Business Tax Changes in 2026

In this guide, we’ll walk through the major business tax changes affecting entrepreneurs, employers, and pass-through entities in 2026. Whether you’re a sole proprietor, S corp, or managing a multi-state operation, understanding these updates is essential.

What’s Driving These Business Tax Changes?

Much of the shift in 2026 tax policy stems from legislation embedded in the One Big Beautiful Bill Act; a sweeping package that secures certain deductions permanently, adjusts compliance thresholds, and reintroduces more generous depreciation rules for capital investment. At the same time, several pandemic-era credits are being sunsetted or scaled back, while new rules around digital payments, loss limitations, and international income reporting are being phased in.

For small to midsize businesses especially, staying proactive is the best way to minimize disruption and avoid penalties during tax season 2026.

Major Deduction and Depreciation Updates

Let’s start with the good news: several favorable deduction rules have been made permanent.

100% Bonus Depreciation Is Back

In 2026, businesses can once again fully deduct the cost of qualifying assets like machinery, equipment, and select building improvements in the year they’re placed into service. This includes upgrades such as HVAC systems and roofing. This is a major win for companies planning large capital purchases. Talk to your CPA about timing purchases to take full advantage of this rule.

Section 179 Expensing Limits Increased

The Section 179 deduction limit for 2026 rises to $2,560,000, with a phase-out beginning at $4 million. This allows many small businesses to deduct nearly all eligible equipment and software purchases, instead of depreciating them over several years.

QBI Deduction for Pass-Throughs Secured

The 20% Qualified Business Income (QBI) deduction for S corps, LLCs, and sole proprietors is now permanent. This will continue to reduce taxable income for many owners with eligible income below certain thresholds.

R&D Expensing Fully Reinstated

Rather than amortizing R&D expenses over five years, domestic research and development costs can now be fully deducted in the year they’re incurred, boosting innovation incentives for startups and tech-focused firms.

Business Interest and Loss Limitation Rules

If your business deals with significant financing or operates at a loss, these changes are worth reviewing.

EBITDA Returns to Interest Deduction Formula

The formula for calculating your allowable business interest deduction now returns to a more generous EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) standard. This change increases deductibility for highly leveraged businesses, especially those in real estate, manufacturing, or capital-intensive industries.

Lower Cap on Business Losses

Noncorporate taxpayers face stricter limits on how much current-year business loss can offset other types of income. For 2026, this cap drops to $256,000. That means some losses may need to be carried forward instead of used immediately, creating cash flow implications that should be modeled in advance.

IRS Reporting Thresholds Are Changing

If your business works with contractors or sells online, you’ll want to pay attention to the following updates in reporting requirements.

1099-NEC and 1099-MISC Changes

The threshold for issuing 1099-NEC or MISC forms to independent contractors increases from $600 to $2,000. While this simplifies compliance for small payments, businesses will still need to track and report on larger contractor earnings.

1099-K for Payment Platforms Adjusted

Third-party platforms like PayPal, Venmo, and Stripe now revert to the $20,000 and 200 transaction threshold before requiring 1099-K issuance. This helps reduce unnecessary reporting for low-volume sellers and service providers.

New Excise Tax on Cash Transfers

A 1% excise tax applies to certain cross-border remittances or physical cash transfers made through financial intermediaries. If your business engages in international payments, especially in cash or money orders, your CPA should help you assess applicability and file the new quarterly report.

Payroll Tax and Employee Benefit Updates

Several important employer-side tax benefits have either expanded or become permanent in 2026. These changes are especially relevant if you offer paid leave, overtime, or childcare assistance.

Paid Family Leave Credit Becomes Permanent

Businesses that offer paid family and medical leave can continue claiming a federal tax credit (now permanently extended) for a percentage of wages paid to eligible employees.

Expanded Employer-Provided Childcare Credit

The maximum allowable credit for employer-sponsored childcare now reaches up to $600,000 for qualifying small businesses. This move is designed to support working parents and promote retention in competitive labor markets.

New Tip and Overtime Deductions

Two brand new deductions have been introduced:

Up to $25,000 annually in tip income paid to employees is now deductible for qualifying businesses.
Up to $12,500 in overtime wages paid per employee may be deductible as well.

These changes aim to incentivize fair compensation practices and provide additional tax relief for service and shift-based employers.

Stay compliant, reduce your tax burden, and unlock every available credit. At Allmon, DiBernardo & Associates, you can get personalized guidance on 2026’s most important tax updates. Check out more about our planning services.

Tax Planning for Businesses

Credits That Are Going Away (or Changing Fast)

While many deductions are expanding, others are being phased out, especially around green energy initiatives and retirement plans.

Clean Energy Credits Phase Out

A number of energy efficiency and EV credits for commercial buildings, fleets, and systems expire after June 30, 2026. If you’re considering solar installations or EV conversions, discuss timing and eligibility with your CPA soon to avoid missing out.

401(k) Catch-Up Changes for High Earners

High-income earners (defined as those making $150,000 or more in prior-year wages) are now required to make any catch-up contributions to 401(k), 403(b), and 457(b) plans as after-tax Roth contributions. This changes the tax treatment of those contributions significantly and may impact your personal retirement planning strategy as an owner.

International Business Tax Changes and Adjustments

If you operate globally or hold assets overseas, these new rules may affect your bottom line.

FDII Tax Rules Adjusted

Changes to Foreign-Derived Intangible Income (FDII) calculations now create an effective tax rate of approximately 14% for eligible profits. The deduction structure has been modified to reflect global minimum tax standards.

GILTI Deduction Changes

Global Intangible Low-Taxed Income (GILTI) calculations have been overhauled. The Net CFC Tested Income method is now used, and the deemed tangible income return has been eliminated. A 40% Section 250 deduction remains, but compliance complexity will increase.

Work closely with your CPA to understand how these shifts affect offshore revenue and reporting responsibilities.

What to Review With Your CPA in Q1 to Understand About Business Tax Changes

The best way to stay compliant and leverage the updated rules is to start early. In Q1 of 2026, your CPA should help you:

Recalculate estimated quarterly tax payments based on new deduction rules.
Review depreciation schedules and planned asset purchases.
Adjust payroll systems for new credit eligibility.
Update contractor reporting workflows to reflect new 1099 thresholds.
Reassess your business structure and income strategy in light of QBI and loss limitations.
Conduct an international exposure review if applicable.

Early action sets you up for fewer surprises and greater savings as the year progresses.

Build Your 2026 Business Tax Plan With Allmon DiBernardo & Associates

The business tax landscape in 2026 is changing fast, and falling behind could lead to missed opportunities or expensive penalties. By understanding the key updates now, you can shift from reactive to proactive. With smart planning and expert support, these changes can work in your favor.

At Allmon, DiBernardo & Associates, we help business owners navigate evolving tax rules with clarity, confidence, and strategy. Whether you’re a small operation or a multi-entity enterprise, our team is ready to help you stay compliant and unlock new tax advantages for the year ahead.