As a small business owner, staying on top of tax law changes is key to maintaining compliance and optimizing your finances. The 2026 tax year is the first full year under the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. The changes rewrite much of what small business owners knew going into last filing season. Several provisions that were scheduled to expire are now permanent, a few credits disappeared entirely, and the inflation-adjusted numbers all moved. This guide covers the most pertinent changes, including new tax brackets, deductions, and credit changes, so you head into the next filing season prepared.
For the 2026 tax year, the IRS has adjusted the income thresholds to account for inflation (Rev. Proc. 2025-32), which could influence your tax liabilities. The seven rates themselves are now permanent under OBBBA, so the scheduled 2026 reversion to pre-2018 rates, including a 39.6% top rate, is off the table.
The federal income tax brackets for 2026 are:
For single filers:
For married couples filing jointly:
These adjustments reflect roughly a 2.7% average increase from the previous year, accounting for inflation.
For sole proprietorships, partnerships, S corps, and certain LLCs, the owners report business income on their personal tax returns. The revised brackets directly influence the amount of tax owed. Strategic planning, such as income deferral or accelerating expenses, can help manage taxable income within favorable brackets.
Adjustments to standard deductions and allowable business expenses can impact your taxable income too.
For 2026, the standard deduction amounts are:
(OBBBA also retroactively raised the 2025 amounts to $15,750 and $31,500, so if a client's 2025 return used the old figures, it's worth a second look.) This increase allows small business owners to reduce their taxable income, potentially lowering tax liabilities. Evaluating whether to take the standard deduction or itemize expenses is still worth doing each year, as itemizing may yield greater tax benefits depending on your specific circumstances. The itemizing math changed too: OBBBA raised the SALT deduction cap from $10,000 to $40,000 for 2025 ($40,400 for 2026), phasing down for taxpayers with modified adjusted gross income above $505,000.
The Section 179 deduction allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year. For 2026, the deduction limit is $2.56 million, with a phase-out threshold of $4.09 million. OBBBA roughly doubled these caps, and they now index for inflation each year.
Bonus depreciation is back at 100%, permanently. OBBBA reversed the phase-down that had dropped the rate to 40% and restored full first-year expensing for qualified property acquired and placed in service after January 19, 2025. Unlike Section 179, bonus depreciation has no annual dollar cap and can create a net operating loss, which makes it the stronger option for larger purchases. One trap: property placed in service between January 1 and January 18, 2025, only qualifies for 40%.
Qualified Business Income (QBI) Deduction Updates
The Qualified Business Income (QBI) deduction, introduced under the Tax Cuts and Jobs Act, allows eligible pass-through entities to deduct up to 20% of their qualified business income. This deduction is subject to various limitations based on income levels and business types.
For 2025, it’s crucial to note that the QBI deduction is set to expire unless extended by new legislation. The expiration of this deduction could result in higher taxable income for many small business owners. Staying informed about legislative developments and consulting with a tax advisor can help in planning for this potential change.
Using available tax credits can offset liabilities and support business growth. This is the area where 2026 brought the most bad news, so check each credit's status before promising a client anything.
The bigger R&D story is deductions, not the credit. OBBBA permanently restored immediate expensing of domestic research costs starting in 2025, ending the Section 174 amortization requirement that forced businesses to spread those costs over five years. Businesses that capitalized domestic R&D costs from 2022 through 2024 can accelerate the remaining unamortized amounts into 2025, or split them across 2025 and 2026. Small businesses with average gross receipts of $31 million or less could instead amend prior returns. Foreign research costs still amortize over 15 years, and any R&D credit claimed reduces the deductible expense, so no double dipping.
The WOTC lapsed for employees who begin work after December 31, 2025, and as of now Congress has not renewed it. The program encouraged hiring individuals from targeted groups who face significant barriers to employment, with credits of up to $2,400 per qualifying hire (more for certain veterans). Credits for employees hired on or before December 31, 2025, can still be claimed once certified. The IRS has discontinued current use of Form 8850. If Congress retroactively extends the credit, the IRS may provide transition relief and new filing instructions.
Small businesses initiating new retirement plans can benefit from increased start-up credits. For the 2026 tax year:
This credit is available for the first three years of the plan, incentivizing businesses to support employee retirement savings.
With the latest small business tax updates, proactive tax planning is key to minimizing liabilities and maximizing deductions. Here are some strategies to implement in 2026:
One of the simplest ways to reduce taxable income is by confirming all business expenses are accounted for. Many small business owners miss out on deductions due to poor record-keeping.
With expanded retirement plan credits and new OBBBA payroll provisions, small business owners can capture tax savings through payroll planning.
For sole proprietors, LLCs, and S corporations, pass-through taxation can provide advantages:
The IRS allows businesses to write off large purchases through depreciation strategies:
For small business owners investing in new equipment, vehicles, or office improvements, these provisions can significantly reduce taxable income.
Many small business owners underpay estimated taxes, leading to penalties.
OBBBA terminated most clean-energy incentives, so this category flipped from opportunity to deadline:
Accountants should inventory any planned energy projects now and lock in eligibility before the cutoffs.
With all these small business tax filing updates, keeping up with everything can be overwhelming. This is where TaxPlanIQ makes a difference where you can create custom tax plans by generating personalized, professional plans built for individuals or business clients.
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