Small business tax deductions for 2026: the checklist and what the new law changed

The 2026 small business deductions at a glance

These are the deductions most self-employed owners claim on a 2026 return, with the figure that applies and the record that holds up if the IRS asks.

What the One Big Beautiful Bill Act changed for 2026

The One Big Beautiful Bill Act (P.L. 119-21, which IRS pages now call the "Working Families Tax Cuts") rewrote several business deductions. The ones that change a 2026 return:

• Bonus depreciation is 100% and permanent for qualified property acquired after January 19, 2025. Before the law it was phasing down.
• Section 179 rose to a $2,500,000 base limit with a $4,000,000 phase-out, indexed for inflation. For 2026 that is $2,560,000 and $4,090,000.
• Domestic research costs are deductible again in the year you pay them.
• The qualified business income deduction is permanent, with a new $400 minimum.
• The 1099-NEC threshold is $2,000 for payments made in 2026. It does not change what you can deduct, only which contractors get a form. See the 1099-NEC threshold.

The end of the employer meal deduction is not from this law: it was scheduled by the 2017 Tax Cuts and Jobs Act. The new law only added narrow exceptions.

Vehicle and mileage deduction for 2026

The IRS raised the business rate in the middle of the year. Miles driven from January 1 to June 30, 2026 are 72.5 cents; miles from July 1 to December 31 are 76 cents. Your log has to split the year at June 30. Commuting from home to a regular workplace never counts. Detail and examples: IRS mileage rate for 2026.

Home office deduction: the $5 simplified method

The space must be used regularly and only for the business, though it does not need a wall around it. Storing inventory or product samples and running a daycare are the two exceptions to the "only" rule. The simplified method is $5 a square foot on up to 300 square feet, so $1,500 at most, with no utility bills to add up. It does not allow depreciation on the home. A large or expensive home may do better on the actual expense method in Publication 587.

Equipment: Section 179, 100% bonus depreciation and the $2,500 rule

Three tools write off equipment in the year you buy it:

1. De minimis safe harbor. Items up to $2,500 per invoice or item are simply expensed, with no depreciation schedule. You elect it each year with a statement titled "Section 1.263(a)-1(f) de minimis safe harbor election" attached to your timely filed return.
2. Bonus depreciation. 100% of the cost of qualified property acquired after January 19, 2025, with no overall dollar cap (certain passenger cars keep their own yearly depreciation limits). It applies unless you elect out for a class of property.
3. Section 179. Up to $2,560,000 for tax years beginning in 2026, limited to your taxable business income (the excess carries forward). An SUV rated over 6,000 pounds gross vehicle weight is capped at $32,000.

Property has to be placed in service (ready and available for its job) by December 31 to count for 2026.

Business meals and employee meals in 2026

A meal with a current or potential client, customer or consultant is generally 50% deductible when you or an employee are present and it is not lavish. Write who was there and why on the receipt.

For amounts paid after 2025, you can no longer deduct food and drinks you provide employees through an on-site eating facility or for your convenience. P.L. 119-21 carved out limited exceptions, including restaurants. A holiday party or annual picnic for staff stays 100% deductible when it is mainly for employees other than highly compensated employees.

Research costs under Section 174A

For tax years beginning after December 31, 2024, domestic research and experimental costs are deductible in the year paid, or you can elect to amortize them over at least 60 months. Foreign research stays on a 15 year schedule. Domestic costs from 2022 to 2024 that are still being amortized can be deducted in the first tax year beginning after 2024 or spread over two years. The small business election to amend those earlier returns had a July 6, 2026 deadline for many taxpayers, which has passed.

The qualified business income deduction is permanent

Owners of pass-through businesses can deduct up to 20% of qualified business income. From 2026, anyone with at least $1,000 of QBI from a business they actively run can claim at least $400. Wage and service-business limits start above taxable income of $201,750 ($403,500 joint) and now phase in over $75,000 ($150,000 joint).

Retirement contributions and health insurance

For 2026: 401(k) deferrals up to $24,500, plus $8,000 at age 50 or older or $11,250 at ages 60 to 63. Total contributions to one person's account cap at $72,000. A SEP takes up to 25% of compensation, also capped at $72,000; for your own SEP, compensation is net self-employment earnings, and Publication 560's rate table gives your lower rate. SIMPLE IRA deferrals are $17,000; a regular IRA is $7,500.

Self-employed health insurance covers medical, dental, vision and qualified long-term care premiums for you, your spouse, your dependents and a child under 27 at year end. You lose it for any month you could have joined an employer's subsidized plan, including your spouse's. It does not reduce self-employment tax.

A worked example: one painter's 2026 deductions

Say a sole proprietor house painter has this year:

The health insurance goes on Schedule 1, not Schedule C, so it lowers income tax but not self-employment tax. Had the painter used 76 cents for all 9,000 miles, the claim would be $6,840, or $140 too high.

The mistakes that cost the most

• One card for personal and business spending. Every deduction becomes a reconstruction, and an examiner can question all of it.
• Meal receipts with no names. Without who attended and why, a client lunch looks like a personal one.
• Mileage rebuilt in April. A log written from memory is the first thing to fall apart.
• Depreciating what could be expensed. A $1,899 laptop on a five year schedule waits years for a deduction the $2,500 rule allows now.

If your receipts live in a shoebox, BooksGPT lets you snap them from your phone's browser and keep each one with the transaction it paid for (bills and receipts).

What to do before December 31

1. Move business spending to one business account and card.
2. Split your 2026 mileage at June 30.
3. List equipment bought this year with its acquisition date and the date it went into use.
4. Measure the home office.
5. Tag meals as client or staff.
6. Decide retirement contributions with your CPA while there is time to fund them.
7. Run through the year-end bookkeeping checklist.