Inflation Reduction Act: What Small Business Owners Need to Know About Tax Credits and Incentives

The Inflation Reduction Act of 2022 created the largest clean energy investment in American history—nearly $370 billion in tax credits and incentives. But significant changes in 2025 legislation have rewritten the rules. If you own a small business, understanding what benefits remain available and which deadlines are approaching could save you tens of thousands of dollars.

The landscape has shifted dramatically. While many clean energy tax credits are being phased out faster than originally planned, other small business benefits have been strengthened. Here is what you need to know to maximize your tax savings before key deadlines pass.

The Big Picture: What Changed in 2025

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, fundamentally altered the Inflation Reduction Act's tax incentive structure. The changes cut both ways for small business owners.

What got better:

• The Qualified Business Income (QBI) deduction is now permanent
• 100% bonus depreciation has been permanently restored
• R&D expenses can now be immediately expensed again
• The employer-provided childcare credit increased significantly

What got worse or eliminated:

• Most electric vehicle tax credits ended September 30, 2025
• Clean energy production and investment credits face accelerated phaseouts
• The energy-efficient commercial building deduction terminates June 30, 2026
• EV charger installation credits must be completed by June 30, 2026

Understanding both categories helps you plan strategically for the remaining opportunities.

Tax Benefits That Got Stronger

Qualified Business Income Deduction: Now Permanent

The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. Originally set to expire at the end of 2025, this deduction is now a permanent part of the tax code.

Starting in 2026, qualifying becomes easier. The income thresholds that triggered phase-outs have been raised and expanded, allowing more business owners to claim the full deduction. Additionally, anyone with at least $1,000 of qualified business income will receive a minimum deduction of $400.

This benefits pass-through entities including sole proprietorships, partnerships, S corporations, and LLCs taxed as partnerships or sole proprietorships. If you operate any of these business structures, the permanent QBI deduction provides long-term tax planning certainty.

100% Bonus Depreciation: Restored and Permanent

The OBBBA permanently restored 100% bonus depreciation, which had been phasing down to 60% in 2024 and was scheduled to drop to 40% in 2025. Unless Congress changes it again, businesses can now immediately deduct the full cost of most capital asset purchases in 2025 and all future tax years.

This applies to new and used equipment, machinery, furniture, certain vehicles, and qualified improvement property. If you have been postponing equipment purchases, the restored bonus depreciation eliminates the need to spread deductions over multiple years.

R&D Expense Deduction: Immediate Expensing Returns

The Tax Cuts and Jobs Act had required businesses to amortize research and development expenses over five years starting in 2022, creating cash flow challenges for innovative companies. The OBBBA reversed this rule, allowing immediate expensing of R&D costs for 2025 and later.

Even better: eligible small businesses can retroactively apply full R&D expensing to tax years 2022, 2023, and 2024. If you capitalized R&D expenses during those years, consult with your tax professional about amending prior returns.

Research Tax Credit: Doubled for Small Businesses

The IRA increased the research tax credit limit that qualified small businesses may use against payroll tax liability from $250,000 to $500,000. This particularly benefits startups and early-stage companies that may not yet have significant income tax liability but do have payroll tax obligations.

Qualified small businesses are defined as those with gross receipts of $5 million or less for the tax year and no gross receipts for any tax year preceding the five-tax-year period ending with the current tax year.

Employer-Provided Childcare Credit: Major Increase

Beginning in 2026, the employer-provided childcare credit jumps substantially. Currently, employers can claim a tax credit equal to 25% of expenses for providing childcare to employees, plus 10% of eligible resource and referral expenses, up to $150,000 annually.

Under the new law:

• The credit increases from 25% to 40% of eligible costs
• Maximum credit rises from $150,000 to $500,000 annually
• For eligible small businesses: 50% of eligible costs with a maximum credit of $600,000

If you have been considering offering childcare benefits to attract and retain employees, the economics have become significantly more favorable.

Clean Energy Credits: Act Before Deadlines

While many clean energy credits are being phased out, significant benefits remain for businesses that act quickly.

Commercial Clean Vehicle Credit (Section 45W)

The deadline for acquiring commercial clean vehicles to claim this credit was September 30, 2025. If you purchased qualifying electric or hybrid commercial vehicles before that date, you may be eligible for:

• Up to $7,500 for vehicles under 14,000 pounds GVWR
• Up to $40,000 for vehicles over 14,000 pounds GVWR
• The credit equals the lesser of 30% of the vehicle basis (15% for plug-in hybrids) or the incremental cost above a comparable gas/diesel vehicle

File Form 8936 with your tax return to claim this credit for qualifying vehicles placed in service before the deadline.

EV Charger Tax Credit (Section 30C)

You have until June 30, 2026 to install EV charging equipment and claim this credit. For business installations:

• Credit equals 6% of combined installation, equipment, and material costs
• Increases to 30% if prevailing wage and apprenticeship requirements are met
• Maximum credit of $100,000 per item
• The property must be depreciable

If you are considering adding EV charging for your fleet or as an amenity for employees and customers, the window is closing.

Energy Efficient Commercial Building Deduction (Section 179D)

This deduction allows up to $5.81 per square foot for installing energy-efficient property in commercial buildings. The June 30, 2026 deadline applies to projects that begin construction.

Qualifying improvements include:

• Interior lighting systems
• HVAC systems
• Hot water/service water heating
• Building envelope improvements

The installation must reduce annual energy costs by at least 25%. Both new construction and renovation projects qualify. For projects meeting prevailing wage and apprenticeship requirements, the maximum deduction applies. Otherwise, the deduction ranges from $0.50 to $1.00 per square foot.

Owners of older commercial buildings may want to prioritize lighting and HVAC upgrades that can be completed quickly before the deadline.

Investment and Production Tax Credits

For clean energy installations like solar panels or wind systems:

• Projects that began construction before January 1, 2025 remain eligible for pre-IRA tax credits without the accelerated phaseouts
• The Investment Tax Credit provides 6% of qualified investment, or 30% if prevailing wage and apprenticeship requirements are met
• Facilities under one megawatt may be eligible for the increased credit without meeting prevailing wage requirements

After June 30, 2026, new wind and solar projects face elimination of most credits, though certain clean fuels and technologies like geothermal, hydropower, and nuclear maintain incentives.

Healthcare-Related Benefits

Affordable Care Act Premium Subsidies

The IRA extended enhanced Affordable Care Act marketplace subsidies through 2025. This benefits self-employed individuals and small business owners who purchase health insurance through healthcare.gov marketplaces.

Small Employer Health Insurance Credit (Section 45R)

If you have fewer than 25 full-time equivalent employees with average wages below approximately $34,100 (2026 threshold), you may qualify for this credit:

• Maximum credit: 50% of employer-paid premiums (35% for tax-exempt employers)
• Must provide coverage through a SHOP Exchange
• Available for a two-consecutive-year credit period

To claim this credit, file Form 8941 with your federal income tax return.

What the 15% Corporate Minimum Tax Means for Small Businesses

The IRA established a 15% minimum corporate tax on businesses earning $1 billion or more annually. While this does not directly apply to small businesses, it does level the competitive playing field.

Small business owners pay an average effective federal tax rate of 19.8%, while some large corporations have used various strategies to pay 6% or less. The minimum tax helps address this disparity, though the direct impact on small business operations is limited.

IRS Funding and What It Means for You

The IRA allocated approximately $80 billion over 10 years to modernize IRS operations and staffing. This has two practical implications for small business owners:

Positive: The IRS plans to hire more tax support staff, potentially reducing wait times for questions and issues. Better technology should make filing and communication easier.

Cautionary: Increased enforcement capacity is primarily targeting corporations and high-net-worth individuals, but all taxpayers benefit from maintaining accurate records. Avoid common audit triggers:

• Understating business income
• Overstating expenses
• Incorrect payroll withholding
• Filing errors

Good bookkeeping practices protect you regardless of enforcement trends.

Action Items for Small Business Owners

Given the evolving landscape, consider these steps:

Before June 30, 2026:

• Complete any planned EV charger installations
• Begin construction on qualifying energy-efficient building improvements
• Evaluate solar or other clean energy installations for your business property

For 2026 Tax Planning:

• Review eligibility for the expanded QBI deduction
• Calculate potential savings from the enhanced childcare credit
• Identify equipment purchases that qualify for 100% bonus depreciation
• Consult with your tax professional about retroactive R&D expensing for 2022-2024

Ongoing:

• Track all business expenses with clear documentation
• Maintain separate records for energy-efficient improvements
• Keep vehicle logs for any commercial clean vehicles
• Document prevailing wage and apprenticeship compliance for applicable projects

Keeping Your Records Organized

Claiming these tax credits requires documentation. The IRS expects supporting records for energy efficiency certifications, vehicle purchase dates, installation costs, and employment information for prevailing wage requirements.

Organized financial records make tax credit claims straightforward and protect you during any review. Tracking capital expenditures, energy costs, and related expenses throughout the year—rather than reconstructing them at tax time—ensures you capture every available benefit.

Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial records. Every transaction is traceable, every report auditable—exactly what you need when claiming tax credits and documenting compliance. With version-controlled records and AI-ready formatting, you can generate the documentation these credits require. Get started for free and build the financial foundation that maximizes your tax savings.