5 Tax Changes Every Small Business Should Know in 2026
If you run a small business, 2026 brings some of the friendliest federal tax changes in years: bigger write-offs for equipment, less 1099 paperwork, and a richer credit for offering paid leave.
Most of these come from the tax law signed on July 4, 2025, which the IRS now calls the Working Families Tax Cuts (you may also see it called the One Big Beautiful Bill Act, or OBBBA). Here are five changes worth knowing before year-end planning and filing season, all checked against IRS.gov.
1. 100% bonus depreciation is back — and now permanent
The benefit: You can deduct the full cost of qualifying equipment, machinery, vehicles and other business property in the year you buy it, instead of spreading it over five to seven years.
Applies to qualified property acquired after January 19, 2025, and the 100% rate is now permanent (IRS).
Before the law changed, bonus depreciation had been phasing down and was only 40% for 2025.
For your first tax year ending after January 19, 2025, you can elect the lower 40% rate instead if spreading deductions out works better for you.
The IRS issued interim guidance in Notice 2026-11.
What to do: If you were planning to replace a truck, oven, computer system or other equipment, buying and placing it in service before December 31 can lower this year's tax bill.
2. Section 179 expensing limit jumps to $2.5 million
The benefit: Section 179 lets you choose which assets to write off immediately, which gives you more control than bonus depreciation.
Before | Now | |
Maximum Section 179 deduction | $1,000,000 (before inflation adjustments) | $2,500,000 |
Phase-out starts when purchases exceed | $2,500,000 | $4,000,000 |
Effective | — | Tax years beginning after Dec. 31, 2024 |
Both amounts will be adjusted for inflation each year after 2025 (IRS). Unlike bonus depreciation, the Section 179 deduction generally can't create a loss, so it's limited to your business income.
What to do: Ask your tax preparer whether Section 179, bonus depreciation, or a mix gives you the best result this year. See IRS Publication 946 for the details.
3. Fewer 1099s: the $600 threshold rises to $2,000
The benefit: Less paperwork. For the first time in decades, the threshold for issuing Forms 1099-NEC (contractors) and 1099-MISC (rent, prizes and other payments) has gone up.
Payments made in 2025: the old $600 threshold still applies (forms due January 2026).
Payments made in 2026 and later: file only when you pay someone $2,000 or more in the year (IRS FAQ).
Starting in 2027, the $2,000 amount may be adjusted for inflation (IRS instructions).
Payment apps (Form 1099-K): backup withholding on payments through platforms like PayPal or Venmo generally applies only once a payee passes both $20,000 and 200 transactions in a year, not the $600 level once scheduled (IRS).
What to know: A smaller form count doesn't change what's taxable. Contractors still report all income, and you still need a Form W-9 on file. Some states may keep a $600 threshold, so check your state's rules.
4. A bigger, permanent credit for offering paid family leave
The benefit: If you give employees paid family or medical leave, you can get a federal tax credit worth 12.5% to 25% of the wages paid during that leave, for up to 12 weeks a year. The credit was temporary; it is now permanent and easier to qualify for (IRS, Aug. 5, 2026).
What's new starting in 2026:
More employees count: workers with six months of service, and part-timers who usually work 20+ hours a week.
Insurance counts: you can claim the credit on premiums for a paid-leave insurance policy, not just on wages paid during leave.
State mandates help: leave required by your state or city can count toward eligibility (though not toward the credit amount).
What to do: If you've wanted to offer paid leave to compete for good workers, this credit makes it cheaper. Details are in Notice 2026-28 and the IRS Section 45S FAQs.
5. Research and development costs are deductible right away again
The benefit: Since 2022, businesses had to spread U.S. research and development costs over five years. For tax years beginning after December 31, 2024, you can once again deduct domestic R&E costs in the year you pay them, or choose to spread them over at least 60 months if that suits you better (IRS).
This isn't only for labs. Developing a new product, recipe, software tool, manufacturing process or custom design can involve qualifying costs.
Foreign research costs still must be spread over 15 years.
Small businesses (average gross receipts of about $31 million or less) had a chance to apply the change back to 2022–2024 tax years, but that window closed July 6, 2026 for most taxpayers (Taxpayer Advocate Service).
Transition rules are in Revenue Procedure 2025-28.
What to do: If you develop or improve products or processes, talk with your tax preparer about deducting these costs, and about the separate research tax credit.
Your year-end checklist
List equipment, vehicles or software you plan to buy, and whether to place it in service before December 31.
Decide with your tax preparer between bonus depreciation and Section 179 for each purchase.
Update your 1099 process: $600 for 2025 payments, $2,000 for 2026 payments. Keep collecting W-9s.
If you offer (or are considering) paid family leave, check whether you qualify for the expanded credit.
Flag any product, process or software development costs so they can be deducted.
Need help? We help small businesses keep clean books and take advantage of every deduction they're entitled to. Contact us to review how these changes apply to you.
This post is for general information and is not tax or legal advice. Rules have conditions and exceptions, and IRS guidance continues to be released. Talk with a qualified tax professional about your situation.
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