Small Business Tax Deductions & Credits: 7 Ways to Save More in 2026

As a small business owner, it's paramount to take every eligible tax deduction and credit you're entitled to. Tax deductions and tax credits reduce how much you owe, and maximizing them is one of the most effective ways to lower your small business tax burden. However, knowing which credits and deductions to maximize can be challenging without this guide.

Use it to learn how to maximize deductions and credits in 2026. This guide offers detailed explanations of the credits and deductions you should consider as you prepare for tax season. You'll have a firm grasp of what counts as a deduction or credit, plus seven proven strategies to save more this tax year.

Tax Deductions vs. Tax Credits: What’s the Difference?

While tax deductions and tax credits are sometimes referred to interchangeably, they differ in important ways. 

• A tax deduction is used to reduce your taxable income. You’ll then pay taxes on this lowered income amount.

• A tax credit will either reduce the amount of taxes you owe or increase your tax refund.

For example, your business has gross income of $50,000, reduced by a $2,000 business deduction to $48,000. If this income is subject to a 22% tax rate, your business will owe $11,000 before the deduction, and $10,560 after the deduction is applied, for a savings of $440.

Credits function differently and provide more direct tax savings. For example, if your business owes $50,000 in taxes but qualifies for a $20,000 credit, your business will now owe $30,000 in taxes for that period. 

Updated Examples of Tax Deductions (2026)

Here are some of the top examples of tax deductions that you should consider for 2026, provided they are ordinary and necessary aspects of conducting business:

• Health insurance premiums: Freelancers, independent contractors, and self-employed individuals with independent healthcare plans can deduct this cost from their annual tax returns.

• Property taxes: This deduction applies to owners of rental property. Property tax payments are treated as a business expense.

• Travel expenses: Individuals who work as self-employed truck drivers can often deduct 50% of the costs of lodging and some meals while on the road. Travel expenses apply to other professions as long as they are a part of conducting business. 

• Home office deduction: If you’re a homeowner and have a regular and established workplace in your home, the associated costs can be deducted from your taxes.

• Office rent & utilities: Rent, utilities, and other office maintenance costs are typically eligible for a tax deduction if the space is used solely and explicitly for business purposes.

• Vehicle expenses: If you drive a lot for work, you can deduct many of the associated expenses from your tax liability. You'll need to maintain detailed records to prove that the use of your vehicle was for your business. The standard mileage rate for 2026 has not yet been released, but expect it to increase above the 2025 threshold of 70 cents per mile. 

• Software, tools & subscriptions: If you use cloud software or other tools, many of which require subscriptions, these are typically fully deductible. 

• Professional services: Legal advice from a lawyer and tax advisor and preparation services from a virtual accounting firm are deductible expenses. 

Updated Examples of Tax Credits (2026)

Here are some of the top examples of tax credits that you should consider taking advantage of for 2026:

• Earned Income Tax Credit (EITC): This is one of the better-known tax credits that individuals with low- or moderate-income can claim. For 2025, those who qualify receive a maximum credit of $8,046. 

• EV Vehicle Tax Credit (Clean Vehicle Credit): Qualifying individuals who purchased an electric vehicle (EV) on or before September 30, 2025, are eligible for this credit, which is being phased out. 

• Childcare tax credit: This child tax credit applies to families with children under 17, with a $2,200 credit in 2025.

• Small Business Health Care Tax Credit: Small business owners with fewer than 25 employees who pay at least 50% of employee premium costs qualify for this credit.

• Work Opportunity Tax Credit (WOTC): If you're hiring and employing individuals from specific groups who have faced significant barriers to employment, you may be eligible for this work opportunity credit.

• Employer Credit for Paid Family & Medical Leave: This tax credit applies to employers who provide employees with paid family and medical leave, equal to a percentage of wages paid to qualifying employees while they're on leave.

7 Tips to Maximize Deductions and Credits in 2026

Preparing ahead of time while incorporating tax considerations into your regular bookkeeping practices is optimal, will make tax season more efficient, and will help maximize eligible tax deductions and credits.

Keep a running list of your itemized deductions throughout the tax year, and don’t wait to record a business expense or forget to track your receipts. You’ll save time and effort by recording the expense immediately.

These practices will help your own record-keeping and prove valuable if you receive an audit notice from the Internal Revenue Service (IRS).

Tax deductions and credits often take time to understand fully. Read on to learn how to maximize tax deductions and tax credits for small businesses. This will help you gain a better understanding of your business tax situation.   

Tip 1: Max Out Retirement Contributions (IRA, 401(k), SEP, Solo 401(k))

Regardless of where they are in their career, most taxpayers should understand the importance of retirement savings. This crucial practice offers two benefits:

• Increasing tax savings

• Maximizing tax deductions

The IRS sets annual limits on how much of your retirement contributions you can deduct from your taxes. We recommend contributing the maximum amount, capped at $7,000 for workers under 50 and $8,000 for workers 50 and older.

Your income level and 401(k) status will determine these traditional IRA deduction limits. If your retirement plan is through an employer, take the maximum amount out of your income that you can comfortably afford. The employee contribution limit is $23,500 in 2025. There are also "catch-up" contributions for workers 50 and older (an additional $7,500) and for workers aged 60 – 63 ($11,250). 

An alternative to a 401(k) plan is a Roth IRA, which is funded with your after-tax income. This means that Roth IRA contributions cannot be deducted from your taxes.

Simplified Employee Pension (SEP) plan contribution limits are the lesser of 25% of the employee's salary or $70,000. 

Tip 2: Contribute to an HSA 

Some individuals may also contribute to a health savings account (HSA), which can be deducted from their taxes. According to the IRS, these contributions are tax-free if they’re used for qualified medical expenses. For 2025, individuals can contribute up to $4,300, and families can contribute up to $8,550.

HSAs are known to have a "triple tax advantage," making them a powerful and popular investment. 

• HSA contributions are tax-deductible, which reduces your taxable income. 

• HSAs offer tax-free growth from earned interest or investment gains. 

• Withdrawals for qualified medical expenses are completely tax-free. 

Tip 3: Make Charitable Donations and Keep Documentation

A charitable donation not only supports a worthy cause but can also help you during tax season. Some charities may provide you with an end-of-year statement or acknowledgment letter if you’re a regular donor, but keeping track of your charitable giving and receipts yourself is a good practice.

Remember to itemize your deductions to lower your Adjusted Gross Income (AGI) through charitable donations. Claiming a standard deduction for charitable contributions won’t affect your tax return. In most cases, the limitation on deductions is 60% of your AGI, and the deduction must be made to a qualified organization. Typically, this deduction is worthwhile if you make significant contributions. You can also choose to accelerate charitable contributions.

Tip 4: Defer Income When Strategically Beneficial

Any eligible expenses you deduct must occur within the applicable tax year. In other words, you can’t preemptively deduct an expense you plan to pay in 2026. You also aren’t obligated to pay taxes on the income you haven’t yet received.

This creates a unique opportunity to defer your income from the current year to the next. Some may choose this option if their income fluctuates year-to-year, such as freelancers or contract workers. For example, a freelancer can delay invoicing and receipts to January if they're projecting a lower income in the coming year. 

Since you only pay taxes when you physically receive your income, you can choose to delay your end-of-year payments until after December 31, 2025. This income would then be considered for your 2026 return.

This strategy doesn’t mean you’re no longer responsible for paying taxes on that deferred income. It’s simply a way to help reduce your tax payments for the current year.

Income deferral is more challenging for accrual-basis businesses because income is recognized for tax purposes when earned, typically much earlier than when received. 

Tip 5: Accelerate Business Expenses Before Year-End

Your business expenses must be claimed as deductions within the same tax year as they're incurred. Just as you can postpone your received income to the following year, you can maximize your deductions by making early charges for business expenses. Small business owners should always be aware of tax-deductible business expenses, which can provide additional tax benefits if they overlap with higher-income levels.

Consider any last-minute business expenses you may need to make before the end of the year. These expenses will still count towards this year's tax return, even if you don’t take possession of the goods or services until the following year.

Accelerate your deductions by: 

• Prepaying rent

• Buying equipment

• Renewing insurance

• Paying vendors early

• Stocking up on office supplies

In addition to accelerating expenses, changes have been made for the 2025 tax year due to the passage of the One Big Beautiful Bill Act.  

• The Section 179 deduction limit has been increased to $2.5 million.

• 100% bonus depreciation has been made permanent for qualifying property acquired and placed in service after January 19, 2025.

Tip 6: Use Investment Losses to Offset Income (Tax-Loss Harvesting)

Investment losses may decrease your AGI. Selling a losing investment can be considered negative income, which reduces your taxable income. The limit on claiming net capital losses is $3,000; any amount beyond that can be carried over to the following year. 

These losses can also be carried forward to future capital gains.

Tip 7: Track All Office Expenses — Physical or Home-Based

It’s easy to overlook miscellaneous office expenses that keep your business running. If you work from home, make sure to keep track of office supplies, such as:

• Stationery

• Printer toner

• Rent

• Utilities

• Supplies

• Internet/phone allocations

• Repairs

Use a simple spreadsheet or bookkeeping software to keep track of these expenses throughout the year.

The home office deduction can be calculated via the actual expense method, which is based on the actual percentage of home expenses used for the business. The home office safe harbor method allows for a simple calculation of $5 per square foot, up to 300 square feet. 

Consult a Tax Professional

Federal, state, and local tax laws change and evolve annually, making it difficult for business owners to keep up. Deductions and credits can save your business thousands, but knowing which ones apply to your operations can be challenging without expert insights and support. Working with CPAs, EAs, tax preparers, and other professional tax accountants who understand your state and industry ensures you never miss legitimate savings opportunities while maintaining compliance.

Talk to a Small Business Tax Expert from 1-800Accountant, America's leading virtual accounting firm, to get started.