Small business owners often struggle to cope up with the most updated accounting guidelines, leaving them unable to reap the benefits of potential tax credits and deductions. Small business tax credits can prove to be amongst the most powerful incentives, possibly resulting in dollar-for-dollar business tax write offs.
Being well-informed on small business tax deductions can enable you to significantly increase your bottom-line, cash flow and growth potential. While tax laws often change, 2026 brings some of the most crucial updates in years. Whether you’re hiring your first employee or planning capital expenditures, understanding what’s new and how to claim business tax credits is essential.
The following text covers some significant changes to business tax write offs for 2026 and how to take full advantage of these opportunities.
Qualified Business Income (QBI) Deduction: A Major Change
One of the major updates for 2026 is the Qualified Business Income Deduction being made permanent. Often referred to as the Section 199A deduction, it allows pass-through business owners such as sole proprietors, partnerships or S-Corps to deduct up to 20% of their qualified business income from their taxable income. While it was set to expire in 2025, it has now been made permanent through the One Big Beautiful Bill Act (OBBBA), removing any uncertainty to business owners.
What is QBI? This includes the net income, gains, losses and deductions from any qualified business within the USA. This includes ordinary business income from qualified trades, self-rental income from property rented out to your own business, and certain gains and losses reported in Section 1231. Some items not included are capital gains and losses, dividends received and interest received.
What’s New?
- Firstly, the deduction carries on at 20% of qualified business income.
- A new minimum deduction of $400 applies if your business has $1,000 or more in QBI (regardless of if the 20% deduction results in a lower amount).
- The income levels where the deductions phase-out have been increased, making the deduction available to a larger number of tax payers.
With this change, you can likely reduce your taxable income significantly. However, keep in mind that the deduction phases out at higher income levels depending on your filing status and industry type.
Expanded Business Tax Write Offs for Equipment and Capital Investments
The new or amended tax credits for small businesses 2026 can be quite exciting for some, especially if your business invested in vehicles, equipment or qualifying property.
Section 179 now allows businesses to immediately deduct the full cost of any qualifying property in the year of service, rather than being depreciated over many years.
With the OBBBA, the maximum deduction has been increased to around $2.5 million while the phase-out threshold (the amount where the deductions starts to reduce) is around $4 million. This is a significant benefit, especially to small businesses, enabling them to immediately write off large asset purchases.
Furthermore, 100% bonus depreciation has permanently been reinstated for 2026. Now, you can immediately write off 100% of the cost of qualifying assets, such as equipment. Together, both these changes allow you to significantly save in taxes.
Research & Development (R&D) Expenses
Previously, businesses were required to amortize research and developments costs over a period of five years. In 2026, any research and development costs incurred domestically can immediately be deducted in the year incurred. This can lead to significant business tax write offs, especially for startups and tech companies that invest heavily in innovation for software development or product testing.
If you’ve incurred R&D costs before 2026, consult with your tax professional about possible amended returns and missed tax deductions for businesses.
Enhanced Credits for Employer-Provided Childcare
There has been a meaningful increase in incentives for small businesses that provide childcare support for employees. Eligible businesses can now claim up to 50% of eligible childcare costs (40% for large businesses and 50% for small businesses) with a maximum credit of $600,000 annually for small businesses.
Not only does this increase tax credits for small businesses in 2026, it acts as an incentive to attract and retain employees.
The Regular Business Expense Write Offs To Take Note Of
Small business owners often struggle to remember writing off some necessary business expenses. Some small business tax credits and small business tax deductions that can be claimed in 2026, subject to satisfying IRS conditions include:
- Marketing and advertising costs
- Rent and office expenses
- Utilities
- Travel expenses
- Insurance premiums
- Professional fees
- Licenses and permits
- Transportation expenses
Some valuable tax credits small businesses should also be aware of include Earned Income Tax Credit and Childcare Credits. In case you’re just starting off, keep in mind that initial expenses can often be deducted as well. This includes a deduction of up to $5000 of startup costs and $5000 of organizational costs in the first year of business, while any costs exceeding that can be amortized over 15 years. This is a crucial advantage for startups in their first year of business.
Missed tax deductions for businesses often come down to basic bookkeeping mistakes such as failing to record small expenses, being unable to track mileage consistently or overlooking amortization costs.
With a solid accounting system in place, business owners can ensure no money is left on the table.
How to Claim Business Tax Credits & Deductions in 2026
Consider forming a strategy in order to maximize business tax write offs.
- Organize Your Records: Good bookkeeping practices isn’t just important, it’s absolutely necessary. Remember to carefully track all income, expenses, purchases, payroll data etc. throughout the year. Having updated books at all times is equally important and vital for strategic business decisions. Consider automating your bookkeeping and accounting through accounting software such as QuickBooks or Xero.
- Fill The Correct Forms for Tax Credits: Make sure you fill in the appropriate IRS forms to be eligible for tax credits.
- Consult a Tax Professional: Tax laws can be particularly complex. Not only can they be complex, they are ever-changing and being up-to-date can be difficult. Even with organized records, you may skip out on crucial deductions and credits. Working with an experienced tax professional such as a CPA can help you plan for tax season beforehand, enabling you to enjoy tax deductions and take informed decisions on specific strategies such as capital investments.
The tax year 2026 has brought with it several critical revisions to taxes such as QBI to support small business owners in improving their cash flow and profitability. Staying proactive and well-informed about recent changes can be the starting point for long-term business success.
