How New IRS Laws Could Affect a Small Business Like Yours

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By Ellie A.

Keeping up with tax law is not exactly the part of running a business that most owners look forward to. The rules change, dollar limits move with inflation, and provisions that were supposed to disappear sometimes end up getting extended or rewritten.

That was the situation with several provisions from the 2017 tax law. Many of them were scheduled to expire after 2025, so there was uncertainty about what business owners would be dealing with in 2026.

Congress changed that in 2025. New legislation made many provisions permanent and changed some of the rules businesses use when calculating deductions and credits.

So what does all of that mean if you own a small business?

Here are some of the changes that are worth knowing about.

The Pass-Through Deduction Is Permanent

For owners of sole proprietorships, partnerships, LLCs taxed as partnerships, and S corporations, the 20% qualified business income deduction is no longer facing a scheduled expiration.

That is one of the more important changes from a planning standpoint. Business owners can make longer-term decisions without building projections around the possibility that the QBI deduction would disappear after 2025.

The income thresholds are higher in 2026 as well. For single filers and most other taxpayers, the threshold is $201,750, with the phase-in range ending at $276,750. For married couples filing jointly, the corresponding figures are $403,500 and $553,500.

These amounts are adjusted for inflation, so they will not remain the same indefinitely.

Beginning in 2026, taxpayers with at least $1,000 of qualified business income from an active qualified trade or business may qualify for a minimum $400 deduction if they meet the applicable participation requirements.

Higher-income owners still need to be careful, particularly when the business is a specified service trade or business. This includes professions such as law, accounting, consulting, and medicine.

For business owners who have been waiting to see whether the QBI deduction would survive, having a permanent provision makes planning considerably easier.

Equipment and Improvement Write-Offs Improved

Buying equipment can create a large tax deduction, but the timing of that deduction matters. Two provisions that come into play here are Section 179 and bonus depreciation.

Section 179 allows a business to deduct the cost of qualifying property in the year the property is placed in service rather than recovering the cost over several years.

For 2026, the maximum Section 179 deduction is $2.56 million. The deduction begins to phase out when qualifying property placed in service during the year reaches $4.09 million.

That can be useful for businesses purchasing computers, machinery, office furniture, certain improvements to business property, and qualifying off-the-shelf software. There is an income limitation, however. If the deduction cannot all be used in the current year because of that limitation, the unused portion can generally be carried forward.

Bonus depreciation is another major consideration. The 2025 legislation restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025.

Instead of continuing the gradual reduction in the bonus percentage that had been scheduled under the previous law, the 100% rate is now permanent for qualifying property.

The rule is not limited to brand-new equipment. Certain used property can qualify for bonus depreciation, although the purchase has to meet specific requirements.

For a company that expects to make a significant equipment purchase, it can be worthwhile to look at both Section 179 and bonus depreciation before deciding how to handle the expense.

Other Rules That Still Affect Day-to-Day Decisions

Not everything changed in 2025.

Section 1031 is a good example. Like-kind exchanges are still generally limited to real property. If you’re selling one piece of investment or business real estate and replacing it with another qualifying property, the familiar 1031 rules can still apply.

You generally cannot use the provision to exchange equipment, vehicles, or other personal property.

The standard deferred-exchange deadlines have not changed either. Property generally has to be identified within 45 days, and the replacement property generally has to be received within 180 days.

Business Interest Deduction Rules

Business interest is another area that can become important as a company gets larger. Section 163(j) generally limits the amount of business interest expense that can be deducted to business interest income plus 30% of adjusted taxable income.

There is some good news in the calculation. Depreciation, amortization, and depletion are again added back when determining adjusted taxable income under the restored rules.

Most smaller businesses will not run into the limitation because they can qualify for the small-business exception. For 2026, the applicable gross-receipts threshold is $32 million.

Business Losses and Mileage Deductions

Business losses can create another issue for owners of pass-through businesses. For 2026, the excess business loss threshold is $256,000 for taxpayers other than joint filers and $512,000 for married couples filing jointly.

A loss above that amount is not simply erased. The disallowed excess business loss is generally treated as a net operating loss carryover.

When that NOL is used later, however, it is subject to the rules that apply to NOL deductions, so the entire amount may not necessarily be usable against income in a single year.

The business mileage deduction is especially relevant to contractors, salespeople, service companies, and other businesses where employees or owners spend a lot of time on the road.

The standard business mileage rate was 72.5 cents per mile from January through June 2026. Beginning July 1, it increased to 76 cents per mile.

Keeping track of those miles is important. At the end of the year, some businesses will come out ahead using the standard mileage method, while others will get a larger deduction by tracking actual vehicle expenses.

Credits and Employer Rules

There are changes here, too, particularly for employers that offer paid family and medical leave.

The employer tax credit for qualifying paid family and medical leave is now permanent. The employee service requirement has also been shortened.

In general, an employee can qualify after six months of service rather than having to complete a full year.

Another change starts in 2026. Qualifying employers can take certain paid family and medical leave insurance premiums into account when calculating the credit, in addition to qualifying wages paid while an employee is on leave.

The credit ranges from 12.5% to 25%, depending on how much of the employee’s normal wages are replaced.

Employee Expenses and Awards Still Require Attention

Some familiar restrictions remain unchanged. Entertainment expenses are still generally not deductible, and there are limitations involving commuting costs and certain transportation fringe benefits.

Employee awards are another area where the details matter. Cash and gift cards generally do not qualify for the special treatment given to certain employee achievement awards.

Qualifying tangible personal property can be treated differently, so businesses should not assume that every type of employee reward receives the same tax treatment.

Why Clean Records and Professional Help Still Matter

A change in the tax law does not necessarily make filing taxes easier. Sometimes it does the opposite.

There are more deductions to consider, different thresholds to keep track of, and situations where the best choice depends on the business owner’s broader tax picture.

Take a large equipment purchase. A business may be able to deduct the entire cost right away, but that does not automatically mean taking the largest possible deduction is the best move.

The owner’s income, expected income in future years, other deductions, and the type of property being purchased can all matter.

The same idea applies to vehicle expenses and business losses. You have to know what happened during the year before you can make a good decision about how to handle it on the tax return.

That is why keeping the books updated throughout the year is so important. Trying to reconstruct twelve months of expenses and purchases right before the filing deadline makes tax planning much harder.

It also leaves little opportunity to fix problems while there is still time to do something about them.

The good news for business owners is that several of the major tax provisions are no longer scheduled to disappear after 2025. That gives businesses more certainty when making decisions about equipment, hiring, business structure, and cash flow.

It does not mean every decision will work the same way it did a couple of years ago, though. Tax thresholds change, business circumstances change, and a strategy that made sense in 2024 may not be the right one in 2026.

If you’re in the Bronx or nearby areas such as Yonkers, Eastchester, Westchester, or Mount Vernon, SCL Tax Services in Bronx, NY can help you look at how the 2026 rules apply to your business.

Sometimes the most useful tax planning happens before the end of the year, when there is still time to make a purchase, adjust a strategy, improve your records, or take advantage of a deduction that might otherwise be missed.

If you need more information about tax services or want to understand how these changes may affect your situation, reviewing your options early can help you make better decisions.

You can also check the IRS website for official updates and guidance related to federal tax rules.

If you prefer in-person assistance, you can visit one of our local offices to discuss your tax questions with our team.