Small Business Tax Deductions in 2026: What Changed and What to Claim Before December 31

By Vivian London, London's Tax Services | 09/22/2026

Here is an uncomfortable stat from 20+ years of looking at small business returns: most owners can name about six deductions. The tax code holds dozens, and it just went through its biggest rewrite since 2018. So let's fix that. This is the plain-English guide to small business tax deductions in 2026: what changed under the new law, what quietly disappeared, the write-offs owners miss every single year, and the handful of moves that only work if you make them before December 31.

The short version: Almost any ordinary and necessary cost of running your business is deductible in 2026, and the rules just got friendlier. 100% bonus depreciation is now permanent, Section 179 expensing covers up to $2.56 million, the 20% QBI deduction is permanent with a new $400 minimum, and domestic R&D costs are immediately deductible again. A few breaks are gone, a few are expiring, and every single deduction still lives or dies by your records.

First, how a deduction actually works

Thirty seconds of foundation, because this is where expensive misunderstandings start. A deduction reduces the income you are taxed on, not your tax bill directly. If your combined federal and New York rate is around 30%, a $1,000 deduction saves you roughly $300. A tax credit, by contrast, cuts the bill dollar for dollar. Deductions are still the bread and butter of small business tax savings because there are so many of them, and because they stack: the same dollar of equipment can shrink your income tax, your self-employment tax, and your QBI math at the same time.

The IRS standard for what qualifies is two words: ordinary and necessary. Ordinary means common in your line of work; necessary means helpful and appropriate for the business. It does not mean indispensable, and it absolutely does not mean "has the word business written on the receipt." Keep that standard in mind as you read the list, because every item on it assumes a real business purpose you could explain with a straight face.

What changed for 2026: the one-table summary

The One Big Beautiful Bill Act (OBBBA) passed in July 2025, and 2026 is its first full year in effect. If you read tax tips written before mid-2025, a lot of them are now wrong. Here is the before and after:

One warning before we go deeper: a few of the guides ranking on Google right now claim the QBI deduction rose to 23%. It did not. That number was in an early draft of the bill. The law that actually passed keeps it at 20% and makes it permanent. When the details decide the dollars, drafts do not count.

The big five to work before December 31

These are the deductions with real money attached and a real deadline. Everything here has to be done, bought, or placed in service by year-end to count on the 2026 return.

1. 100% bonus depreciation is back for good

Buy a qualifying piece of equipment, a work truck, machinery, computers, most furniture, and write off the entire cost this year instead of depreciating it over five to seven. A $48,000 piece of equipment placed in service by December 31 is a $48,000 deduction on the 2026 return. For years, owners rushed purchases to beat the phase-out schedule. That pressure is gone: the 100% rate is permanent. The December deadline is not about the law anymore, it is about which tax year gets the deduction. "Placed in service" means in use, not on order, so a machine sitting on a delivery truck on January 2 deducts in 2027.

2. Section 179, the other way to expense it

Section 179 does a similar job with different rules: up to $2.56 million of equipment and off-the-shelf software expensed immediately, with the deduction capped at your business income. Most small businesses will simply use bonus depreciation now, but 179 still matters for certain vehicles and for state returns. Which brings up a very New York point: New York does not follow federal bonus depreciation. Your NY return generally adds it back and depreciates the slow way, while Section 179 mostly carries over. Your federal and state numbers will not match, and that is normal, but it should be planned, not discovered.

3. The QBI deduction: 20% off the top, now permanent

If you run a sole proprietorship, LLC, partnership, or S corp, the Qualified Business Income deduction takes 20% of your business profit off your taxable income before the tax math even starts. $100,000 of profit, roughly $20,000 deducted, without spending a dime. It was scheduled to die after 2025; it is now permanent, with a new $400 minimum deduction if you have at least $1,000 of business income you materially participate in. Above roughly $201,750 of taxable income for singles and $403,500 for joint filers, limits phase in, especially for service businesses. That is not a reason to shrug. It is a reason to plan, because entity structure and W-2 wages can change what you keep.

4. Retirement contributions: the deduction that pays you

A solo 401(k) or SEP IRA turns money you were keeping anyway into a deduction. The catch is timing: a solo 401(k) generally needs to exist before year-end to capture this year's benefits, while a SEP can wait until filing. If you had a profitable 2026, this is often the single biggest deduction still available in December, and it is the only one on this list that ends up in your own pocket.

5. The R&D catch-up almost nobody has claimed

If your business spent money developing software, products, or processes between 2022 and 2024, you were forced to spread those deductions over five years. That rule is dead: domestic R&D costs are immediately deductible again, permanently, and smaller businesses may be able to amend recent returns to reclaim what they already capitalized. If the words "we capitalized our development costs" appear anywhere in your file, have a professional look. There may be a refund sitting in your old returns.

The everyday deduction checklist

None of these are exotic. All of them get missed when the books are messy. Walk your actual spending against this list:

Your workspace: rent, utilities, business insurance, repairs, office supplies, furniture. Working from home? The home office deduction gives you $5 per square foot up to $1,500 with the simplified method, or the actual business-use percentage of rent and utilities, as long as the space is used regularly and exclusively for the business. Yes, renters qualify.

Your people: employee wages and payroll taxes, contractor payments, employee benefits, retirement plan contributions and matches. If you are self-employed, your own health insurance premiums are deductible too, and that one gets forgotten constantly. Note for 2026: you only need to issue a 1099-NEC to contractors you paid $2,000 or more, up from the old $600 threshold.

Getting around: business use of your vehicle at 72.5 cents per mile for January to June 2026 and 76 cents from July 1 (or actual expenses), parking and tolls, flights, hotels, and 50% of meals while traveling for business. Client and business meals are 50% deductible; the company holiday party is 100%. Sorry, the daily commute is still not deductible. It never was.

Running the machine: software subscriptions, your website, phone and internet at the business-use percentage, marketing and advertising, merchant fees, interest on business loans and credit cards, and professional fees. That last one includes bookkeeping and tax prep, which means getting your books done professionally is itself a write-off.

Growth: courses, certifications, and books that improve skills for your current business, up to $5,000 of startup costs in year one for a new business, and genuinely uncollectible invoices if you are on the accrual method.

The deductions owners always miss

These are the ones that make people say "wait, that's legal?" It is, with rules.

• The Augusta rule. Rent your own home to your business for a legitimate purpose, a board meeting, a planning retreat, a client event, for up to 14 days a year. The business deducts market-rate rent; you receive that income tax-free. Document the business purpose and the local market rate, or do not do it at all.
• Hiring your kids. Pay your under-18 child a fair wage for real work in a parent-owned sole proprietorship or partnership and there is no Social Security or Medicare tax on those wages, and the child's standard deduction shelters roughly the first $16,000 from income tax. The business deducts the wage. Real work, real timesheets, real paychecks.
• The business percentage of "personal" bills. Phone, internet, and the car are partly business for almost every owner. A defensible percentage, applied consistently, is money every year.
• Fees you already paid. Bank fees, payment processing, bookkeeping, tax prep, legal advice. Owners skim right past these because they feel like plumbing. They are deductions.
• Educational assistance for your team. A written educational assistance plan lets you cover up to $5,250 per employee per year tax-free, deductible to you, tax-free to them, and it can even go toward their student loans.
• Prepaying December bills. If you are on the cash method, expenses paid in December count in 2026 even if they cover early 2027. Rent, insurance, subscriptions, a stocked-up supply order: paying them before December 31 pulls the deduction into this year. The general limit is 12 months of benefit, and it works best in a year when income ran high.

Every item above survives an IRS look only when it is documented the way the IRS expects. Which is the entire point of the next two sections.

Gone or going: check the expiration dates

The 2026 rewrite gave with one hand and took with the other:

• The commercial clean vehicle credit is gone. It ended September 30, 2025. If a dealer is still pitching "up to $40,000 back" on an electric work van, that math is from last year.
• The energy-efficient commercial buildings deduction (179D) is ending. Projects must begin construction by June 30, 2026 to qualify. After that, it is off the table.
• Tips and overtime relief expires after 2028. Your employees can deduct up to $25,000 in reported tips and up to $12,500 ($25,000 joint) in overtime premium pay through 2028. If you run a restaurant, salon, or trade crew, your payroll reporting now directly affects your team's take-home. Get the W-2 reporting right.
• Old advice is now wrong advice. Any article telling you bonus depreciation is phasing down, QBI is expiring, or the SALT cap is $10,000 was written for a tax code that no longer exists. Check the date on what you read, including ours: this one is current as of September 2026.

The New York wrinkle: SALT and the PTET

Two things every New York owner should know. First, the personal SALT deduction cap is now just over $40,000, which is real relief in a high-tax state, but it phases back toward $10,000 once income passes roughly half a million dollars. Second, for pass-through owners above that range, New York's Pass-Through Entity Tax election remains the workaround: the entity pays the state tax, deducts it federally with no cap, and you get a matching NY credit. The catch is the calendar. The PTET election for a tax year closes on March 15 of that year, so 2026 is already locked. If it fits your picture, March 15, 2027 is the date to circle now, which is exactly the kind of thing a year-round tax plan exists to catch.

Deductions die without documentation

Here is the part nobody puts in the headline: every deduction on this page is only as good as the records behind it. The IRS's own guidance on deducting business expenses comes down to two words, ordinary and necessary, plus one demand: prove it.

That means contemporaneous records. A mileage log kept during the year, not rebuilt from memory in March. Receipts that live somewhere findable. And most of all, books where every transaction is actually categorized, because you cannot deduct what you never recorded. An uncategorized expense sitting in a "Miscellaneous" pile is a deduction you silently donated to the IRS. Messy books are not an April problem; they are a January-through-December leak. If the books are behind, catching them up now costs less than it will in tax season, and we wrote a full breakdown of what professional bookkeeping costs if you want real numbers.

Your year-end timeline, so none of this stays theoretical

Deduction lists are where good intentions go to nap. Here is the same material as a calendar:

October: see your real numbers. Get the books current through Q3 and project where the year lands. Every decision below depends on knowing whether 2026 is a high-income year worth offsetting or a lean one where deductions should wait. This step is the whole reason catch-up bookkeeping exists.

November: make the money decisions. Price out equipment purchases and confirm delivery so assets are placed in service by December 31. Open the solo 401(k) if you want one for 2026. Review whether the PTET election belongs on your March 15, 2027 calendar. Decide what December prepays make sense.

December: execute. Place equipment in service, run the bonuses and family payroll properly through payroll, pay the prepays, make retirement contributions you planned, and book January's estimated payment (due January 15) so it does not ambush you.

January: stop. For almost everything on this page, January is too late for 2026. What is left is filing well, and wishing you had read this in September. You did.

Frequently asked questions

What can a small business write off in 2026?

Any ordinary and necessary business expense: rent, utilities, wages, contractor payments, equipment (now 100% deductible in year one under permanent bonus depreciation), software, marketing, business insurance, business use of a vehicle at the IRS mileage rate (72.5 cents through June 2026, 76 cents from July 1), 50% of business meals, self-employed health insurance, retirement contributions, and professional fees. Pass-through owners also get the 20% QBI deduction on top.

What is the biggest tax change for small businesses in 2026?

Permanence. The 20% QBI deduction and 100% bonus depreciation were both scheduled to shrink or disappear, and the One Big Beautiful Bill Act made both permanent. Section 179 expensing also roughly doubled to $2.56 million, and domestic R&D costs are immediately deductible again. The QBI rate stayed at 20%, not the 23% some early articles claimed.

Can I write off 100% of a vehicle for my business?

Sometimes. Under permanent 100% bonus depreciation, a vehicle used entirely for business can be fully deducted in year one, and heavier vehicles (over 6,000 pounds) face fewer limits than passenger cars. The write-off shrinks with any personal use, and New York does not follow federal bonus depreciation on the state return. Get the business-use percentage documented before you get the deduction.

Are business meals 100% or 50% deductible in 2026?

Business meals with clients, prospects, or your team are generally 50% deductible in 2026. The main exception still standing is recreational events for the whole team, like the company holiday party, which remain 100% deductible. Keep the receipt and note who attended and why.

Can I claim the home office deduction if I rent my home?

Yes. Renters and owners both qualify if the space is used regularly and exclusively for business. The simplified method gives $5 per square foot up to $1,500 per year; the regular method deducts the business-use percentage of actual rent and utilities, which often comes out higher for renters.

What happens if I claim deductions without receipts?

The deduction survives until someone asks. On an audit, undocumented deductions get disallowed, with interest and penalties on the tax owed. The fix is boring and effective: books kept monthly, receipts captured when they happen, and a mileage log kept in real time. Documentation is the difference between a deduction and a donation.

Do the new tips and overtime deductions apply to business owners?

They apply to workers with reported W-2 tips and overtime premium pay, so they benefit your employees rather than your owner draw. Through 2028, employees can deduct up to $25,000 in tips and up to $12,500 ($25,000 joint) in overtime pay. As the employer, your job is accurate payroll reporting, because that is what makes your team eligible.

Turn this list into an actual number

Reading about small business tax deductions saves exactly zero dollars; claiming them before the window closes is what counts, and the big ones on this page close December 31. That is what year-end planning is: walking your real numbers against this list in October instead of discovering it all in April. Bring us your books, even messy ones, and in 15 minutes we will tell you which of these apply to you and roughly what they are worth. That is what we mean by maximize your dollars. Book a free 15-minute consult or call (646) 917-7714. No pressure, no obligation. December does not extend.