Important Notice: This article is provided for general informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before making decisions.
The "One Big Beautiful Bill" (OBBB) Act includes a wide set of tax changes that will create impact during the 2026 tax year. It updates how small businesses can deduct equipment, treat research and development costs, and claim certain credits.
It also reshapes rules for pass through income, employee pay items like tips and overtime, and reporting for digital payments.
Many of these changes are designed to offer more certainty from year to year, and to offer extra support to smaller operations, including very small or part-time businesses.
Together with the regular standard deduction that owners already claim on their personal returns, these new rules can change the way a small business figures its total deductions and taxable income.
Notice: This content is for informational purposes only and does not constitute legal, tax, or financial advice. Readers should consult with a qualified professional.
Some areas where these changes touch small businesses:
- Buying and deducting equipment
- Taking the 20% pass through deduction
- Handling employee pay and benefits
- Reporting digital payments and contractor pay
- Treating research and development costs
This article is for general information only. It does not replace advice from a trained tax expert, lawyer, or accountant.
Observed changes to equipment and technology deductions
Running a small business often means buying items that last more than one year. These items are called business property or equipment.
With legacy tax rules, businesses often had to spread the cost of these items over many years. This is called depreciation, and it can be slow and hard to track.
The OBBB Act changed how some of these costs can be deducted. For 2026, two rules are especially important: the higher Section 179 expensing limit of $2.5 million, and the restoration of 100% bonus depreciation as a permanent rule.
The Tax Policy Center explains that these rules are now set in a more stable way, which helps small businesses plan ahead, and Thomson Reuters notes that the OBBB Act made these changes a key tool for small business tax planning.
Understand the new $2.5 million section 179 threshold
Section 179 lets a business deduct the full cost of certain property in the year it is placed in service. Public Law 119 21 increased the Section 179 expensing limit to $2.5 million for the 2026 tax year. A business can expense up to $2.5 million of qualifying equipment in 2026, as long as the property is used more than 50% for business and is placed in service by December 31, 2026.
The limit applies each year, not just once.
Items that often qualify include point of sale hardware, office computers and printers, store fixtures like shelves and counters, restaurant equipment such as freezers and ovens, and certain business vehicles. For a very small business, $2.5 million is a very high number, so most shops and restaurants will never reach it.
The Tax Policy Center notes that this level helps not just tiny firms but also growing medium sized businesses. However, Section 179 has detailed rules and some limits for very large purchases, so Thomson Reuters warns that owners should use Section 179 with guidance from a tax professional.
The permanent status of 100% bonus depreciation
Bonus depreciation is another way to deduct property costs quickly. It is different from Section 179 but can be used with it in some cases. Under the OBBB Act, 100% bonus depreciation was restored and made a permanent part of the tax code beginning in early 2025.
A business can deduct 100% of the cost of qualifying new or used assets in the first year they are placed in service, as long as the asset has a recovery period of 20 years or less under tax rules.
Bonus depreciation can help when the business buys more property than it wants to cover with Section 179, or when the owner wants to save Section 179 for special items. The Tax Policy Center notes that making 100% bonus depreciation permanent removes the old problem of rules phasing down over time, and Thomson Reuters adds that this gives businesses more certainty about large projects and technology upgrades.
At the same time, big first year deductions can mean fewer deductions in later years, so a certified public accountant can help compare Section 179, bonus depreciation, and normal depreciation.
Structural updates to the 20% pass through deduction
Many small businesses do not pay tax as regular corporations. Instead, they are set up as sole proprietorships, partnerships, limited liability companies, or S corporations. These are called pass through entities because the profit passes through to the owners’ personal tax returns.
Section 199A of the tax code created a 20% deduction for many of these owners, called the Qualified Business Income or QBI deduction. Before the OBBB Act, this deduction was set to end after a few years.
The OBBB Act made the 20% deduction permanent and added a new $400 minimum deduction for small earners. The Tax Policy Center explains that these changes are meant to give long term relief and to help smaller operations share in the benefit.
Permanent extension of the section 199A deduction
Public Law 119 21 states that the 20% Section 199A deduction is no longer set to expire at a certain date. If business income qualifies under Section 199A, the owner may claim up to a 20% deduction on that income, which reduces the amount of income that is taxed.
It applies to many sole proprietors, LLC members, partners, and S corporation shareholders, though some high income owners and certain service businesses still face extra limits.
For example, if a store owner has $80,000 of qualified business income in 2026 and meets all the tests, they may be able to deduct up to $16,000. The Tax Policy Center notes that making this rule permanent helps business owners plan for the future because they no longer have to guess whether the deduction will still exist in later years.
The new $400 minimum deduction for small entities
To help very small operations, the OBBB Act introduced a $400 minimum deduction linked to the QBI rules. Public Law 119 21 explains that if a taxpayer has at least $1,000 of qualifying business income, they are allowed a minimum deduction of $400, even when the normal rules would reduce the usual 20% deduction to an amount below $400.
This can matter for a part time online seller, a new local service such as a lawn care business, or a tiny retail stand that only runs on weekends.
Thomson Reuters points out that this new minimum helps bring very small business owners into the system in a positive way and may encourage better recordkeeping.
Not all income counts as qualifying business income. The rules are detailed. A tax professional can help a small owner check whether they qualify and how to claim the minimum deduction.
New information on employee related tax provisions
Many small businesses depend on employees. They pay wages and may offer benefits, and tax rules affect how this pay is taxed for both workers and the business. The OBBB Act and related IRS guidance changed some rules for tips and overtime pay, as well as for employer provided childcare. IRS Publication 15 (2026), Employer’s Tax Guide | Circular E, explains how employers must handle wages, tips, and other pay for federal tax withholding and reporting.
Trends in tax exempt tips and overtime pay
For the tax years 2025 through 2028, Public Law 119 21 creates special treatment for some tip and overtime income. Certain tips and overtime pay may be treated in a special way for tax purposes.
Employers must keep careful records to show which amounts are regular pay and which are qualifying tips or overtime, and payroll reports and software may need updates.
For a restaurant or bar, this can mean tracking tips by worker and by type, as IRS Publication 15 requires, and using payroll reports that clearly flag amounts that qualify for the special 2025 to 2028 rules.
For a store or warehouse that often uses overtime, this can mean recording normal hours and overtime hours in a clear, separate way. Because these special rules end after 2028, small businesses should watch for future updates from the IRS.
Expanded credits for employer-provided childcare
Childcare is a big concern for many workers, and some employers help with this cost by running an onsite childcare cente,r or by paying part of the cost at a nearby daycare.
The OBBB Act greatly expanded the credit for employer provided childcare. According to Public Law 119 21 and the Thomson Reuters analysis:
- The credit now covers 50% of qualifying childcare expenses
- The maximum annual credit has been raised to $600,000 per business
- This is a major increase in federal support for workplace childcare programs.
Because this is a credit, not just a deduction, it directly reduces the tax owed, up to the limit. IRS Publication 15 (2026) points employers to other IRS forms and rules for claiming credits related to benefits.
Evolution of digital reporting and tech driven compliance
Modern small businesses often take payments through apps and websites and hire independent contractors. Many are also creating their own software or new products. The OBBB Act and IRS guidance changed several rules in these areas:
- Form 1099 K for payment apps and card processors.
- Form 1099 NEC for nonemployee pay.
- The way domestic research and development costs are expensed.
The Tax Policy Center notes that these changes aim to ease reporting for small sellers and to support domestic innovation.
Updated 1099 K and 1099 NEC reporting thresholds
Form 1099 K reports certain payments processed by third party networks, such as many payment apps and online marketplaces.
Under Public Law 119 21, the reporting threshold for 1099 K has been set back to:
- $20,000 in total payments in a year
- And 200 or more transactions in that year
The OBBB Act also raised the threshold for Form 1099 NEC. Starting in 2026, a business must file a 1099 NEC for an independent contractor if it pays that contractor $2,000 or more in a year.
IRS Publication 15 (2026) explains who is an employee and who is a nonemployee and points to rules for filing information returns like 1099 NEC and 1099 K.
Restored immediate expensing for domestic R&D
Research and development or R&D means activities to create or improve products, processes, or software.
The OBBB Act reversed earlier changes for domestic R&D. Public Law 119 21 states that businesses can once again fully expense qualifying domestic R&D costs in the first year. The Tax Policy Center and Thomson Reuters both note that this is meant to encourage research activity inside the United States.
If the activities meet the tax definition of qualified domestic R&D, the related wages, supplies, and some contract costs may be expensed in the year paid or incurred.
Because the definition of R&D is technical, and because different rules applied in the past few years, Thomson Reuters advises that businesses consider a look back review to see if older R&D costs may now qualify for better treatment through amended returns.
Summary of key dates and professional coordination
Knowing what the rules say is only part of staying compliant. Small businesses also need to know when the rules start, when they end, and what records to keep so they can support each deduction they claim.
2026 compliance and recordkeeping trends
For 2026, several points stand out for small businesses. The federal standard mileage rate has moved to 72.5 cents per mile for business use of a vehicle, and assets generally must be placed in service by December 31 to qualify for 2026 tax benefits. If a business uses the standard mileage rate, it multiplies its business miles by the IRS rate instead of tracking every actual vehicle cost. To support this method, owners should keep detailed logs that show the date of each trip, the number of miles driven, and the business purpose.
The idea of an asset being placed in service is also critical. For Section 179, bonus depreciation, and many other rules, an asset must be ready and available for use by the end of the tax year, not just ordered or paid for. Owners should keep good records, such as invoices, delivery dates, and installation reports, to prove when an asset was placed in service and to back up the year in which they claimed the deduction.
Consulting with tax professionals
The OBBB Act touches many parts of the tax code at once. It affects equipment and technology deductions, pass through income and the QBI deduction, employee pay and benefits, digital payment reporting, contractor rules, and domestic R&D expenses.
Because each business is different, only a tax professional can apply these rules to a specific case and show how they work together with the owner’s standard deduction and other personal items to produce total taxable income.
Tax experts often suggest a look back review to check if prior year R&D costs might now qualify for better treatment, confirm that 199A pass through deductions and the new $400 minimum were used when allowed, make sure equipment purchases were placed in service and deducted in the best way, and confirm that payroll and 1099 reporting followed IRS Publication 15 (2026) and other IRS rules.
For many small businesses, meeting with a tax professional before big purchases and before filing returns is a helpful habit. A knowledgeable advisor can review plans for new equipment, hiring, or benefits, explain the current rules, and help set up stronger recordkeeping for mileage, payroll, and digital payments so the business is prepared if questions come up later in any tax year.
Important Notice: This article is provided for general informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before making decisions.
Sources
- Thomson Reuters, IRS Provides Guidance on Post-OBBB Bonus Depreciation, et. al (January 15, 2026) retrieved January 28, 2026
- US Government, Public Law 119-21 - July 4, 2025, (July 2, 2025), retrieved January 28, 2026
- Wikipedia, One Big Beautiful Bill Act, retrieved January 28, 2026
- Congress.gov, H.R.1 - An act to provide for reconciliation pursuant to title II of H. Con. Res. 14., (July 4, 2025), retrieved January 28, 2026
- IRS.gov, One, Big, Beautiful Bill provisions, (July 4, 2025), retrieved January 28, 2026
- Intuit TurboTax, Taxes 2025-2026: One Big Beautiful Bill Act Tax Law Changes and How That Impacts You, (January 15, 2026),retrieved January 28, 2026
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