The One Big Beautiful Bill Act: What Changes for Small Business Owners in 2026

The One Big Beautiful Bill Act, signed in July 2025, made several business tax rules permanent and changed others for 2026. Most of the changes favor small businesses, but a few depend on timing and paperwork. Here are the ones that matter most for owners of sole proprietorships, LLCs, S corporations, and partnerships.

100% bonus depreciation is back, permanently

Bonus depreciation had been phasing down since 2023. The new law restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, and made it permanent. Equipment, computers, furniture, vehicles that qualify, and certain improvements can be deducted in full in the year they are placed in service.

Section 179 expensing also grew. The limit doubled to $2.5 million, the phase-out now starts at $4 million of qualifying purchases, and both amounts are indexed for inflation after 2025. Section 179 is still limited by business income, while bonus depreciation is not.

A full write-off is a timing benefit. If you sell the asset later, the deduction is generally recaptured. Buy what the business needs, not what lowers this year's tax.

The QBI deduction is permanent and easier to keep

The 20% qualified business income deduction under Section 199A was set to expire after 2025. It is now permanent. Two changes start in 2026:

• Wider phase-in range. Above the income threshold ($201,750 for most filers and $403,500 for joint filers in 2026), the wage limit and the specified service business limit now phase in over $75,000 ($150,000 joint) instead of $50,000 ($100,000 joint).
• A $400 minimum deduction. Owners who materially participate in a business with at least $1,000 of qualified business income get a deduction of at least $400.

Research costs can be deducted again

From 2022 through 2024, businesses had to spread domestic research and development costs over five years. New Section 174A lets you deduct domestic research costs in the year you pay them, starting with tax years beginning after 2024. Software development counts. Read our Section 174A guide for the transition rules.

1099 reporting threshold rises to $2,000

For payments made in 2026 and later, the threshold for issuing Forms 1099-NEC and 1099-MISC rises from $600 to $2,000. It will be indexed for inflation after 2026. You still need a Form W-9 from each contractor, and you should keep paying attention to worker classification. See 1099 vs. W-2 classification.

SALT cap relief and the PTET election

The cap on state and local tax deductions rose to $40,000 for 2025 and $40,400 for 2026, with a phase-down for high incomes. The law did not shut down state pass-through entity tax (PTET) elections, so S corporations and partnerships in states that offer one can still pay state tax at the entity level. Our SALT cap guide covers when that still helps.

Business interest limit loosens

For tax years starting after 2024, the business interest limit is again based on a measure similar to EBITDA, which adds back depreciation and amortization. Businesses with equipment loans or real estate debt can usually deduct more interest than they could from 2022 through 2024.

New write-off for U.S. production buildings

The law added a 100% deduction for certain new nonresidential buildings used in U.S. manufacturing, production, or refining. The IRS issued interim guidance in Notice 2026-16. The rules on timing and use are strict, so check eligibility before construction starts.

What to do before year-end

• Run your 2026 numbers with the new rules. The Small Business Tax Savings Calculator includes the 2026 brackets, QBI rules, and 100% expensing.
• Time equipment purchases so the asset is in service before December 31.
• Confirm your contractor list against the new $2,000 threshold before January.
• If you pay significant state tax through an S corporation or partnership, review the PTET election with your CPA.

Frequently asked questions

Does 100% bonus depreciation apply to used equipment?

Yes, in most cases. Used property qualifies if you did not use it before and you did not buy it from a related party. It must be acquired after January 19, 2025, and placed in service in your business.

Does the $2,000 Form 1099 threshold apply to payments I made in 2025?

No. The $600 threshold still applies to payments made in 2025, which you report in early 2026. The $2,000 threshold starts with payments made in 2026.

Should I still collect a Form W-9 from contractors I pay less than $2,000?

Yes. Collect it before you make the first payment. You may not know in advance how much you will pay a contractor over the year, and a W-9 on file protects you from backup withholding problems.

Can S corporation owners take the QBI deduction?

Yes, on their share of the S corporation's business income shown on the K-1. The salary the owner receives from the S corporation does not count as qualified business income.

How long does the higher SALT cap last?

The higher cap applies for 2025 through 2029. Unless Congress changes the law, the cap returns to $10,000 in 2030.