Understanding Business Tax Changes Coming in 2026

9 May 2026

Let me be straight with you: tax changes are coming in 2026, and they are not small tweaks. If you run a business, or even if you just file a 1099 on the side, the rules of the game are shifting under your feet. And the worst thing you can do is wait until December 2025 to figure it out.

I have been through enough tax cycles to know that the difference between a good year and a bad one often comes down to how early you adapt. So let us pull back the curtain on what is actually changing, why it matters, and what you can do right now to keep your business from getting blindsided.

Why 2026 Is a Big Deal for Business Taxes

You might be thinking: "Another year, another tax form. What is so special about 2026?"

Here is the thing. A lot of the tax provisions from the Tax Cuts and Jobs Act of 2017 are set to expire at the end of 2025. That law reshaped how businesses paid taxes for nearly a decade. But unless Congress acts, many of those breaks vanish on January 1, 2026. Think of it like a big party where the host turns off the music, locks the bar, and kicks everyone out at midnight. That is 2026 for you.

But it is not just about expiring provisions. There are also new reporting requirements, changes to how retirement contributions are handled, and shifts in depreciation rules. The IRS is also getting more aggressive with enforcement, thanks to new funding. So even if your tax rate stays the same, the paperwork and scrutiny will not.

The Big One: Expiration of the Qualified Business Income Deduction

Let us start with the most painful change for small business owners. Right now, if you operate as a sole proprietor, LLC, S-corp, or partnership, you can deduct up to 20% of your qualified business income under Section 199A. This is commonly called the QBI deduction. It is a huge deal. It effectively lowers your tax rate on business profits by a fifth.

But that deduction sunsets after 2025. Come 2026, it is gone unless Congress extends it.

What does that mean for you? Say your business nets $100,000 in profit. In 2025, you might deduct $20,000 of that, paying tax on only $80,000. In 2026, you pay tax on the full $100,000. Depending on your bracket, that could mean thousands more in taxes. And if you are in a higher bracket, the hit is even worse.

I am not saying panic. But I am saying start planning now. If you have been relying on that deduction to keep your effective rate low, you need to look at other strategies like accelerated depreciation or shifting income into 2025.

Individual Tax Rates Are Going Up (And That Affects Business Owners)

Here is a truth that catches a lot of people off guard. Even if your business is structured as an S-corp or LLC, your business income flows through to your personal return. So when individual tax rates change, your business tax bill changes too.

Under current law, the top individual rate is 37%. In 2026, it reverts to 39.6%. That is a 2.6 percentage point jump. For someone earning $400,000 in business profit, that is over $10,000 in extra tax. And the brackets themselves are also adjusting. The income levels where rates kick in will be lower, so more of your money gets taxed at higher rates.

It is like a toll road that suddenly raises the price per mile and also moves the toll booth closer to your house. You are paying more, sooner.

Bonus Depreciation Is Fading Fast

If you buy equipment or vehicles for your business, you have probably enjoyed bonus depreciation. Right now, you can deduct 80% of the cost of new assets in the year you buy them. That is a huge upfront write-off. But in 2026, bonus depreciation drops to 60% for assets placed in service that year. And it keeps dropping to zero by 2027.

So if you were planning to buy a new truck or a piece of machinery in 2026, you might want to pull that purchase into 2025. The difference between an 80% write-off and a 60% write-off on a $50,000 machine is $10,000 in deductions. That is real money.

I am not saying rush out and buy things you do not need. But if you have capital expenses on the horizon, look at the calendar. Accelerating purchases by a few months could save you a bundle.

The R&D Tax Credit Rules Get Tougher

This one is sneaky. For years, businesses could deduct research and development costs immediately. That changed in 2022, when a new rule kicked in requiring companies to amortize R&D expenses over five years. That rule is here to stay in 2026, but the IRS is also getting stricter about what qualifies as R&D.

If you are a tech company, a manufacturer, or even a bakery that develops new recipes, you need to document your R&D activities carefully. In 2026, the IRS will be looking harder at whether those costs are truly research or just routine operations. The penalty for getting it wrong is back taxes plus interest and penalties.

Think of it like this. The IRS used to take your word that you were doing R&D. Now they want receipts, logs, and a clear explanation. If you are not keeping good records, start now.

New Reporting Requirements for Digital Payments

If you take payments through Venmo, PayPal, Cash App, or any other third-party network, listen up. The IRS has been trying to lower the reporting threshold for these transactions for years. In 2026, the threshold is expected to be $600 for business transactions. That means if you receive more than $600 in payments through these platforms for goods or services, the platform will send you a Form 1099-K and report the income to the IRS.

This is not new in theory, but enforcement is ramping up. A lot of people who sell crafts on Etsy or do freelance gigs on the side have been underreporting this income. In 2026, the IRS will have a much clearer picture of what you earned. And they will come after the gap.

Do not think you can hide. The platforms are required to report. If your numbers do not match your tax return, you get a letter. And letters from the IRS are never fun.

Changes to Retirement Plan Contributions

Here is a positive shift. The SECURE Act 2.0 introduced several changes that take full effect in 2026. For example, if you are 60 to 63 years old, you can make higher catch-up contributions to your 401(k) or similar plans. The limit goes up to $10,000 or 150% of the regular catch-up amount, whichever is greater.

Also, starting in 2026, all catch-up contributions for people earning more than $145,000 must be made to a Roth account. That means you pay taxes on the money now, but it grows tax-free. For business owners who are in a lower bracket now than they expect to be in retirement, this is a smart move.

But here is the catch. If your retirement plan is not set up to handle Roth contributions, you need to amend it before 2026. That takes time and paperwork. Do not wait until December.

The Corporate Tax Rate Question

If your business is a C-corporation, you are watching a different clock. The current flat rate is 21%. That was a big drop from the previous 35% under the old law. But there is chatter in Washington about raising the corporate rate to 28% or even higher. Nothing is locked in yet, but it is a real possibility for 2026.

Why does that matter to you? Even if you are not a C-corp, changes to corporate rates affect the broader economy. Higher corporate taxes can mean less investment, slower growth, and tighter credit. That trickles down to every business. Plus, if you are considering switching your business structure, the math changes entirely if corporate rates go up.

I would not make a major structural change based on speculation. But I would keep an eye on the news and talk to your CPA about scenarios.

Estate and Gift Tax Exemptions Are Halving

This one hits family businesses hard. Right now, you can pass on about $13 million per person (or $26 million per couple) without triggering federal estate tax. That exemption is set to drop to roughly $7 million per person in 2026. That is almost a 50% cut.

If you own a business worth more than that, your heirs could face a 40% tax on the excess. That might force them to sell the business just to pay the tax bill. Not exactly the legacy you want to leave.

The fix is to start gifting now. You can use the current high exemption to transfer ownership or assets to your children or a trust. But once 2026 hits, that window closes. And you cannot retroactively use the old exemption.

State-Level Changes Are Piling On

Do not forget about state taxes. While federal changes get the headlines, states are also moving. Several states are adopting mandatory combined reporting for multi-state businesses. Others are tightening rules on sales tax for remote sellers. And a growing number are implementing digital advertising taxes that hit companies with large online presences.

If you do business in multiple states, you need to track where you have nexus. In 2026, states will be even more aggressive about auditing out-of-state businesses that should be paying tax. One missed filing can trigger penalties and interest that eat up your profit margin.

How to Prepare Without Losing Your Mind

I know this sounds like a lot. But you do not have to solve everything today. Here is a practical plan.

First, do a tax projection for 2026 based on current laws. Use last year's numbers and adjust for the expiring provisions. That gives you a baseline. If the number scares you, good. That means you have time to act.

Second, talk to your accountant or tax advisor now. Not in December 2025. Now. Ask them to run scenarios. What if you buy equipment in 2025 instead of 2026? What if you shift income into this year? What if you restructure your business?

Third, review your recordkeeping. If you are sloppy with receipts, invoices, and logs, tighten up. The IRS is getting more resources, and they are going to audit more small businesses. Good records are your best defense.

Fourth, consider accelerating income into 2025 if you expect to be in a higher bracket in 2026. That sounds counterintuitive, but if rates are going up, paying tax now at a lower rate is better than paying later at a higher rate.

Fifth, look at your estate plan. If you have a family business worth over $7 million, start transferring ownership now. Use trusts, family partnerships, or outright gifts. Do not let the government take a bigger slice than necessary.

The Bottom Line

Tax changes in 2026 are not a surprise. They have been on the calendar for years. But that does not mean they are easy to deal with. The expiration of the QBI deduction, higher individual rates, lower bonus depreciation, and stricter reporting will squeeze business owners from every angle.

The question is not whether you will be affected. You will be. The question is whether you will be proactive or reactive.

If you plan ahead, you can soften the blow. You can shift income, accelerate deductions, restructure your entity, or update your estate plan. But if you wait, you will be stuck with whatever Congress gives you. And Congress is not known for being generous.

So take an hour this week. Pull out your last tax return. Look at your projected income for the next two years. Call your accountant. Ask the hard questions. The tax man is coming in 2026. Make sure you are ready.