2026 Tax Changes Every Small Business Owner Needs to Know

The 2025 post-election tax package has now taken full effect in 2026, and for small business owners the changes are a mixed bag: some real relief, some new limits, and a few surprises that could quietly cost you thousands if you don’t adjust now. Whether you run a retail shop, service business, restaurant, or online store, these updates directly hit your bottom line—especially the QBI deduction, Section 179 expensing, bonus depreciation phase-down, and new R&D credit rules. The good news is you don’t need a $500/hour CPA to stay ahead. Here’s a plain-English breakdown of the five most important changes for 2026, simple ways to maximize what you can keep, and one often-overlooked lever that puts extra cash back in your pocket every month.

1. QBI Deduction: Still 20%, But Phase-Outs Tightened

The Qualified Business Income (QBI) deduction remains 20% for pass-through businesses (sole props, partnerships, S corps), but the 2026 phase-out thresholds dropped slightly due to inflation indexing and the new law’s adjustments. For single filers the phase-out begins at $191,950 taxable income (up from $182,100 in 2025); for married filing jointly it’s $383,900 (up from $364,200). Above those levels the deduction phases out completely unless you’re in a “specified service trade or business” (SSTB) like consulting or health, where it disappears entirely above the threshold.
What most owners miss: The new law added a stricter W-2 wage/capital limitation formula for non-SSTB businesses above the threshold. If you pay yourself a reasonable salary and keep payroll records clean, you can often preserve more of the 20%.
Quick win: Run last year’s return through free tax software with 2026 brackets to see where you land. If you’re near the phase-out, consider accelerating deductible expenses (e.g., equipment purchases) into 2025 or deferring income into 2027.

2. Section 179 Expensing: Limit Raised to $1.29M

Section 179 expensing limit jumped to $1.29 million for 2026 (up from $1.22M in 2025), with the phase-out threshold now at $3.22 million in total property placed in service. This lets you immediately deduct the full cost of qualifying equipment, vehicles (up to $30,500 for passenger autos), and certain software—perfect for POS upgrades, computers, or delivery vans.
What most owners miss: The new law expanded eligible property to include more “qualified improvement property” (interior improvements to non-residential buildings). If you renovated your storefront or office in late 2025 or early 2026, you may be able to expense far more than you thought.
Quick win: Inventory all 2026 purchases that qualify. Buy and place in service before Dec 31 to claim on this year’s return. Pair with bonus depreciation (still 60% in 2026) for assets that exceed the Section 179 cap.

3. Bonus Depreciation Phase-Down: 60% in 2026

Bonus depreciation drops to 60% for qualified property placed in service in 2026 (down from 80% in 2025). This applies to new or used equipment, machinery, and certain vehicles. It’s still powerful, but the clock is ticking—2027 drops to 40%, 2028 to 20%, and 2029 phases out completely unless extended.
What most owners miss: You can combine bonus depreciation with Section 179 on the same asset (Section 179 first, then bonus on the remainder). A $150K POS system overhaul could be fully deducted in year one if you plan it right.
Quick win: Accelerate any planned capital purchases into 2026. If cash is tight, look for financing options that let you take ownership and place the asset in service before year-end.

4. R&D Tax Credit: Easier Eligibility for Software & Process Improvements

The 2025 tax package expanded R&D credit eligibility to include more software development and internal process improvements (e.g., custom POS integrations, inventory management apps, or e-commerce optimizations). The credit is now easier to claim on Form 6765 without full documentation for businesses under $5M in gross receipts.
What most owners miss: Many small businesses qualify without realizing it—anything that improves your product or process (even internal tools) can count. The credit is dollar-for-dollar against payroll taxes for startups.
Quick win: Review 2025–2026 activities for qualifying projects. Use the simplified four-part test in IRS Notice 2025-12. Claim it on your 2026 return; many accountants will do it on contingency (pay only if you get the credit).

5. New Payroll & Employment Tax Rules: Higher Thresholds, More Audits

The Social Security wage base rose to $176,100 in 2026. The Affordable Care Act employer mandate threshold remains at 50 full-time equivalents, but the IRS has increased payroll tax audits for businesses claiming the Work Opportunity Tax Credit or Employee Retention Credit leftovers from prior years.
What most owners miss: Misclassifying workers as contractors (common in delivery or freelance-heavy businesses) now triggers automatic penalties under the new audit focus.
Quick win: Use a simple payroll service with built-in classification checks. Document independent contractor status with written agreements and keep hours under 500/year per worker to stay safe.

Leap Payments: Your 2026 Partner

The 2026 tax changes are real, but so are the opportunities to keep more money. Audit your expenses, maximize deductions, and make sure your payment processor isn’t quietly stealing your hard-earned profits. Leap Payments delivers 1–2% rates, cash discounts, same-day funding, and free equipment for qualifying merchants so you can focus on growing your business, not feeding big-box fees. Call (800) 993-6300 for a free fee audit and same-day approval of fill out the form below. Your bottom line deserves better.

Keep More, Grow More

2026 is the year to stop leaving money on the table. Understand the tax changes, implement simple savings, and choose a processor that puts cash back in your pocket. Leap Payments makes it easy—because your small business deserves every dollar it earns.