The 2026 tax year brings several changes that directly impact small business owners. Whether you're a sole proprietor, LLC, or S-Corp, understanding these changes now — not in April 2027 — gives you time to adjust your strategy. Here's what you need to know.

1. Section 179 Deduction Increases to $1.29 Million

The Section 179 deduction, which allows businesses to immediately expense qualifying asset purchases rather than depreciating them over time, has increased to $1.29 million for tax year 2026 (up from $1.16 million in 2025). The phase-out threshold is now $3.22 million.

What qualifies: Equipment, machinery, vehicles (with limitations), computers, software, office furniture, and certain building improvements (HVAC, fire suppression, alarm systems, security).

Strategy: If you're planning equipment purchases, consider accelerating them into 2026. The ability to deduct the full cost in year one rather than over 5-7 years has significant cash flow implications, particularly at current interest rates.

2. Bonus Depreciation Drops to 40%

This is the change that catches many business owners off guard. Bonus depreciation — the provision that allowed 100% first-year deduction of qualifying assets — has been phasing down since 2023:

  • 2022: 100%
  • 2023: 80%
  • 2024: 60%
  • 2025: 40%
  • 2026: 20%
  • 2027: 0% (unless Congress acts)

For 2026, only 20% bonus depreciation is available. Combined with Section 179, you can still achieve significant first-year deductions, but the math has changed substantially from the 100% era.

3. Standard Mileage Rate: 70 Cents Per Mile

The IRS standard mileage rate for business use increased to $0.70 per mile for 2026 (up from $0.67 in 2025). If you drive 15,000 business miles annually, that's a $10,500 deduction.

Pro tip: Track your actual vehicle expenses (gas, maintenance, insurance, depreciation) alongside mileage. For newer vehicles with higher payments, the actual expense method often yields a larger deduction. For older, paid-off vehicles, the standard mileage rate typically wins. Run both calculations.

4. Qualified Business Income (QBI) Deduction Remains at 20%

The Section 199A deduction — the 20% deduction on qualified business income for pass-through entities — remains in effect for 2026. However, it's scheduled to expire after December 31, 2025, without Congressional action.

Current status: Congress is expected to extend the QBI deduction as part of broader tax legislation, but as of March 2026, the extension has not been enacted. Consult with your tax advisor on planning strategies that work regardless of the outcome.

For 2026, the income phase-out thresholds for specified service businesses are $191,950 (single) and $383,900 (married filing jointly).

5. BOI Reporting Requirements Clarified

The Corporate Transparency Act's Beneficial Ownership Information (BOI) reporting requirements have been a moving target. As of 2026, the requirements are:

  • Companies formed before January 1, 2024: Must file by January 1, 2025 (deadline has passed)
  • Companies formed in 2024: Within 90 days of formation
  • Companies formed in 2025 or later: Within 30 days of formation
  • Updates required within 30 days of any change in beneficial ownership

Penalties for non-compliance are severe: up to $500/day, with criminal penalties up to $10,000 and 2 years imprisonment for willful violations. If you haven't filed yet, do it now.

6. Retirement Plan Contribution Limits Increase

For small business owners, retirement plans are both a tax strategy and a wealth-building tool. 2026 limits:

  • Solo 401(k): $23,500 employee contribution + up to 25% of net self-employment income (total max $70,000; $77,500 if 50+)
  • SEP-IRA: Up to 25% of net self-employment income, max $70,000
  • SIMPLE IRA: $16,500 employee contribution ($17,000 if 50+)

Strategy: A Solo 401(k) typically offers the highest possible contribution for self-employed individuals. The combination of employee and employer contributions can shelter substantial income from taxation.

7. Energy Tax Credits Expanded

The Inflation Reduction Act's business energy credits continue to expand. For 2026:

  • Commercial Clean Vehicle Credit: Up to $7,500 for light vehicles, $40,000 for heavy vehicles
  • Energy Efficient Commercial Buildings (179D): Up to $5.00/sq ft for qualifying improvements
  • Investment Tax Credit (ITC): 30% for solar, battery storage, and other clean energy installations

If you own your commercial property, the 179D deduction for energy-efficient improvements can be substantial. HVAC upgrades, LED lighting retrofits, and building envelope improvements all qualify.

Key Takeaways

  • Section 179 deduction at $1.29M — accelerate equipment purchases if they make business sense
  • Bonus depreciation at just 20% — don't assume 100% first-year expensing like previous years
  • Track both mileage and actual vehicle expenses to maximize your deduction
  • QBI deduction extension is expected but not guaranteed — plan for both scenarios
  • File BOI reports immediately if you haven't — penalties are severe
  • Max out retirement contributions as your top tax-reduction strategy
  • Explore energy credits, especially if you own commercial property