OBBBA Small Business Tax Changes for 2026: What Changed and How to Plan Now
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, rewrites several of the tax rules small business owners have planned around for years. Equipment deduction limits are higher, a research and development expense rule that frustrated small businesses since 2022 has been reversed, and a deduction many owners assumed was temporary is now permanent. Here's what actually changed for 2026, and where it's worth a planning conversation before year-end.
What is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act, commonly shortened to OBBBA, is the 2025 federal tax law that extended and expanded major provisions of the 2017 Tax Cuts and Jobs Act. For small business owners, the practical effect is a handful of specific, dollar-and-cents changes to depreciation, the pass-through deduction, R&D cost recovery, and interest expense limits — several of which the IRS has already built into its 2026 inflation-adjusted figures.
Below are the six changes that matter most if you run a small business, followed by what to do about each one.
1. Section 179 expensing: bigger limits for equipment purchases
If you buy equipment, machinery, vehicles, software, or other qualifying business property, Section 179 lets you deduct the full cost immediately instead of depreciating it over several years. OBBBA raised both key thresholds:
- Expensing limit: increased from $1.25 million to $2.5 million
- Phase-out threshold: increased from $3.13 million to $4 million, with annual inflation adjustments starting in 2026
In plain terms: unless your business is making unusually large capital purchases, Section 179 alone can now absorb the full cost of nearly any equipment purchase in the year you buy it.
2. Bonus depreciation is back to 100% — permanently
Bonus depreciation had been phasing down for several years. OBBBA restored it to 100%, on a permanent basis, for qualifying assets acquired and placed in service after January 19, 2025.
There's also a new 100% depreciation allowance for certain qualifying production property placed in service before January 1, 2029.
If a purchase doesn't qualify for, or exceeds, your Section 179 limit, bonus depreciation is now the fallback that can still get you a full first-year write-off. You can also elect a reduced 40% bonus depreciation instead, if spreading the deduction over time better fits your income projections.
Planning note: Section 179 and bonus depreciation solve slightly different problems — 179 lets you pick which assets to expense, while bonus depreciation generally applies more broadly but with less control. If you're planning a major purchase before year-end, it's worth modeling both.
3. The 20% QBI deduction is now permanent
The Section 199A qualified business income (QBI) deduction — worth up to 20% of qualified income for many pass-through businesses (sole proprietorships, partnerships, S-corps) — was scheduled to expire after 2025. OBBBA made it permanent. It also added a new $400 minimum deduction for taxpayers with at least $1,000 of active qualified business income, which mainly helps smaller or newer businesses with modest profit.
If your entity structure decisions (S-corp election, for example) were made with QBI's expiration in mind, this is worth revisiting — the deduction isn't going anywhere.
4. R&D expensing is fully restored (and some of you can amend prior returns)
This is the change with a real deadline attached. Since 2022, businesses were required to capitalize domestic research and experimental costs and amortize them over five years — a rule that hit software development, product design, and process-improvement costs harder than most owners expected. OBBBA restored immediate deduction of domestic R&E expenses for tax years beginning after December 31, 2024.
More importantly for small businesses: if your average annual gross receipts are $31 million or less, you can retroactively apply this treatment to costs going back to tax years beginning after December 31, 2021 — potentially unlocking deductions you already paid tax on. That requires filing amended returns, and the window to do so closes July 6, 2026.
If you've capitalized any R&D-type costs since 2022, this is worth a conversation well before that deadline — not a last-minute one.
5. Business interest expense limits loosened
The Section 163(j) limit on deducting business interest expense reverts to a more generous calculation: 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization) rather than the stricter EBIT-based test. If your business carries debt and has meaningful depreciation or amortization, this generally increases how much interest expense you can deduct.
6. SALT cap increase — a personal-return issue for pass-through owners
This one affects your personal return, not your business return directly, but it matters if you're an S-corp or partnership owner who itemizes. The cap on deducting state and local taxes rises from $10,000 to $40,000 for 2025 through 2029, phasing out for taxpayers with income between $500,000 and $600,000, and reverting to $10,000 in 2030. If your state tax bill has been running well above the old $10,000 cap, this is a multi-year window worth planning around.
(One thing that didn't change: the corporate tax rate remains 21%.)
What small business owners should do before year-end
Model any planned equipment purchases against the new Section 179 and bonus depreciation limits before you buy, not after.
Revisit your entity structure if QBI's now-permanent status changes the math on an S-corp election or profit distribution strategy.
Flag any R&D-type spending since 2022 — software, product development, formulation, process improvement — for a possible amended return before the July 6, 2026 deadline.
Review debt-financed purchases if your business carries meaningful loan balances; the EBITDA-based interest limit may free up deductions you couldn't previously claim.
Check your SALT exposure if you itemize and pay significant state tax as a pass-through owner.
Frequently Asked Questions
What is the One Big Beautiful Bill Act (OBBBA)? OBBBA is the 2025 federal tax law that extended and expanded the 2017 Tax Cuts and Jobs Act, including permanent 100% bonus depreciation, a permanent 20% QBI deduction, higher Section 179 limits, and restored R&D expensing.
Is the 20% QBI deduction permanent now? Yes. OBBBA removed the scheduled expiration and made the Section 199A deduction permanent, and added a new $400 minimum deduction for taxpayers with at least $1,000 of qualified business income.
How much equipment can I deduct in 2026? Up to $2.5 million under Section 179 (phasing out above $4 million in purchases), with 100% bonus depreciation generally available for qualifying purchases that exceed those limits.
Can I still deduct R&D costs immediately, or do I have to amortize them? You can deduct domestic research and experimental costs immediately again for tax years beginning after December 31, 2024. If your average gross receipts are $31 million or less, you may also be able to amend returns back to 2022 — but only until July 6, 2026.
Do these changes affect my personal tax return, too? Often, yes. If you own a pass-through business, the QBI deduction and the higher SALT cap both flow through to your personal return, not just your business return.
Not sure which of these applies to you?
Every business's mix of equipment purchases, R&D-type spending, debt, and entity structure is different — the value of these provisions depends entirely on your specific numbers. If you want help figuring out what OBBBA actually means for your 2026 tax bill, schedule a tax planning review with Taxvanta.
Taxvanta provides tax planning and tax preparation for small business owners and military/veteran clients.
Questions about this article? Reach us at scott@taxvanta.com or (910)360-8041.