Running a business means juggling a hundred moving parts, and tax law changes are one of the things you can’t afford to ignore. New rules roll out each year, which can affect your tax planning strategies. Knowing how much you owe and which assets to invest in is a crucial component of your business’s financial health.
Some small business owners may consider taxes as costly obligations. But thanks to the One Big Beautiful Bill Act (OBBA), some tax law changes for small businesses may actually help them save money. Let’s walk through the most important updates this year, so you can stay compliant and avoid surprises.
Amendment #1: State and Local Income Tax (SALT) Adjustments
Every year, the Internal Revenue Service (IRS) adjusts the federal tax brackets to account for the rising cost of living. For the 2026 tax year, the standard deduction amounts at the federal level have increased by a few hundred dollars. These changes ensure that inflation doesn’t erode your individual or business’s purchasing power.
However, state and local taxes in the United States vary because different state laws and local regulations govern each jurisdiction. Property and income taxes are treated differently, although some cities adopt their state definitions and structures. Such is the case for tax laws in Rockville, Maryland, which calculates taxable income based on state and federal rules.
Small business owners in states that impose high income and property taxes may have been burdened by the rather limited SALT deductions for years. To refresh your memory, the tax provisions in the 2017 Tax Cuts and Jobs Act (TCJA) capped the amount at USD$ 10,000 per household.
The good news is that the OBBA has raised the tax benefit to USD$ 40,000, with an annual increase of one percent until 2029. Note that the cap gradually decreases or phases down for high-income earners, particularly those with Modified Adjusted Gross Income (MAGI) of over USD$ 500,000. Still, this tax benefit can lead to a massive reduction in your federal tax bill.
Amendment #2: The 20% Qualified Business Income (QBI) Deduction Stays
The Qualified Business Income (QBI) deduction, or Section 199A, allows sole proprietors, partnerships, LLCs, and S corporations to deduct 20% of their QBI from federal income taxes. They may also gain an additional 20% tax rate reduction for qualified real estate investment trusts (REITs) dividend income.
Another TCJA-born provision, it was supposed to end by 2025, until the new tax legislation made it permanent. Moreover, the IRS introduced a minimum deduction of USD$ 400 for individuals with at least USD$ 1,000 in QBI, as long as they actively participate in the business.
The income phase-out ranges have likewise been raised from USD$ 50,000 to USD$ 75,000 for single payers and from USD$ 100,000 to USD$ 150,000 for joint filers. However, the tax credits reduce as businesses exceed USD$ 394,600 in taxable amount (for married couples) and USD$ 197,300 for single taxpayers.
Amendment #3: Section 179 Deduction Cap Doubles
If you’ve been eyeing an upgrade to your business equipment, this year is the best time to make it happen. Section 179 of the federal tax code—which allows businesses to immediately deduct their full expenses for eligible machinery, software, and office improvement purchases— recently received a major lift.
The maximum deduction has doubled to USD$ 2.5 million, but it can’t exceed your taxable income for the year. Moreover, the tax credit shifts to a dollar-for-dollar reduction once a company’s total asset expenditures reach USD$ 4 million.
However, note that some states have their own tax adjustment rules, most of which don’t even reach one million. Either way, you must keep detailed invoices and usage records to show that the upgrades you’ve invested in serve primarily business purposes.
The IRS requires businesses to use up Section 179 deductions before availing the bonus depreciation deductions. Even so, not all assets qualify for each tax incentive, so it’s best to work with a tax expert to maximize these benefits.
Amendment #4: 100% Immediate Tax Break for Domestic Research and Experimental (R&E) Expenses
Innovative businesses are likewise being rewarded. Those developing new products or experimenting with new technology can ask for a 100% tax credit, provided that their average annual gross receipts don’t exceed USD$ 31 million.
Even better, businesses can deduct their R&D expenses in the same tax year, rather than a five-year amortization. This new tax rule covers qualified costs incurred since 2022, so ask a tax professional whether you’re eligible for retroactive reductions.
Conversely, you may want to think twice about green energy investments, as tax credits for solar and wind facilities, as well as electric vehicles, have been curbed by the new law.
Staying aware of the changes is integral to developing sound financial planning strategies for your business. Doing so helps you allocate your resources effectively and avoid unnecessary expenses that further lower your small business income.
Amendment #5: Higher Limits for Employer-Provided Childcare Tax Credit
In previous years, you could claim a 25% credit on qualified childcare expenses, capped at USD$ 150,000. For 2026, large businesses can claim 40% of the costs with a cap of USD$ 500,000. At the same time, eligible small businesses can slash 50% of expenses up to a maximum of USD$ 600,000. The amounts will be adjusted for inflation yearly, starting in 2027.
Another significant change is that the new law allows small businesses to pool their resources. This means local entrepreneurs can form a group and share the costs of a childcare facility or a third-party provider and remain eligible for the tax credit.
Final Thoughts
Tax law changes for small businesses can be overwhelming, but they become more manageable if you break them down. The key is awareness. Stay on top of the tax rate adjustments to protect your business from costly surprises. More importantly, take advantage of deductions.
Taxes can be a strategic tool for your business growth. The rules may shift every year, but with the right approach, you can turn these changes into advantages. So, arm yourself with the latest updates, talk to your accountant, and make sure your business is ready.
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