Small Business Tax Planning in 2026: What the Permanent Rules Mean for You

For years, small business tax planning came with an asterisk: “if this provision is still around next year.” Several of the biggest rules are now permanent, which makes it easier to plan ahead. Here is what changed and what to revisit before the year closes.

The 20% QBI deduction is permanent

Eligible owners of sole proprietorships, partnerships, S corporations, and LLCs can generally deduct up to 20% of qualified business income, subject to income limits and other rules.

With the expiration date gone, it’s worth revisiting past decisions made under the assumption it would end. That might include whether to stay a sole proprietor or elect S corporation status, or how you pay yourself as an owner. But don’t change your entity just to chase a bigger QBI number. Entity choice affects payroll taxes, self-employment tax, retirement plans, state taxes, and paperwork. The best QBI answer isn’t always the best overall one.

Service businesses such as consulting, accounting, and law face extra limits at higher incomes. If you have more than one line of business, how each is classified deserves a careful look.

100% bonus depreciation is back to stay

Qualifying equipment you acquire and place in service after January 19, 2025 can generally be written off in full in the first year. Section 179 is another option: for 2026 you can expense up to $2.56 million of qualifying property, with the benefit phasing out once purchases pass $4.09 million.

Having both doesn’t mean you should always take the biggest deduction. If your income will be higher next year, or you want to keep your reported profit up for a loan, spreading deductions out may be smarter.

Research costs are deductible again

For tax years beginning after 2024, domestic research and experimental costs are generally deductible right away under Section 174A. You can instead elect to spread them over at least 60 months. Costs from 2022 through 2024 that had to be amortized over five years may have transition rules that let you deduct the remaining balance. If you develop products or software, make sure your return reflects a deliberate choice.

Check the interest deduction before you borrow

The limit on business interest deductions (Section 163(j)) generally doesn’t apply to smaller businesses. For 2026, the cutoff is average annual gross receipts of about $32 million over the prior three years. For tax years beginning after 2024, depreciation, amortization, and depletion are added back when calculating the limit, which can allow more interest to be deducted for businesses that are subject to it.

Paid family and medical leave credit

The employer credit for paid family and medical leave is now permanent and has been expanded. Beginning in 2026, employers can base it on wages paid during leave or on premiums paid for qualifying paid-leave insurance. More employees can be counted, including those with six months of service and part-timers who work 20 or more hours a week. If you already offer paid leave, you may be missing a credit.

Energy credits are ending

Several clean-energy credits have already expired or are on tight deadlines. If you’re planning a project, keep contracts, invoices, and dates showing when property was acquired and placed in service. Those dates decide whether a credit is available.

What to do now

Review your entity structure and owner pay.
Plan equipment purchases with both bonus depreciation and Section 179 in mind.
If you pay for research or software development, confirm how it’s being treated.
If you offer paid leave, ask whether you qualify for the credit.

Not every change calls for action. The point is to make sure your decisions still fit where the business is heading. Book a call with FlowTex and we’ll walk through it.

Sources

This article is general information, not tax or legal advice. Your facts, entity type, and state rules can change the answer. Talk to a qualified professional before acting.