Small Business Tax Changes for 2026: Everything You Need to Know

The 2026 tax year is already seen as a significant turning point in small business taxation. This is because federal tax laws passed in 2025 are now permanent, bringing long-term changes that will directly affect how business owners plan, report, and manage their taxes. From expanded tax deductions to updated reporting thresholds, these rules are designed to shape tax strategy well beyond a single filing season.

This guide breaks down the most critical small business tax changes for 2026 and explains how you can prepare your business ahead of time. With the right planning and support, these changes can create meaningful opportunities for business growth and expansion instead of last-minute stress.

Key Highlights

• 2026 reflects the full impact of permanent federal tax law changes passed in the previous year. 

• 100% bonus depreciation and expanded Section 179 expensing are now permanent.

• Pass-through business owners gain long-term clarity around the Qualified Business Income (QBI) deduction.

• 1099 reporting thresholds increase, changing compliance requirements.

• Several tax credits and incentives are ending or phasing out after 2025.

• Proactive planning can significantly reduce tax liability and compliance risk moving forward.

Why 2026 Is a Big Year for Small Business Taxes

Over the last several years, many tax rules impacting small businesses were temporary or scheduled to expire, creating uncertainty. In contrast, 2026 reflects a more stable framework. Laws passed in 2024 and 2025 by the federal government made key tax provisions permanent and signaled the end of some incentives, giving business owners clarity but also increasing the importance of long-term planning.

Waiting until tax season to address these changes can limit your options. How these new rules apply affects decisions around: 

• Entity structuring

• Equipment purchases

• Payroll

• Contractor relationships

Planning ahead gives your business greater flexibility while minimizing unpleasant small business tax change 2026 surprises.

Major Federal Tax Law Changes Affecting Small Businesses

The passage of the One Big Beautiful Bill Act (OBBB) in 2025 is the primary driver of the tax changes taking effect on January 1st, 2026. This legislation permanently extended several business-friendly provisions and introduced new compliance requirements affecting nearly every business structure.

Bonus Depreciation and Section 179 Expensing

One of the most impactful major tax changes for small businesses is the permanent restoration of 100% bonus depreciation. Businesses can once again deduct the full cost of qualifying assets in the year they are placed into service.

Section 179 expensing limits were also increased, expanding the range of investments eligible for immediate deduction.

Common qualifying assets include:

• Machinery and manufacturing equipment

• Business-use vehicles that meet IRS requirements

• Computer hardware and off-the-shelf software

• Certain interior improvements to commercial property

Permanent expensing is expected to encourage long-term investment and improve cash flow for small and mid-sized businesses.

Pass-Through Business Deduction Updates

The 20% QBI deduction for pass-through entities is now permanent. This is especially significant for LLCs, partnerships, and S corporations that rely on predictable tax treatment for planning.

Income thresholds and service-based limitations still apply, making income management and entity planning more important than ever. Understanding that an LLC can offer benefits such as pass-through taxation can help business owners align their structure with long-term tax goals.

Business Interest Deduction Changes

The law also restores earnings before interest, taxes, depreciation, and amortization (EBITDA)-based limits for business interest deductions, replacing the more restrictive EBIT-based calculation. This allows many businesses to deduct a larger portion of their interest expenses.

Capital-intensive industries benefit the most from this change, as financing costs are often a significant part of operations.

Reporting and Compliance Changes Business Owners Need to Know

Tax changes extend beyond small business deductions 2026 and credits. Reporting and compliance rules are also evolving, affecting how your business will track payments and payroll.

New 1099-NEC, 1099-MISC, and 1099-K Thresholds

Starting in 2026, the reporting threshold for Forms 1099-NEC and 1099-MISC increases from $600 to $2,000, with future inflation adjustments. Backup withholding requirements will follow the same threshold.

For third-party payment platforms such as PayPal and Venmo, the 1099-K threshold returns to $20,000 and 200 transactions. This reduces reporting volume but does not eliminate the need for accurate recordkeeping.

Maintaining clean vendor records and consistent accounting processes remains essential, especially for businesses that rely heavily on contractors instead of employees.

Payroll and Information Reporting Updates

Payroll reporting continues to receive regulatory attention. Employers must ensure W-2 forms correctly reflect wages, overtime, and tips. While some federal overtime changes were paused, many states enforce their own salary thresholds.

This makes accurate bookkeeping a critical part of staying compliant and avoiding penalties throughout the year.

Tax Credits and Deductions Ending or Changing

Several tax incentives available in recent years are ending or phasing out after 2025 that lowered taxpayers' federal income tax liability. Electric vehicle and clean energy credits are among the most notable changes, with strict deadlines for purchase and installation.

Research and development (R&D) deductions also require careful timing, as expensing rules continue to evolve. Businesses considering major investments should carefully evaluate timelines to avoid missing out on available benefits.

How These Changes Affect Different Small Business Types

Sole Proprietors and Freelancers

Sole proprietors and independent contractors must continue to manage estimated taxes carefully. While some reporting rules may be simplified, cash flow planning remains essential.

Understanding quarterly estimated tax payments and deduction optimization can help freelancers avoid underpayment penalties and budget more effectively.

LLCs and S Corporations

LLCs and S corporations stand to benefit significantly from permanent pass-through deductions. This makes salary-versus-distribution planning even more critical under these updated rules.

Strategic compensation planning can influence:

• Payroll taxes

• QBI eligibility

• Retirement contributions

C Corporations

C corporations gain long-term clarity around:

• Depreciation

• Interest deductions

• Reinvestment strategies

With fewer expiring provisions, corporations can plan multi-year tax strategies with greater confidence.

How to Prepare for 2026 Small Business Taxes

Review Your Entity Structure

2026 tax law changes for small businesses can shift which entity types are most advantageous for your operations. Reviewing your structure now can reveal opportunities to reduce taxes or simplify compliance before the new rules fully apply.

Periodic reviews of your business structure with your accountant are a recommended best practice. 

Plan Purchases and Investments Strategically

With full expensing made permanent, timing matters. Aligning asset purchases with income projections can maximize deductions and improve cash flow throughout 2026. 

Work With a Tax Professional Year-Round

While new tax rule changes and updates for 2026 are business-friendly, your tax complexity will continue to increase as your operations grow and mature, making one-time filing less effective. Affordable, tax-deductible support from 1-800Accountant, America's leading virtual accounting firm, allows your small business to adjust strategies as regulations and financial conditions change.

When you trust us with your sensitive small business tax preparation and year-round tax advisory and planning, we help your business stay ahead in 2026 instead of scrambling at the last minute.

Schedule a free 30-minute consultation to get started. 

Final Takeaway for Small Business Owners

The tax changes taking effect bring both opportunity and responsibility. Permanent rules mean greater predictability, but also require thoughtful tax planning for small businesses 2026 well before tax season.

Business owners who stay informed, maintain strong financial records, and work with experienced professionals are best positioned to capitalize on these changes and turn them into long-term advantages. Preparing now with 1-800Accountant can make 2026 a year of confidence rather than a year of compliance stress.