Small Business Tax Deductions to Know Before Year-End 2026

The small business tax deductions most worth reviewing before December 31, 2026 are equipment expensing under Section 179 and bonus depreciation, vehicle mileage, the home office deduction, retirement plan contributions, and the qualified business income (QBI) deduction, several of which changed under the 2025 tax law. This guide explains each one with the 2026 figures from IRS sources, a year-end action checklist, and worked examples, so you can walk into your accountant’s office with the right questions.

Tax rules change, and this is general information, not tax or legal advice. Confirm how each rule applies to your business with a CPA or enrolled agent and the official IRS guidance.

What Changed for 2026

The tax law signed in July 2025 (Public Law 119-21, often called the One Big Beautiful Bill Act, and referred to by the IRS in some materials as the Working Families Tax Cuts) reshaped several deductions small businesses rely on. The IRS overview of the business tax provisions summarizes the main changes:

• Section 179 expensing limits rose to $2.5 million for 2025, indexed for inflation after that.
• Bonus depreciation was restored to 100% and made permanent for qualified property acquired after January 19, 2025.
• The QBI deduction under Section 199A, which was set to expire after 2025, was made permanent at 20%.
• Domestic research and experimental costs can again be deducted immediately under the new Section 174A, starting with 2025.
• Form 1099-NEC and 1099-MISC reporting thresholds rise from $600 to $2,000 for payments made after December 31, 2025.

Here is how those changes, along with the long-standing deductions, play out for a typical small business in 2026.

Section 179 and Bonus Depreciation

Normally, when you buy equipment, you deduct its cost over several years through depreciation. Section 179 and bonus depreciation let you deduct much or all of the cost in the year you put it to use.

Section 179 in 2026

According to IRS Revenue Procedure 2025-32, for tax years beginning in 2026:

• The maximum Section 179 deduction is $2,560,000.
• That limit is reduced dollar for dollar once the cost of Section 179 property placed in service during the year exceeds $4,090,000.
• The amount of a sport utility vehicle’s cost that can be expensed under Section 179 is capped at $32,000.

Section 179 also cannot exceed your taxable income from the active conduct of a trade or business for the year. Any amount you cannot use because of that limit carries forward to later years.

Bonus depreciation

Bonus depreciation is a separate provision with no dollar cap and no business income limit. For qualified property acquired after January 19, 2025, it is now a permanent 100% first-year deduction. Businesses can also elect a lower rate or elect out entirely, which can make sense if you expect to be in a higher bracket in future years.

The year-end catch

Both deductions depend on the date the asset is placed in service, meaning ready and available for use in your business, not the date you order or pay for it. A machine ordered on December 20 but delivered in January counts for 2027, not 2026. If you are planning a purchase to reduce 2026 taxes, confirm delivery and setup dates with the seller.

Feature	Section 179	Bonus depreciation
2026 dollar limit	$2,560,000	No dollar cap
Phase-out	Starts at $4,090,000 of purchases	None
Limited to business income	Yes (excess carries forward)	No; can create a loss
Rate	Up to full cost, chosen asset by asset	100% for property acquired after Jan. 19, 2025, unless you elect otherwise
SUV limit	$32,000 for 2026	Separate rules apply

Vehicle and Mileage Deductions

If you use a car, van or pickup for business, you can generally deduct either the actual costs (gas, insurance, repairs, depreciation, and so on, times your business-use percentage) or a flat rate per business mile. The standard mileage method is simpler and is what most sole proprietors use.

2026 is unusual because the IRS changed the rate mid-year. According to the IRS standard mileage rates page:

Period	Business rate
January 1 to June 30, 2026	72.5 cents per mile
July 1 to December 31, 2026	76 cents per mile

That means your mileage log needs dates, not just a year-end total. Commuting from home to a regular workplace is not deductible; trips between business locations, to clients and to suppliers generally are. Keep a contemporaneous log with date, destination, purpose and miles. Apps that track trips automatically make this far easier than reconstructing it in April.

Worked example: mileage

An illustrative example: a mobile dog groomer in Phoenix drives 6,000 business miles from January to June and 7,000 from July to December. The deduction is (6,000 × $0.725) + (7,000 × $0.76) = $4,350 + $5,320 = $9,670. Using a single rate for the whole year would give the wrong number.

Home Office Deduction

If you are self-employed and use part of your home regularly and exclusively for business, you can deduct home office expenses. A guest bedroom that doubles as an office usually fails the exclusive-use test. Employees working from home for someone else cannot claim it.

There are two methods:

• Simplified method: According to the IRS page on the simplified option for the home office deduction, you multiply the square footage of the office by $5, up to 300 square feet, for a maximum deduction of $1,500. Little record-keeping is required.
• Regular method: You deduct the business percentage of actual home costs, such as mortgage interest or rent, utilities, insurance, repairs and depreciation. It takes more paperwork but can produce a bigger deduction, especially for larger offices or higher-cost homes.

Example: a 200-square-foot dedicated office gives a $1,000 deduction under the simplified method. If that office is 10% of a home with $30,000 of qualifying annual costs, the regular method could produce around $3,000, though depreciation taken on the home can affect taxes when you sell. That trade-off is a good question for your CPA.

Retirement Plan Contributions

Retirement contributions are one of the few deductions that reduce your taxes and stay in your pocket. The IRS announced the 2026 limits in November 2025; its 2026 limits release and related IRS pages give these figures:

Plan	2026 limit	Notes
401(k), including solo 401(k), employee deferral	$24,500	Catch-up of $8,000 at age 50+; $11,250 at ages 60-63
401(k) total (employee + employer)	$72,000	Or 100% of compensation, if less; catch-ups are on top
SEP-IRA	Lesser of 25% of compensation or $72,000	Compensation counted up to $360,000; self-employed use a special calculation
SIMPLE IRA employee deferral	$17,000	Catch-up of $4,000 at 50+; $5,250 at ages 60-63; some plans allow higher limits
Traditional or Roth IRA	$7,500	Catch-up of $1,100 at 50+

Timing matters

• SEP-IRA: The IRS says a SEP can be set up for a year as late as the due date of your business return, including extensions, and contributions can be made by that same date. That makes it a useful option if you discover in March that 2026 was a strong year.
• Solo 401(k): For an owner with no employees other than a spouse, a solo 401(k) allows both an employee deferral and an employer contribution, which often lets lower and moderate earners put away more than a SEP. Deadlines for setting up the plan and making the employee deferral election differ from SEP rules, so talk to your provider before year-end.
• Employer contributions for staff: If you have employees, plan rules on eligibility and matching apply. A third-party administrator can help.

The QBI Deduction

The qualified business income deduction lets many owners of sole proprietorships, partnerships, LLCs and S corporations deduct up to 20% of their qualified business income. It was due to expire after 2025 and is now permanent.

For 2026, Revenue Procedure 2025-32 sets the income thresholds at which limits begin to apply:

Filing status	Threshold	Top of phase-in range
Married filing jointly	$403,500	$553,500
Married filing separately	$201,775	$276,775
All other returns	$201,750	$276,750

Below the threshold, most owners can take the full 20% calculation regardless of business type. Above it, limits based on W-2 wages and property kick in, and owners of “specified service” businesses (such as health, law, accounting and consulting) see the deduction phase down. Starting in 2026, there is also a minimum QBI deduction of $400 for taxpayers with at least $1,000 of qualified business income from businesses in which they materially participate.

Other Deductions to Review Before Year-End

• Self-employed health insurance: Self-employed people can generally deduct health insurance premiums for themselves, their spouse and dependents, subject to rules about other available coverage.
• Business meals: Meals with clients or customers that have a clear business purpose are generally 50% deductible. Starting in 2026, most meals employers provide to staff on the business premises for the employer’s convenience are no longer deductible, according to the IRS summary of the new law.
• Startup costs: New businesses can generally deduct up to $5,000 of startup costs and $5,000 of organizational costs in the first year, with the rest amortized, subject to a phase-out for larger amounts.
• Software, subscriptions and supplies: Ordinary and necessary costs, from accounting software to printer ink, are deductible in the year paid (for cash-basis businesses).
• Research and development: Businesses that develop products or software may be able to deduct domestic research costs immediately again under the new Section 174A.
• Contractor payments: Not a deduction itself, but note the 1099-NEC threshold rises to $2,000 for payments made in 2026. Collect W-9s from contractors now so January filing is painless.

Year-End Tax Checklist for 2026

1. Pull a year-to-date profit and loss statement by early December and estimate your 2026 taxable income.
2. List any equipment, vehicles or software you plan to buy, and confirm each can be placed in service by December 31.
3. Reconcile your mileage log and split it at June 30 and July 1 for the two 2026 rates.
4. Measure your home office and decide between the simplified and regular methods.
5. Decide on retirement contributions; set up a solo 401(k) before year-end if your provider requires it.
6. If you use the cash method, consider timing: paying deductible bills in December, or invoicing in early January, can shift income and expenses between years. Discuss this with your CPA first.
7. Gather W-9 forms from every contractor you paid $2,000 or more.
8. Check your fourth-quarter estimated tax payment, due in mid-January 2027.
9. Save receipts and digital records in one place, organized by category.
10. Book a year-end planning call with your CPA or enrolled agent before mid-December.

Frequently Asked Questions

What is the Section 179 limit for 2026?

For tax years beginning in 2026, the maximum Section 179 deduction is $2,560,000, reduced once qualifying purchases exceed $4,090,000. SUVs are capped at $32,000 under Section 179. The deduction is also limited to your business taxable income.

What is the 2026 IRS mileage rate for business?

It is 72.5 cents per mile for business miles driven from January 1 to June 30, 2026, and 76 cents per mile from July 1 to December 31, 2026.

Can I deduct my home office if I also use the room as a guest room?

Generally no. The space must be used regularly and exclusively for business. A room that doubles as a guest room or family space usually does not qualify.

Is it too late to open a retirement plan for 2026?

Not necessarily. A SEP-IRA can be set up and funded up to your tax filing deadline, including extensions. Other plans, like a solo 401(k), have different setup and election deadlines, so check with your provider before year-end.

Should I buy equipment in December to save taxes?

Only if the business genuinely needs it. A deduction reduces taxes by a fraction of the cost, so spending $10,000 to save perhaps $2,000 to $3,500 in tax only makes sense if the equipment pays for itself. Make sure it is placed in service by December 31.

Did the QBI deduction expire after 2025?

No. The 2025 tax law made the 20% QBI deduction permanent and added a $400 minimum deduction from 2026 for owners with at least $1,000 of qualified business income.

Plan Now, Not in April

Most of the deductions above only help if you act before December 31: placing equipment in service, setting up a retirement plan, keeping your mileage log current. Spend an hour this month pulling your numbers together, then sit down with your tax professional. The changes in the 2025 law make 2026 a year where a little planning can make a real difference.