Key takeaways
- Several provisions owners were told to plan around as temporary are now permanent: 100% bonus depreciation, the 20% QBI deduction, and the current individual tax brackets.
- Domestic research and development costs can be deducted in the year they are paid again, which matters most for SaaS and tech companies.
- The state and local tax deduction cap is $40,400 for 2026, but it phases down at higher incomes, so pass-through entity tax elections are still worth reviewing in income-tax states.
- The law also added friction: a 0.5% floor on charitable deductions, a 35% cap on the value of itemized deductions for top-bracket filers, and new payroll reporting for overtime and tips.
- This is the first year-end planned entirely under the new rules. A projection built on last year’s assumptions is likely wrong in both directions.
When a large tax bill passes, the headlines arrive within a week. The practical consequences take about two years to arrive.
The One Big Beautiful Bill Act (OBBBA) was signed on July 4, 2025. Most owners filed their 2025 returns this spring under a mix of old assumptions and half-phased-in rules, often without anyone walking them through what had actually changed.
2026 is different. It is the first year in which every provision has applied from January 1, which makes this year-end the first real test of year-end tax planning under the new law. Below are the changes that matter to owner-operated businesses, what each one means in practice, and which ones still have a deadline in front of them.
Why year-end tax planning is different in 2026
For most of the past decade, business tax planning revolved around expiration dates. Bonus depreciation was shrinking by twenty points a year. The QBI deduction was scheduled to end after 2025. Individual rates were set to rise in 2026. Owners were told to accelerate, defer, or wait and see.
Most of that uncertainty is gone. Several provisions became permanent, which means multi-year decisions can finally be made on stable ground. The flip side is that some of the old “do it before it expires” urgency no longer applies, and new limits apply in places that used to be simple.
The short version
A plan built on 2024 assumptions is now wrong in both directions: it rushes moves that no longer need rushing, and it misses limits that did not exist before.
Business tax changes that work in your favor
100% bonus depreciation is permanent, and the Section 179 limit rose for 2026
Under the 2017 tax law, bonus depreciation was phasing down: 80% in 2023, 60% in 2024, and 40% scheduled for 2025. The new law restored a full 100% deduction for qualifying property acquired after January 19, 2025, and removed the phase-down entirely. Equipment, computers, furniture, qualifying vehicles, and many improvements can be deducted in full in the year they are placed in service.
Section 179, the other route to immediate expensing, also expanded. The Section 179 limit for 2026 is $2,560,000, phasing out once total qualifying purchases exceed $4,090,000.
What it means in practice: The deduction follows when an asset is placed in service, not when it is ordered or paid for. Equipment still in its box on December 31 does not count for 2026. And because 100% is now permanent, there is no longer a reason to rush a purchase just for the deduction. Buy what the business needs when it needs it, and use a projection to decide which year the deduction is worth more in.
Section 174A: R&D costs are deductible again
From 2022 through 2024, businesses had to spread domestic research and experimental costs, including developer salaries for software, over five years. For many SaaS and tech companies, that meant paying tax in years they did not actually make money.
The new law created Section 174A, which restores immediate R&D expensing for domestic research and experimental (R&E) costs for tax years beginning after December 31, 2024. Foreign research costs still have to be spread over fifteen years. Smaller businesses (average gross receipts of $31 million or less) could apply the change retroactively to 2022 through 2024, but that election window closed on July 6, 2026. Larger businesses could deduct their remaining 2022 to 2024 costs in 2025 or split them across 2025 and 2026.
What it means in practice: If you build software, run product development, or pay developers, your 2026 taxable income may be meaningfully lower than in recent years. The research credit still applies on top of the deduction. Both depend on books that separate R&E costs cleanly, so this is as much a bookkeeping question as a tax one. If you chose to split prior-year costs across 2025 and 2026, make sure the 2026 portion is in your projection.
The 20% QBI deduction is now permanent
The qualified business income deduction lets many pass-through owners, meaning sole proprietors, partners, and S‑Corp shareholders, deduct up to 20% of their qualified business income. It was scheduled to expire after 2025. It is now permanent.
Two smaller changes start in 2026. The income range over which the deduction’s limits phase in widened to $75,000 for single filers and $150,000 for joint filers. And owners with at least $1,000 of qualified business income from a business they actively work in now receive a minimum deduction of $400.
What it means in practice: For service businesses such as consultants, agencies, and professional firms, the deduction phases out above certain income levels, and the wider range means more owners near the threshold keep part of it. It also interacts with S‑Corp planning: the salary you pay yourself is not qualified business income, so salary and distributions trade off against each other. With the deduction now permanent, that trade-off deserves a real calculation rather than a rule of thumb. Our S‑Corp guide walks through how the salary side works.
The SALT cap rises to $40,400 for 2026
The deduction for state and local taxes was capped at $10,000 from 2018 through 2024. The new law raised it to $40,000 for 2025 and $40,400 for 2026, increasing 1% a year through 2029 before reverting to $10,000 in 2030. The higher cap phases down for incomes above roughly $505,000 in 2026, and never drops below $10,000.
What it means in practice: For Washington owners, who pay no state income tax, the deduction is mostly property tax and, if elected, sales tax. The higher cap can push a homeowner back into itemizing. For our clients in states with an income tax, the pass-through entity tax election survived the bill. It lets an S‑Corp or partnership pay state income tax at the entity level and deduct it federally, outside the cap. For owners whose income puts them in the phase-down range, that election is often still the more valuable route.
New limits and reporting rules to plan around
Charitable deduction changes for 2026: a new floor and a new ceiling
Starting in 2026, owners who itemize can deduct only the charitable contributions above 0.5% of their adjusted gross income. Filers in the 37% bracket now receive at most 35 cents of benefit per dollar of itemized deductions. C corporations can deduct only contributions above 1% of taxable income, with the existing 10% ceiling unchanged. On the positive side, owners who take the standard deduction can now deduct up to $1,000 of cash gifts to public charities ($2,000 if married filing jointly), though gifts to donor-advised funds do not qualify.
What it means in practice: Small, steady annual giving is now less efficient for itemizers. Grouping several years of giving into one year, often through a donor-advised fund, is more valuable than it used to be. If you give through a C corporation, decide before December whether the gift should come from the company or from you personally.
The 1099 reporting threshold rises to $2,000 in 2026
The reporting threshold for Forms 1099‑NEC and 1099‑MISC rises from $600 to $2,000 per payee for payments made in 2026, the forms you will file in January 2027. It will be adjusted for inflation after that. Separately, the Form 1099‑K threshold for payment platforms returned to $20,000 and 200 transactions.
What it means in practice: You will file fewer contractor forms, but you should still collect a W‑9 from every contractor before paying them, and the documentation needed to support the deduction has not changed. Ecommerce and online sellers will receive fewer 1099‑Ks, but every dollar of income is still reportable. Your books should reconcile to platform payouts, not to whatever forms happen to arrive.
No tax on overtime and tips: new W‑2 reporting for employers
From 2025 through 2028, under the new “no tax on overtime” and “no tax on tips” rules, employees can deduct qualified overtime premium pay (up to $12,500, or $25,000 for joint filers) and qualified tips (up to $25,000). The deduction is the employee’s, but the reporting falls on the employer. The 2026 Form W‑2, issued in early 2027, is the first one that has to show these amounts separately. The penalty relief the IRS offered for 2025 does not carry forward.
What it means in practice: If you have hourly, non-exempt employees, confirm now that your payroll provider is tracking the federally required overtime premium separately. Rebuilding a year of overtime data in January is far harder than tagging it as you go.
Other One Big Beautiful Bill changes worth knowing about
- Startup stock (QSBS). For C‑Corp stock issued after July 4, 2025, owners can exclude part of the gain on sale after three years (50%), four years (75%), or in full after five. The cap rose to $15 million and the company asset limit to $75 million. This matters if you are deciding between an LLC and a C‑Corp; see our entity guide.
- Business interest. The limit on deducting business interest is again calculated on EBITDA rather than EBIT, so leveraged businesses can deduct more interest.
- Clean energy incentives wound down. Electric vehicle credits ended September 30, 2025, and residential energy credits ended December 31, 2025. The energy-efficient building deduction (179D) and new home credit (45L) end for projects starting or homes acquired after June 30, 2026. Real estate investors with projects in progress should confirm their dates.
- Estate and gift exemption. It is now $15 million per person for 2026, indexed for inflation, with no scheduled reduction.
- Employee benefits. The dependent care FSA limit rose to $7,500 for 2026, and the credits for employer-provided childcare and paid family leave were expanded and made permanent.
Year-end tax planning checklist: what to do before December 31
Each of the changes above only pays off if it reaches a decision before the year closes. These are the items specific to the new law that we are working through with clients this fall. For the full year-end routine, see our year-end tax checklist.
- Build a 2026 projection under the new rules. Not last year’s return plus a guess, but this year’s actual results, carried forward to December 31.
- Time equipment purchases to when they are placed in service, not when they are paid for, and decide whether the deduction is worth more this year or next.
- If you develop software or products, confirm R&E costs are tracked separately and that the deduction and research credit are both in the projection.
- If you are an S‑Corp owner, revisit the balance between salary and distributions with the QBI deduction now permanent.
- Decide your giving strategy for the year: whether to group several years into one, and which entity gives.
- If you live in an income-tax state, confirm your pass-through entity tax election and its deadline with that state.
- Update contractor files. Collect missing W‑9s and identify which contractors will cross the new $2,000 threshold.
- If you have hourly employees, confirm that payroll is tracking overtime premium for 2026 W‑2 reporting.
- Check your January 15 estimated payment against the projection. Our quarterly tax calculator is a good starting point.
Conclusion
The One Big Beautiful Bill was mostly good news for small and owner-operated businesses. Full expensing, immediate R&D deductions, and a permanent QBI deduction are real, lasting advantages. But they reward owners who plan, not owners who file. Every one of them depends on what happens before December 31.
That is the same lesson as always, with higher stakes. Preparation reports what already happened; planning changes it. This is the first year-end where the new rules apply from start to finish, and the window to act on them is open right now.
If no one has built a 2026 projection for your business under the new law, let us take a look while there is still time to act on it, or see how it fits into our tax planning and optimization work.
Frequently asked questions
The biggest business changes were permanent 100% bonus depreciation, immediate deduction of domestic R&D costs under Section 174A, a permanent 20% QBI deduction, a higher SALT cap of $40,400 for 2026, and a higher 1099‑NEC threshold of $2,000. It also added new limits, including a 0.5% floor on charitable deductions for itemizers and new W‑2 reporting for overtime and tips.
Yes. The One Big Beautiful Bill restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, and removed the scheduled phase-down. The deduction applies in the year the asset is placed in service, so timing still matters even though the percentage no longer changes.
Yes. The 20% qualified business income deduction for pass-through owners, which was set to expire after 2025, is now permanent. Starting in 2026, the income range over which its limits phase in is wider, and owners with at least $1,000 of qualifying income from an active business receive a minimum $400 deduction.
For Forms 1099‑NEC and 1099‑MISC, the threshold is $2,000 per payee for payments made in 2026, up from $600. Those forms are filed in January 2027, and the threshold will be adjusted for inflation after that. For Form 1099‑K, payment platforms report once a seller exceeds both $20,000 and 200 transactions.
Sometimes. Washington has no state income tax, so for most Washington owners the deduction covers property tax and, optionally, sales tax. The cap of $40,400 for 2026 can make itemizing worthwhile for homeowners with significant property tax. Owners in states with an income tax usually benefit more, either directly or through a pass-through entity tax election.
