Business owners need to be prepared for what’s coming in 2026. It’s not an election year, but there are some major changes in the tax code that you should be aware of. Most changes have come courtesy of the One Big Beautiful Bill Act (OBBBA), passed last July. That’s why this year, we’re updating our small business tax deduction checklist for 2026.
Below, you will find a comprehensive guide that catalogs major business tax deductions and credits available under current law, identifies which provisions are permanent and which are temporary, and highlights the strategic opportunities created by recent legislative changes.
There’s a lot to cover, so I’ve organized and written this article in the same way as a dictionary or encyclopedia. No commentary. Just the facts.
Here are the categories:
- Capital Expenses & Depreciation Deductions
- Research & Development Deductions
- Interest Expense & Operating Deductions
- Standard Business Operating Expenses
- Pass-Through Entity Deductions
- Employment-Related Tax Credits
- Research & Innovation Credits
- Investment Incentives
Use Ctrl+F if you have specific details in mind, or take a look back at the categories and start with the deductions and/or credits closest to the money.
To help you identify changes to existing deductions and credits that require special planning considerations, I’ve provided “tags” for convenience and clarity: Permanent, Enhanced, Temporary, and Mostly Eliminated. Use them to navigate what’s cetrainly an extensive and detailed small business tax deductions checklist for 2026
1. Capital Expenses & Depreciation Deductions
The most significant change made by the OBBBA is the permanent restoration of 100% bonus depreciation for qualified capital expenses. The bill also includes some major enhancements to Section 179 of the tax code and adds a new Section 168(n) for manufacturing businesses.
Let’s get to the specifics.
100% Bonus Depreciation for Qualifying Property, Section 168(k)
Permanent
Qualified property placed in service after January 19, 2025, is eligible for 100% bonus depreciation in your next tax filing; this applies to both new and used tangible property, including machinery, equipment, computers, furniture, fixtures, and vehicles weighing under 6,000 pounds. Note that we’re seeing a reversal of the previous phasedown schedule under the Tax Cuts and Jobs Act (TCJA).
Section 179 Expensing for Equipment and Property
Enhanced
The 2026 deduction limit has been increased to $2.5 million, with a phase-out threshold starting at $3.63 million in total equipment purchases of tangible personal property, off-the-shelf computer software, and qualified improvement property. Deductions cannot exceed taxable income, but they can be combined with bonus depreciation to achieve significant tax savings.
Qualified Production Property, Section 168(n)
Temporary
The OBBBA introduces a temporary 100% bonus depreciation provision for new buildings used for manufacturing, production, or refining tangible goods. Construction must begin between January 19, 2025, and December 31, 2028, and the facility must be placed in service before January 1, 2033.
2. Research & Development Deductions
The permanent restoration of immediate R&D expensing provides tax relief and simplifies the tax landscape for companies engaged in research and development. Similar to bonus depreciation provisions, there are catch-up opportunities for businesses that capitalized R&D expenses in prior years.
Here’s how that breaks down:
R&D Expensing, Section 174
Permanent
Only domestic R&D expenses incurred after December 30, 2024, qualify for immediate expensing. Foreign R&D expenses still require 15-year amortization.
Here are some of the highlights of this provision:
- There’s a catch-up provision that allows businesses to deduct unamortized domestic R&D costs from 2022 to 2024 over one or two years.
- Small businesses may elect to apply the tax retroactively to tax years beginning after 2021, enabling amended returns for refunds.
- This section particularly benefits software developers, manufacturers, biotechnology firms, and engineering companies.
R&D Tax Credit, Section 41
Permanent
Detailed documentation to obtain these credits is critical; carefully maintain project records, time logs, and technical reports. Contact my office if you’re not sure about your company’s qualifications. The Section 41 credit applies mainly to manufacturing improvements, software development, and formulation testing.
Under this provision, your company can get a credit of 20% of qualified research expenses exceeding a calculated base amount. There’s also an Alternative Simplified Credit of 14% of current-year expenses with no complex base calculation. This section also includes an R&D credit that can offset payroll expenses.
3. Interest Expense & Operating Deductions
Deducting interest expense is something many small businesses take for granted. What most of them don’t realize is that the method for calculating that deduction just changed. The old method used EBIT, which is earnings before interest and taxes. The new formula uses EBITDA, which includes depreciation and amortization.
Business Interest Deduction – Section 163(j)
Temporary
The EBITDA basis has been temporarily restored for tax years 2025 through 2029, allowing the deduction of business interest on up to 30% of adjusted taxable income. In 2030, the basis reverts to EBIT. Planning for temporary changes is challenging. I like my clients to have a working understanding of the process and, specifically, the exemption rules.
4. Standard Business Operating Expenses
Feel free to print this section and use it to document all I’ve included in 2026’s small business tax deductions checklist.
- Rent and Lease Payments: Business property and equipment
- Utilities: Electricity, water, gas, internet, phone services
- Office Supplies and Materials: Used in business operations
- Business Insurance Premiums: General liability, property, professional liability
- Legal and Professional Fees: Attorneys, accountants, consultants
- Advertising and Marketing Expenses
- Bank Fees and Merchant Processing Fees
- Business Licenses, Permits, and Regulatory Fees
Employee Compensation & Benefits
- Salaries and Wages for All Employees
- Bonuses and Commissions
- Employee Benefits: Health insurance, life insurance, disability insurance
- Employer Retirement Plan Contributions
- Employer Portion of Payroll Taxes: (FICA, FUTA, SUTA)
- Workers’ Compensation Insurance
- Employee Education and Training Costs
Business Meals and Travel
- Business Meals: 50% deductible when directly related to the active conduct of business
- Entertainment Expenses: Non-deductible
- Travel Expenses: Transportation, lodging, 50% of meals during business travel
- Vehicle Expenses: Standard mileage rate or actual expense method
- 100% Bonus Depreciation: Available for qualifying business vehicles
Retirement Plan Contributions
- SEP IRA: Up to 25% of employee compensation (20% for self-employed)
- SIMPLE IRA: Match requirements or 2% non-elective contribution
- 401(k): Employer matching and profit-sharing contributions are fully deductible
- Maximum Combined Limits: $69,000 for 2026
5. Pass-Through Entity Deductions
The Qualified Business Income (QBI) deduction is a provision of the OBBBA that affects pass-through entity owners. It allows for a potential 20% deduction of business income. The rule was in effect in past years, but the new law makes it permanent. That’s good news for small business owners. Here’s a more detailed breakdown:
Qualified Business Income (QBI) Deduction, Section 199A
Permanent
QBI deductions are, quite fortunately, still a cornerstone of any small-business tax deduction checklist for sole proprietorships, partnerships, S corporations, and LLCs taxed as partnerships in 2026. The 20% QBI deduction can provide significant relief, but it is subject to phase-out thresholds: $201,775 for single filers and $403,550 for married taxpayers filing jointly. There’s a W-2 wage limitation after that.
The complete phase-out threshold is $251,775 (single), $503,550 (married filing jointly), and there are limitations based on the type of business you’re in. The IRS only allows QBI deductions on SSTB (specified service trades or businesses) income. Examples of SSTB are health, law, accounting, consulting, and financial services.
6. Employment-Related Tax Credits
Employment tax credits incentivize businesses to hire individuals from specific target groups, provide employee benefits, and create job opportunities. These credits can substantially reduce tax liability, but the guidelines are very specific. Read the following section carefully. Call my office if you have additional questions.
Work Opportunity Tax Credit (WOTC)
WOTC is a tax credit designed to target the underemployed. The target group includes veterans, SNAP recipients, designated community residents, ex-felons, SSI recipients, and long-term unemployed individuals. The credit amount is $2,400 to $9,600 per qualified employee or 40% of wages up to $6,000.
Enhancements to this credit are offered for hiring veterans (up to $9,600) and long-term assistance recipients (up to $4,000). To qualify, your business must file Form 8850 within twenty-eight days of the hire date. At present, this program continues through 2025, but it’s likely to be extended further. I’ll update you when that happens.
Employer-Provided Childcare Credit
Enhanced
Childcare credits aren’t new, but they’ve been significantly increased for 2026. The maximum is $500,000, which rises to $600,000 for eligible small businesses. To put that in perspective, the previous maximum was $150,000. Qualified expenditures include the acquisition, construction, or operation of childcare facilities.
If you’re looking for the formula to calculate the amount of credit you’re eligible for, add up your childcare facility expenditures and multiply that number by 25%, then add 10% of resource and referral expenses. Childcare credits apply to on-site facilities, near-site facilities, and contracted services. File Form 8882 to claim the credit.
Small Employer Pension Plan Startup Credit
Setting up a pension plan for employees is a great way to attract top talent. Under this provision, employers can receive a credit for the greater of 50% of qualified startup costs or $250 per non-highly compensated employee. The minimum credit is $500, and the maximum is $5,000 per year for the first three years.
If your company employs over fifty people, you can take a credit for 100% of startup costs and an additional $500 credit for three years if the plan includes auto-enrollment. Eligibility requirements are that you have 100 or fewer employees and at least one non-highly compensated participant who earns over $160,000 annually.
Small Employer Health Insurance Premium Credit
Did you know you can get a credit for health insurance premiums? You qualify if you have fewer than 25 full-time employees, average wages below $59,000, and you pay more than 50% of their premiums. You’re required to purchase the policy through the SHOP marketplace, and the credit phases out as your employee count increases.
For those unfamiliar, SHOP stands for the Small Business Health Options Program. It’s an online government portal for small businesses that want to offer their employees health and dental insurance. The website was established as part of the Affordable Care Act, also known as Obamacare.
Empowerment Zone Employment Credit
An area designated by the federal government as an empowerment zone is specifically targeted for economic development and investment in low-income populations. Developers are incentivized to build there. Employers receive a tax credit of up to $15,000 per employee for hiring individuals living in an empowerment zone.
Like many of the credits on this list, this version of the Empowerment Zone Employment Credit is effective only for tax years ending on or before December 31, 2025. It’s likely to be modified in 2026 to better align with the QOZ credit profiled below. For the 2025 tax year, the maximum per qualified employee is $3,000.
Disabled Access Credit (Section 44)
The Americans with Disabilities Act (ADA) requires your business to provide reasonable accommodations for employees with disabilities. Section 44 offers a credit to cover the expense of doing that. Qualified expenditures include ramps, accessible parking, and equipment modifications. The maximum credit is $5,000 per year.
The eligibility criteria for the Disabled Access Credit are that you have gross receipts under $1 million or not more than 30 full-time employees. Eligible expenditures must exceed $250, up to $10,250. Most of your costs in this area should exceed that threshold, especially if you also need public access ramps and elevators.
7. Research & Innovation (R&D)Credits
The United States is a nation that thrives on innovation, and the OBBBA’s changes to the tax code prioritize innovation, offering R&D credits to domestic operations that study and develop new technologies, medical treatments, medicines, and other innovations.
Combined with immediate R&D expensing, R&D credits are powerful, and I recommend that business owners assess potential R&D opportunities. In short, R&D credits are among the most dynamic and business-friendly additions to 2026’s small business deductions checklist.
To learn more, see my article that breaks down the quite broad range of activities classified as “R&D.”
Research and Development Tax Credit
As we mentioned earlier, your company can receive a 20% credit on qualified research expenses exceeding a calculated base amount. There’s also an Alternative Simplified Credit of 14% of current-year expenses with no complex base calculation. This section also includes an R&D credit that can offset payroll expenses.
Most taxpayers select the simplified credit because it’s easier to calculate. QREs include wages for research employees, supplies used in research, and 65% of contract research expenses. There’s also a four-part test that examines the permitted purpose, elimination of uncertainty, the process of experimentation, and the nature of the technology.
Exclusions include research conducted after commercial production, foreign research, funded research, and research in the social sciences. The small business payroll tax offset allows you to apply this credit to employer payroll taxes, but that’s a complicated scenario that you should discuss with a tax professional. You can file Form 6765 to claim the credit.
Advanced Manufacturing Production Credit (Section 45X)
The Advanced Manufacturing Production Credit was enacted as part of the Inflation Reduction Act of 2022. The OBBBA added a special addition to cover metallurgical coal suitable for steel production (2.5% of costs). Still, it also tightened restrictions and phase-out stages in the previous iteration of the rule.
To qualify for this credit, you must register with the IRS and submit annual reports. Qualifying expenses include solar and wind energy components, inverters, battery components, and 50 critical minerals, including lithium, cobalt, graphite, and nickel. Foreign entity of concern restrictions apply.
8. Investment Incentives
Strategic long-term investments receive favorable tax treatment through provisions that encourage investment in economically distressed communities and startup companies. These credits were put in place to make those investments more attractive. Some have been substantially modified—the details of that are included.
Qualified Opportunity Zone (QOZ) Benefits
We’ve already covered the employment credit in this category. The QOZ is a credit for companies that invest in opportunity zones using a Qualified Opportunity Fund (QOF). The credit includes:
- Long-term exclusion means no tax on QOF gains if held 10-30 years.
- Capital gains must be invested within 180 days of a sale.
- QOF must hold 90% of assets in qualified opportunity zone property.
- Reporting requirements have expanded under the OBBBA.
QOZs have been made permanent with 10-year designations that roll over, so we’ll be discussing QOZ credits in our small business tax deductions checklist for 2026 and the foreseeable future.
Qualified Small Business Stock (QSBS) Exclusion (Section 1202)
Enhanced
The QSBS has been significantly expanded with reduced holding periods and a maximum excluded gain that’s either $10 million or 10x adjusted basis. C-corporation stock applied to this credit must have been acquired at original issue. This excludes businesses in health, law, accounting, consulting, and financial services.
Clean Energy Credits
Mostly Eliminated
The OBBBA eliminated or severely restricted most clean energy tax credits, fundamentally changing incentives for renewable energy investments. The following credits are being terminated or will expire at the end of the year:
- Electric Vehicle Credits (Section 30D) will be eliminated by September 30, 2025
- Alternative Fuel Vehicle Refueling Property Credit has been terminated for property placed in service after June 30, 2026
- Energy-Efficient Commercial Buildings Deduction (Section 179D) will be terminated for construction beginning after June 30, 2026
- New Energy Efficient Home Credit (Section 45L) will be terminated for property acquired after June 30, 2026
- Investment Tax Credit (Section 48) & Production Tax Credit (Section 45): Severely restricted; construction must begin within 12 months of July 4, 2025
Strategic planning and documentation are critical to turning a small business deductions checklist into significant tax reductions in 2026.
Successfully navigating the complex landscape of business deductions and credits requires strategic planning, meticulous documentation, and awareness of both opportunities and pitfalls. For instance, 100% bonus depreciation could incentivize accelerated equipment purchases, but could also create cash flow problems.
My team has studied the business deductions, credits, phase-outs, extensions, and terminations outlined in the OBBBA. Some of those will benefit you when you do your next tax filing. Others require long-term tax planning. You will need to:
- Prepare for 2030 reversions: business interest limitation returns to the EBIT basis.
- Take advantage of permanent provisions for long-term strategic planning.
- Consider catch-up opportunities for prior-year R&D costs capitalized 2022-2024.
- Evaluate Qualified Opportunity Zone investments for 2027 and beyond.
- Review entity structure annually as the business grows.
As experienced tax professionals, we can help you prepare for the new rules that go into effect next year, but we need to start the process now. Gather complete and accurate records of your revenue and expenses, then schedule a discovery call. We’ll review prior returns for missed opportunities, then capitalize on them.
Talk soon,
Jeremy A. Johnson, CPA