If you’ve been running a business for any length of time, you know the tax code changes every year. But 2026 is different. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is the largest overhaul of the tax code since the Tax Cuts and Jobs Act of 2017 — and several of its most significant provisions take effect this year.
Some of these changes are straightforward wins for small businesses. Others require planning to get right, and a few carry new compliance obligations that catch business owners off guard. Here’s what you need to know before you file — or better, before year-end, while you still have time to act.
1. 100% Bonus Depreciation Is Back — and Now It’s Permanent
This is the headline change for any business that buys equipment, machinery, vehicles, or other capital assets.
Bonus depreciation — the ability to immediately deduct the full cost of qualifying assets in the year they’re placed in service — had been phasing down since 2023, dropping to 60%, then 40%, then 20%. The OBBBA permanently restored the 100% bonus depreciation deduction. That means for qualifying property placed in service after January 19, 2025, businesses can now deduct 100% of the cost in the first year — they do not have to spread the deduction over several years.
What qualifies? Most tangible personal property — equipment, machinery, furniture, certain land improvements. What doesn’t? Roofs and HVAC systems for nonresidential buildings are not bonus eligible, though they may still qualify under Section 179 if the building has already been placed in service.
Why this matters: If you’ve been holding off on equipment purchases because the depreciation math wasn’t compelling, that calculation has changed significantly. A $200,000 equipment purchase that previously gave you a $40,000 deduction (at 20%) now gives you a $200,000 deduction in year one.
2. The QBI Deduction Is Now Permanent — With Expanded Thresholds
For pass-through entity owners — LLCs, S corporations, partnerships, sole proprietors — the 20% Qualified Business Income (QBI) deduction was one of the most valuable provisions in the 2017 tax law. It was also set to expire at the end of 2025. The OBBBA made it a permanent addition to the tax code.
Two improvements came along with the permanence:
- Expanded phase-out thresholds. The OBBBA expands the phase-in income ranges, meaning some pass-through owners who didn’t previously qualify for QBI deductions may now qualify, and some may be entitled to a larger deduction than under prior law.
- A new minimum deduction. Starting in 2026, anyone with at least $1,000 of qualified business income will receive a minimum deduction of $400, even if their deduction would otherwise be fully phased out.
Why this matters: If you previously earned too much to take the full QBI deduction — particularly if you’re in a specified service trade or business — the updated thresholds are worth reviewing with your CPA. Your situation may have changed.
3. Section 179 Limits Increased to $2.5 Million
Section 179, which allows businesses to immediately expense qualifying property rather than depreciating it over time, saw its deduction limit raised significantly. Section 179 limits have increased to $2.5 million, with a phase-out starting at $4 million, indexed for inflation from 2026 onward.
The practical difference between Section 179 and bonus depreciation is flexibility. Bonus depreciation is automatic and applies broadly; Section 179 lets you choose which assets to expense and in what amounts, which can be useful for managing taxable income precisely. For most small businesses, the two work together rather than in opposition.
4. R&D Expensing Is Restored — Including Retroactive Refunds
Since 2022, businesses had been required to amortize research and development costs over five years rather than deducting them immediately. That rule was reversed. Immediate R&D expensing has been permanently restored for domestic research expenses incurred after December 30, 2024.
The retroactive piece is significant: small businesses can amend their 2022, 2023, and 2024 returns to retroactively apply immediate expensing of R&D costs and claim refunds.
Why this matters: If your business invests in research, product development, software development, or any qualifying experimental activity — including unique construction methods, for our contractor clients — this provision may mean real money left on the table in prior years. It’s worth a conversation about whether amending past returns makes sense.
5. Interest Expense Deduction Rules Get More Generous
The calculation for how much business interest expense you can deduct is changing in your favor. Businesses can now deduct interest expenses on up to 30% of adjusted taxable income before depreciation and amortization. The prior rule used adjusted taxable income without adding back depreciation and amortization, which produced a lower cap — meaning less of your interest was deductible.
For capital-intensive businesses carrying significant debt — construction, real estate development, manufacturing — this is a meaningful improvement.
6. The Employer Childcare Credit Got a Major Upgrade
If your business provides or subsidizes childcare for employees, the numbers on this credit are dramatically different starting in 2026.
The credit rate increases to 40% (50% for small businesses), with the cap rising to $500,000 (or $600,000 for small companies) — a big leap from the prior rate of 25% and cap of $150,000.
For eligible small businesses, the maximum credit of $600,000 is available for a small business that spends at least $1.2 million on qualified childcare expenses. To qualify as an eligible small business, average annual gross receipts must be $32 million or less over the preceding three-year period.
Most small business owners haven’t historically thought of childcare benefits as a tax strategy. At these new levels, it’s worth revisiting.
7. The 1099-K Reporting Threshold Returns to $20,000
After years of back-and-forth, the IRS has settled this: Form 1099-K reporting returns to the $20,000 threshold in 2026 — affecting businesses and gig workers receiving payments via Venmo, PayPal, and Square.
Separately, payments to independent contractors that currently must be reported if they are $600 or more won’t be necessary until those contract workers bill $2,000, with that number adjusted annually for inflation.
Why this matters: If your business uses subcontractors or receives payments through third-party platforms, your administrative burden around 1099 issuance has decreased. But your accounting system still needs to track the right numbers — the thresholds changed, but the underlying income is still taxable.
8. New Deductions for Tips and Overtime
New deductions for tips and overtime apply through 2028, offering tax relief for employees — but only if payroll systems are configured correctly. Employers should review payroll structures to ensure compliance.
This is one of the areas where the IRS is still issuing guidance. The deductions benefit employees, but employers need to make sure their payroll reporting reflects the new rules accurately — both to pass the benefit through correctly and to avoid penalties.
What’s the Same (And Still Requires Attention)
Not everything changed. A few items worth keeping on your radar:
- Beneficial Ownership Information (BOI) reporting is still required. Penalties for non-compliance reach $500 per day, making timely filing essential. The requirement applies to corporations, LLCs, and similar entities unless exempted based on size, regulatory oversight, or entity type.
- Cryptocurrency and digital assets must still be reported as income when received, and businesses facilitating cryptocurrency transactions face enhanced reporting obligations. The IRS treats cryptocurrency as property for tax purposes, meaning each transaction may create a taxable event.
- State and local tax (SALT) nexus rules for e-commerce remain unchanged. If you sell across state lines, you still need to monitor economic nexus thresholds in every state where you have customers.
The Bigger Picture: What This Year Actually Requires
The OBBBA eliminated a lot of uncertainty that has plagued business owners and tax planners for years — the constant “will this expire?” question around bonus depreciation and the QBI deduction is gone. That’s genuinely good news.
But permanent doesn’t mean simple. More provisions, more thresholds, more elections, and more strategic choices all require deliberate planning — not just filing. The businesses that capture the full benefit of these changes are the ones that plan before year-end, not the ones that hand their accountant a shoebox of receipts in April.
A few questions worth asking your CPA before December 31:
- Should I accelerate any equipment purchases to capture 100% bonus depreciation this year?
- Am I now eligible for a larger QBI deduction under the updated thresholds?
- Do I have R&D expenses in prior years that qualify for amended returns?
- Is my payroll system configured correctly for the tips and overtime deduction rules?
- Have I filed my BOI report?
Frequently Asked Questions
What is the biggest tax change for small businesses in 2026?
The permanent restoration of 100% bonus depreciation is the most broadly impactful change for businesses that invest in equipment and capital assets. The permanent extension of the 20% QBI deduction for pass-through entities runs a close second, particularly for LLC and S corporation owners who were planning around its 2025 expiration.
What is the QBI deduction and who qualifies in 2026?
The Qualified Business Income (QBI) deduction allows eligible pass-through business owners — sole proprietors, LLC members, S corporation shareholders, and partners — to deduct up to 20% of their qualified business income. The OBBBA made this permanent and expanded the income thresholds that determine eligibility, meaning more business owners qualify in 2026 than in prior years. Anyone with at least $1,000 in qualified business income now receives a minimum $400 deduction.
What is the Section 179 deduction limit in 2026?
The Section 179 limit increased to $2.5 million in 2026, with the phase-out beginning at $4 million. It is now indexed for inflation going forward.
What is the 1099-K threshold in 2026?
The Form 1099-K reporting threshold returned to $20,000 (or more than 200 transactions) in 2026. The threshold for 1099-NEC filings for independent contractors also increased — payments below $2,000 no longer require a 1099, up from the prior $600 threshold.
Can I still get a refund by amending prior year R&D expenses?
Yes. Small businesses can amend their 2022, 2023, and 2024 tax returns to retroactively apply immediate expensing of qualifying domestic R&D costs and claim refunds for taxes paid under the prior amortization rules. This requires working with a CPA to determine which costs qualify and whether amending is beneficial in your specific situation.
When should a small business start tax planning for 2026?
Now. Several of the most valuable 2026 provisions — particularly bonus depreciation and the employer childcare credit — require decisions and expenditures made before December 31. Tax planning done after year-end is largely damage control. Planning done before year-end is strategy.
Let’s Talk Through What This Means for Your Business
The 2026 tax landscape has more opportunity in it than most years — and more complexity. If you want to make sure your business is positioned to capture the right deductions, avoid the new compliance traps, and file with confidence, we’re glad to help.
Akib CPA specializes in tax strategy for construction and development companies, but we work with small businesses across industries. Reach out to schedule a consultation:
- Email: info@akibcpa.com
- Phone: 713-451-9700
This article is for informational purposes only and reflects tax law as of March 2026. IRS guidance on several OBBBA provisions is still being finalized. Consult a qualified tax professional before making decisions based on any of the information above.
