2026 Tax Changes for Small Business Owners: What to Start Planning for Now
Learn some of the most important 2026 tax changes for small businesses including updates to the QBI deduction, excess business loss limitations, employer credits, reporting thresholds, and pass-through tax planning strategies.
By Kendall Maccagnan, CPA, CFP® and Financial Advisor in Tampa, Florida
Key Takeaways
Enhancements to the QBI deduction and expanded phase-in ranges may allow more pass-through business owners to benefit from the 20% deduction
The excess business loss limitation is now permanent under current tax law, which may limit the ability to offset large business losses in a single year and shift tax benefits to future years
Expanded employer incentives, including the childcare credit and dependent care FSA limits, may provide additional opportunities to enhance employee benefits
Higher 1099 reporting thresholds may reduce administrative burden, though state-level requirements may still apply
Changes to individual tax provisions including SALT deductions, AMT, and charitable rules may directly impact pass-through business owners
Introduction
The 2026 tax law changes for small business owners under Public Law 119–21 or the One Big Beautiful Bill Act (OBBBA) introduce several updates that may impact how businesses approach deductions, credits, and overall tax planning. While many of the initial changes under this legislation took effect in 2025, additional provisions beginning in 2026 further modify how income, losses, and employer related benefits are treated which may create additional tax planning opportunities.
Because many small businesses operate as pass-through entities, these changes may also interact with individual tax rules, influencing how business income flows through to an owner’s personal tax return. Updates to the QBI deduction, excess business loss limitations, employer tax credits, and reporting thresholds may create new planning considerations depending on income levels and business structure.
Understanding how these provisions apply may help provide clarity as business owners evaluate operational decisions, compensation strategies, and long term tax planning heading into 2026 and beyond.
A Summary of Important Tax Changes for Small Business Owners
Brief history
On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law, introducing significant changes to the tax system including many provisions that benefited small business owners. Many of these provisions were scheduled to sunset after December 31, 2025, which would have reverted key rules to prior law and created uncertainty for business owners.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, addressing much of that uncertainty by extending certain provisions under current law while introducing additional changes beginning in 2026. For small business owners, these 2026 tax changes represent a meaningful transition, with updates to pass-through income rules, employer benefit credits, and individual tax provisions that flow through to the owner’s personal return.
This article focuses on some of the federal tax changes most relevant to small business owners for the 2026 tax year. The impact of these changes may vary based on income level, filing status, and individual circumstances. Certain provisions may be subject to limitations or phaseouts, and state tax treatment may differ.
Key 2026 Tax Changes for Small Business Owners
QBI Deduction Changes in 2026: Expanded Planning Opportunities for Business Owners
Under OBBBA, the Qualified Business Income (QBI) deduction has been made permanent under current law with meaningful enhancements taking effect beginning in 2026. One of the most impactful changes for small business owners is the increase in the phase in range for income based limitations from $50k to $75k for single filers and from $100k to $150k for married filing jointly. This expanded range may allow more business owners including owners of specified service trades or businesses (SSTBs) that operate in consulting, financial services, law, and healthcare to benefit from the full or partial 20% QBI deduction before wage and qualified property limitations fully apply.
Additionally, the introduction of a minimum $400 QBI deduction for taxpayers with at least $1k of active business income may provide a modest benefit for smaller or early stage businesses. Both the $400 minimum deduction and the $1k QBI threshold are indexed for inflation in future years beginning after 2026, providing continued relevance as a planning tool in future years.
From a financial planning perspective, these changes may create additional tax planning opportunities for small business owners depending on income levels and business structure. Strategies such as timing income, evaluating entity structure, and coordinating wages and distributions may become more impactful in maximizing the deduction, depending on income levels and business activity.
Excess Business Loss Limitation in 2026 and Beyond: What Small Business Owners Need to Know
The excess business loss (EBL) limitation, originally introduced under the Tax Cuts and Jobs Act (TCJA), limits how much business losses noncorporate taxpayers such as individuals and pass-through business owners can use to offset nonbusiness income in a given year. Prior to this rule, business losses could generally be used in full against other income sources. Under IRS guidance, excess business losses are limited to a threshold amount (indexed annually for inflation), with any excess carried forward as a net operating loss (NOL) to future tax years. For example, the 2025 thresholds were $313k for single filers and $626k for married filing jointly taxpayers.
Under OBBBA, this limitation is made permanent beginning in 2026, meaning these restrictions will continue to apply under current law rather than expiring as previously scheduled. OBBBA also reset the inflation adjusted base year which is why the 2026 IRS inflation adjusted thresholds are $256k for single filers and $512k for married filing jointly taxpayers and are lower than the 2025 thresholds.
For example, a single business owner with a $300k business loss in 2026 could only deduct $256k against other income not related to their business in the 2026 filing year. The remaining $44k would carry forward as an NOL to be used in future years. From a planning perspective, this rule may limit the ability to offset large business losses in a single year and may shift tax benefits into future years.
Other Notable 2026 Changes for Small Business Employers:
2026 Employer Provided Childcare Credit Enhancements
Beginning in 2026, the employer provided childcare tax credit has been expanded for small business owners under OBBBA. Under prior law, eligible employers could claim a credit equal to 25% of qualified childcare expenditures, subject to a $150k annual cap. Under the OBBBA, eligible small businesses meeting the gross receipts test of section 448(c) may now claim a credit equal to 50% of qualified childcare expenditures, with an increased annual cap of $600k, indexed for inflation beginning in 2027.
Under OBBBA qualified expenditures may include costs associated with operating an on-site childcare facility, contracting with a licensed third party childcare provider, or pooling resources with other small businesses to jointly provide childcare services through a third party intermediary. For small business owners in competitive labor markets, this enhanced credit may provide a meaningful incentive to offer childcare as an employee benefit, potentially improving recruitment and retention at a lower net cost.
2026 Dependent Care Assistance Program Increase
For plan years starting in 2026, the maximum pre-tax amount employees may contribute to a dependent care flexible spending account (FSA) increases from $5k to $7.5k for single filers and married couples filing jointly ($3.75k for married individuals filing separately). Small business owners who sponsor a Section 125 cafeteria plan may consider reviewing and updating their plan documents to reflect the new limit and communicate the change to employees during open enrollment.
This increase may also complement the enhanced employer childcare credit. Business owners who both offer a dependent care FSA and utilize the childcare credit should evaluate how these two provisions interact to maximize overall benefit.
2026 1099-NEC and 1099-MISC Reporting Threshold Increase
Beginning with payments made after December 31, 2025, the reporting threshold for Form 1099-NEC and Form 1099-MISC increases from $600 to $2k, with annual inflation adjustments beginning in 2027. For small business owners who regularly engage independent contractors, freelancers, or service providers, this change may reduce the number of information returns required to be filed each year, lowering administrative burden and associated compliance costs.
It is worth noting that while the federal reporting threshold has increased, state level reporting requirements may differ. Small business owners operating in multiple states should verify applicable state thresholds before reducing their information return filings.
2026 Tax Planning Considerations for Pass-Through Business Entities:
Because pass-through business owners report business income directly on their personal tax returns, changes to individual tax provisions can be just as impactful as business specific rules. Several of the individual tax changes taking effect in 2026 under the OBBBA may create meaningful planning opportunities or introduce new limitations for small business owners filing through sole proprietorships, partnerships, S corporations, or single member LLCs.
For a full breakdown of these individual provisions including income thresholds and phaseout ranges, see our companion article: 2026 Tax Changes for Individuals. Some of the most relevant changes that may impact small business owners have been summarized below.
Itemized Deduction Limitation
For pass-through businesses in the top tax bracket, a new limitation caps the tax benefit of itemized deductions at 35 cents per dollar rather than the full 37 cents.
SALT Deduction
The SALT deduction cap increases to $40.4k in 2026 for eligible taxpayers who itemize, which may make itemizing more beneficial for pass-through business owners in high tax states.
Alternative Minimum Tax
In 2026, lower phaseout thresholds and a higher phaseout rate may increase AMT exposure for certain pass-through business owners and higher income taxpayers.
Charitable Deduction Changes
For pass-through business owners who itemize, charitable contributions are deductible only to the extent they exceed 0.5% of adjusted gross income starting in 2026. This change may increase the importance of coordinating charitable giving strategies with overall income levels.
Trump Accounts as an Employer Benefit
Beginning July 4, 2026, small business owners may contribute up to $2.5k per year to a Trump Account on behalf of an eligible employee or the employee's dependent. Employer contributions are deductible as a business expense and excluded from the employee's taxable income, potentially making this a tax efficient way to enhance compensation packages.
What This Means for 2026 Small Business Owners
Expanded provisions such as the QBI deduction enhancements and employer tax credits may create additional planning opportunities depending on income levels and business structure
The excess business loss limitation becoming permanent may limit the ability to offset large losses in a single year and shift tax benefits to future periods
Increased thresholds for 1099 reporting and dependent care benefits may reduce administrative burden and enhance employee benefit offerings
Changes to individual tax rules including SALT deductions, AMT, and charitable contribution limitations may directly impact pass-through business owners
Several provisions extend beyond 2026, making multi year tax planning strategies more relevant for business owners
Category | Key Change | Impact |
QBI Deduction | Expanded phase in ranges; $400 minimum deduction introduced | May allow more pass-through business owners to benefit from the deduction depending on income levels |
Excess Business Loss | Limitation made permanent; thresholds reset for inflation | May limit ability to offset large losses in a single year and shift tax benefits to future years |
Employer Childcare Credit | Credit increased to 50% with higher annual cap | May provide additional incentive to offer childcare benefits and support employee retention |
Dependent Care FSA | Contribution limit increased to $7.5k | May allow employees to set aside more pre tax dollars for childcare expenses |
1099 Reporting | Threshold increased from $600 to $2k | May reduce administrative burden for businesses working with contractors |
Pass-Through Impact | Individual tax changes (SALT, AMT, charitable rules) apply | May influence overall tax outcomes for business owners with pass-through business entities subject to personal income and deductions |
Trump Accounts | New employer contribution option up to $2.5k per year | May provide an additional tax advantaged benefit for employees and their families |
Amounts shown are subject to eligibility requirements and may vary based on individual circumstances. Tax provisions under Public Law 119-21 are subject to ongoing IRS guidance and regulatory updates. Readers should verify current IRS guidance before making tax decisions.
This content is provided for educational and informational purposes only and should not be construed as investment, tax, or legal advice. It is not intended as a solicitation or offer to provide advisory services in any jurisdiction where Off The Bay Wealth, LLC is not properly registered or otherwise permitted to operate. Information presented is based on sources believed to be reliable; however, accuracy and completeness are not guaranteed. This material is not intended to be a comprehensive analysis of all topics discussed. Tax provisions are subject to ongoing IRS guidance and regulatory updates. Any financial decisions should be made in consideration of your individual circumstances, including your goals, risk tolerance, and time horizon. Investing involves risk, including the potential loss of principal.
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