landscape for small business owners by making permanent provisions that were previously set to expire. This wasn’t a temporary fix—these changes are here to stay, allowing business owners to plan with confidence.

The most significant impact for small business owners is the permanence of the 20% Qualified Business Income (QBI) deduction. This deduction allows eligible small business owners to deduct up to 20% of their qualified business income, effectively lowering their taxable income by one-fifth. For many small business owners, this represents thousands of dollars in annual tax savings that are now locked in permanently.

The OBBBA’s Impact on Small Business Owner Taxes

The OBBBA introduced permanent expansion of expensing rules that small business owners rely on. The IRS issued guidance on OBBBA provisions covering bonus depreciation, Section 179 expensing, and research and development cost deductions. These aren’t marginal improvements—they represent fundamental tax relief for capital-intensive small businesses.

• Bonus Depreciation: 100% permanent immediate write-off of qualifying property placed in service in 2025 and beyond.
• QBI Deduction: 20% deduction on qualified business income (permanent, no expiration).
• R&D Expensing: Domestic research costs can be expensed immediately in year incurred (restored permanent).

What This Means for Your 2025 Tax Return (Filed in 2026)

When you file your 2025 business tax return in 2026, these provisions apply retroactively. Any equipment purchased during 2025 qualifies for 100% bonus depreciation. Any research and development expenses qualify for immediate expensing. The QBI deduction applies to all qualifying business income earned during 2025. This retroactive application means many small business owners will see substantial refunds or lower tax bills.

How Can You Maximize Business Deductions in 2026?

The foundation of tax-smart small business ownership is maximizing deductions. Unlike personal expenses, legitimate business deductions reduce your taxable income dollar-for-dollar. A $5,000 business deduction saves a business owner in the 24% tax bracket $1,200 in federal income taxes. Understanding which expenses qualify as deductions is essential for smart small business taxes planning.

Ordinary and Necessary Business Expenses You Can Deduct

The IRS allows deductions for expenses that are both ordinary and necessary for your business. “Ordinary” means common in your industry. “Necessary” means helpful and appropriate for your business. These deductions significantly reduce your small business taxes burden.

• Home Office Deduction: Simplified method ($5 per square foot, maximum 300 sq ft) or actual expense method. Covers mortgage interest, utilities, rent, and depreciation.
• Business Mileage: 72.5 cents per mile for 2026 (up from 70 cents in 2025). Track mileage meticulously with business purpose notes.
• Office Supplies and Equipment: Pens, paper, computers, software, and furnishings used exclusively for business.
• Professional Services: Accounting, bookkeeping, legal, and consulting fees for business purposes.
• Insurance and Licenses: Business liability insurance, professional licenses, and permits required for operation.
• Meals and Entertainment: 50% deduction for business meals where business is discussed.
• Travel Expenses: Lodging, airfare, and ground transportation for business trips (meals 50% deductible).

Documentation Requirements for Small Business Taxes Deductions

The IRS requires proof for all deductions. Without documentation, even legitimate expenses won’t be deductible if audited. Create a system for tracking and organizing receipts, invoices, and expense records. Digital tools make this significantly easier than manual tracking.

What Is Section 179 Expensing and How Does It Work?

Section 179 expensing is one of the most powerful tax strategies for small business owners. Instead of depreciating equipment over multiple years, you deduct the full cost in year one. This creates immediate tax deductions that reduce your current year’s taxable income substantially. The OBBBA expanded these limits for small business owners.

2026 Section 179 Limits and Qualifying Property

Category	2026 Amount
Annual Expensing Limit	$2,500,000
Phase-out Threshold	$4,000,000
Bonus Depreciation	100% (no limit, permanent)

Qualifying property includes most business assets: vehicles, equipment, machinery, furniture, computers, and software. Land and buildings don’t qualify, but leasehold improvements do in many cases. If you purchased equipment in 2025, you can claim Section 179 expensing when filing your 2026 return.

Section 179 vs. Bonus Depreciation Strategy

In most cases, bonus depreciation is superior because it has no dollar limit and no phase-out. However, Section 179 offers flexibility when your income is lower and you want to preserve deductions for future years. Many successful small business owners use a combination of both strategies. A tax professional familiar with small business taxes can determine the optimal mix for your specific situation.

When Must You Issue 1099-K in 2026?

The 1099-K reporting requirement affects many small business owners who accept payments through platforms like PayPal, Venmo, Square, Stripe, or similar payment processors. Understanding the 2026 small business taxes 1099-K rules is critical for proper filing and compliance. The OBBBA restored higher thresholds that significantly reduce compliance burdens.

Understanding 1099-K Reporting Requirements

Form 1099-K is issued by payment settlement entities (PayPal, Square, etc.) when gross payments exceed $20,000 AND they exceed 200 transactions. Both conditions must be met. If you received $25,000 but only 150 transactions, no 1099-K is required. This restored threshold provides relief for many small business owners who were previously affected by the $600 threshold.

• Payment processors must report to both the IRS and the business owner by January 31.
• The threshold applies to gross payment amount, not net (before refunds/chargebacks).
• 1099-MISC and 1099-NEC thresholds changed to $2,000 for 2026 (up from $600).
• The IRS issued proposed regulations clarifying backup withholding thresholds aligned with the restored $20,000/200 transaction standard.

Critical Reminder: Non-Receipt Doesn’t Mean Non-Taxable

A common misconception: if you don’t receive a 1099-K, the income isn’t taxable. This is false. All business income must be reported on your tax return, whether or not you receive a 1099-K. The threshold only determines reporting by the payment processor. You remain liable for all income earned. Many small business owners get audited for unreported income despite not receiving forms.

How Do Small Business Retirement Plans Reduce Your 2026 Tax Bill?

Retirement plans are powerful tax planning tools for small business owners. Unlike regular savings, contributions to qualified retirement plans reduce your immediate taxable income while building long-term wealth. For small business owners, Solo 401(k) plans offer the highest contribution limits of any retirement vehicle.

2026 Solo 401(k) Contribution Limits for Small Business Owners

Owner Age	2026 Limit	Tax Benefit
Under 50	$72,000	$17,280 savings @ 24% rate
Ages 50-59	$80,000	$19,200 savings @ 24% rate
Ages 60-63	$83,250	$19,980 savings @ 24% rate
Standard IRA (all ages)	$7,500	$1,800 savings @ 24% rate

The difference is stark: a Solo 401(k) allows contributions nearly 10 times higher than a traditional IRA. For a small business owner earning $100,000, a Solo 401(k) allows approximately $45,000 in annual contributions (combining employee deferrals and employer contributions). This creates substantial immediate tax deductions that reduce your 2026 small business taxes significantly.

How to Establish and Fund a Solo 401(k)

Solo 401(k)s must be established before December 31 to be eligible for that tax year. You can make contributions for prior years until your business tax deadline (including extensions). For 2025 returns filed in 2026, you can still open a Solo 401(k) and make 2025 contributions until your April 2026 deadline, reducing your 2025 taxable income retroactively.

Uncle Kam in Action: Consulting Business Owner Saves $32,400 with 2026 Tax Strategy

Client Snapshot: Sarah owns a management consulting business, earning $180,000 in net business income in 2025. She operates as an S-Corporation and has been reluctant to make retirement contributions, viewing them as “money lost.” She’s concerned about her tax bill for the 2026 filing season.

Financial Profile: Annual business income: $180,000. Prior business asset purchases: $35,000 in laptop computers and office furniture. Current retirement savings: minimal. Federal income tax bracket: 24%.

The Challenge: Sarah was facing a substantial 2026 tax bill without strategic planning. She had made equipment purchases in 2025 but didn’t realize they qualified for 100% bonus depreciation. She had never maximized retirement contributions because she misunderstood how they work. This is just one example of how our proven tax strategies have helped clients achieve significant savings annually.

The Uncle Kam Solution: We implemented a comprehensive 2026 small business taxes strategy: First, we claimed 100% bonus depreciation on her $35,000 in equipment purchases from 2025, creating a $35,000 business deduction. Second, we maximized her Solo 401(k) contribution to $72,000 for 2026 (she can still contribute for 2025 retroactively, creating an additional deduction). Third, we optimized her home office deduction using the simplified method, claiming $2,500 annually. Finally, we ensured she claimed all legitimate business deductions including professional services, business mileage at the 2026 rate of 72.5 cents per mile, and office supplies.

The Results:

• Tax Savings: $32,400 reduction in federal income taxes for 2026 (calculated at 24% bracket)
• Investment: $2,500 professional tax planning and optimization service
• Return on Investment: 1,296% ROI in the first year (12.96:1 ratio). Sarah saved $32,400 to achieve $2,500 in planning costs.
• Long-term Benefit: The Solo 401(k) will continue providing $17,280 annual tax savings for years to come as she contributes the maximum annually.

This is just one example of how our strategic approach to 2026 small business taxes planning creates substantial, measurable results for business owners. Sarah now has a retirement plan growing tax-free, she reduced her 2026 tax liability significantly, and she understands the tools available for ongoing tax optimization.

Next Steps to Optimize Your 2026 Small Business Taxes

1. Document All 2025 Equipment Purchases: Pull receipts and invoices for any business property purchased during 2025. These qualify for 100% bonus depreciation when you file your 2026 return, creating immediate deductions.
2. Establish or Maximize Your Solo 401(k): If you’re self-employed or own a small business, open a Solo 401(k) immediately. You can still make 2025 contributions until your April 2026 deadline, creating retroactive deductions.
3. Review Your Business Entity Structure: Consult with a tax professional about whether your current structure (sole proprietorship, LLC, S-Corp, or C-Corp) is optimal for your 2026 small business taxes situation. Professional entity structuring guidance can identify significant tax savings opportunities.
4. Compile Expense Records: Gather receipts for home office, business mileage, professional services, insurance, and supplies. These deductions reduce your taxable income significantly when properly documented.
5. Consult a Tax Professional: Schedule a consultation to review your specific situation. Small business taxes optimization is highly individualized, and professional guidance often saves far more than it costs.

Frequently Asked Questions About 2026 Small Business Taxes

What qualifies as a deductible business expense for small business taxes?

An expense qualifies as deductible if it’s both ordinary (common in your industry) and necessary (appropriate for your business). This includes office supplies, equipment, professional services, business mileage at 72.5 cents per mile for 2026, home office costs, insurance, licenses, and reasonable meals where business is discussed. Keep detailed receipts and documentation for all expenses to support your deductions if audited.

Can I deduct my vehicle expenses as a small business owner?

Yes, you can deduct vehicle expenses through the standard mileage deduction (72.5 cents per mile for 2026 business driving) or actual expense method (depreciation, fuel, insurance, repairs). Track mileage with a business purpose log. Most small business owners find the standard mileage method simpler. If you drive 15,000 business miles annually, that’s $10,875 in deductions for 2026.

How much can I contribute to a Solo 401(k) for 2026 small business taxes purposes?

The 2026 Solo 401(k) limit is $72,000 for owners under 50, $80,000 for ages 50-59, and $83,250 for ages 60-63. The actual amount depends on your self-employment income. For example, if you net $100,000 in business income, you can contribute approximately $45,000 (combining employee deferrals and employer contributions). This reduces your taxable income dollar-for-dollar.

When is the deadline to establish and fund a retirement plan for 2026 small business taxes?

You must establish a Solo 401(k) by December 31 to use it for that tax year. However, you can make contributions for the prior year until your business tax deadline (April 15 for most small businesses, extending to mid-April with filing extensions). This means you can still open a 2025 Solo 401(k) and make contributions until April 2026, creating deductions on your 2025 return filed in 2026.

What’s the difference between Section 179 expensing and bonus depreciation for small business taxes?

Section 179 allows immediate deduction of up to $2.5 million in business property for 2026. Bonus depreciation allows 100% deduction of qualifying property with no dollar limit. Both create immediate deductions instead of depreciation over multiple years. Bonus depreciation is generally superior because it has no cap, but Section 179 offers flexibility when managing income. A tax professional can determine the optimal strategy for your specific situation.

Do I still owe taxes on income if I don’t receive a 1099-K?

Yes, absolutely. The 1099-K reporting threshold of $20,000 and 200+ transactions doesn’t affect whether income is taxable. All business income must be reported on your tax return regardless of whether a 1099-K was issued. The IRS receives payment processor data from multiple sources. Unreported income triggers audits and penalties. Always report all income, even if no form was received.

What documents do I need to keep for small business taxes deductions?

Keep receipts, invoices, and bank statements for all claimed deductions. The IRS requires supporting documentation for expenses over $75. Maintain mileage logs for vehicle deductions. Save email confirmations for digital purchases. Keep credit card statements for expenses. Organize by category (supplies, travel, meals, equipment, etc.). The IRS can audit returns for up to seven years, so maintain records for at least that period. Digital systems make tracking significantly easier than manual methods.

How can small business owners reduce self-employment taxes?

Self-employment tax (Social Security and Medicare) is calculated on net business income. Maximize deductions to reduce net income, which automatically reduces self-employment tax. Sole proprietors can claim the self-employed health insurance deduction for insurance premiums. Consider S-Corp or C-Corp status if eligible, which allows splitting income between salary (subject to self-employment tax) and distributions (not subject). Solo 401(k) contributions reduce both income tax and self-employment tax. A comprehensive tax strategy can identify significant self-employment tax savings.

What changed for small business owners under the OBBBA?

The One Big Beautiful Bill Act made permanent many tax cuts that were previously expiring. Key changes: the 20% QBI deduction is now permanent, 100% bonus depreciation is permanent, Section 179 limits increased to $2.5 million, the 1099-K threshold restored to $20,000 and 200 transactions, new deductions added for tips ($25,000), overtime ($12,500), and car loan interest ($10,000), and the estate tax exemption increased to $15 million. These changes apply retroactively to 2025 returns filed in 2026.

Related Resources

• Complete Guide to Small Business Tax Deductions
• Retirement Plans for Small Business Owners
• Business Entity Structuring Services
• Tax Strategy Services for Small Business
• Business Owners Tax Planning Resource Center

This information is current as of 1/12/2026. Tax laws change frequently. Verify updates with the IRS or a tax professional if reading this later in the year.

Last updated: January, 2026