The Complete Small Business Tax Deductions Guide for 2026

According to Forbes, 93% of businesses leave money on the table at tax time. Missing just $6,000 in legitimate deductions—an easy figure to reach by overlooking expenses like mileage and software subscriptions—could mean overpaying taxes by $1,500 or more at a 25% tax bracket. The good news? Most of these deductions are expenses you're already incurring. The key is knowing what qualifies and keeping proper records.

This guide covers every major tax deduction available to small businesses in 2026, including significant changes from the One Big Beautiful Bill Act (OBBBA) that went into effect this year.

What's New for 2026: Major Tax Law Changes

The OBBBA, signed into law on July 4, 2025, brought several significant changes that affect small business tax planning:

100% Bonus Depreciation is Back—Permanently

The OBBBA permanently restored 100% bonus depreciation, making it a permanent feature of the tax code. This means you can deduct the full cost of qualifying equipment and property in the year you put it into service, rather than depreciating it over several years.

Expanded Section 179 Deduction

For 2026, the Section 179 deduction limit increased to $2,560,000, with a phase-out threshold of $4,090,000. This is a substantial increase from the pre-OBBBA limits of $1,250,000 and $3,130,000 respectively.

Qualified Business Income (QBI) Deduction Made Permanent

The QBI deduction, which allows eligible business owners to deduct up to 20% of qualified business income, was set to expire at the end of 2025. The OBBBA made it permanent and introduced several improvements:

• New minimum deduction: Starting in 2026, anyone with at least $1,000 of qualified business income receives a minimum deduction of $400
• Higher phase-out thresholds: Phase-out begins at $75,000 for single filers and $150,000 for joint filers (up from $50,000 and $100,000)
• Complete phase-out: $272,300 for single filers and $544,600 for married filing jointly

Enhanced Childcare Credit for Employers

The employer-provided childcare credit jumped from 25% to 40% of eligible costs, with the maximum credit increasing to $500,000. Small businesses can claim up to 50% of eligible costs with a maximum annual credit of $600,000.

R&D Expense Immediate Deduction

The OBBBA reversed the previous requirement to amortize R&D expenses over 5 years. Businesses can now immediately expense R&D costs incurred in 2025 and later.

The Big Deductions: Where Most Tax Savings Come From

Employee Wages and Benefits

For businesses with employees, payroll costs represent one of the largest deductions. You can deduct:

• Employee salaries and wages
• Bonuses and commissions
• Paid time off
• Employer portion of payroll taxes (Social Security, Medicare, unemployment)
• Health insurance premiums paid for employees
• Retirement plan contributions made on behalf of employees
• Workers' compensation insurance

Important: You cannot deduct your own salary if you're a sole proprietor—that comes out of your business profit. However, S-corporation owners who pay themselves a reasonable salary can deduct that expense.

Home Office Deduction

If you use a dedicated space in your home exclusively and regularly for business, you can claim the home office deduction. The IRS offers two methods:

Simplified method: Claim $5 per square foot, up to 300 square feet, for a maximum deduction of $1,500. This method requires minimal recordkeeping.

Actual expense method: Calculate the percentage of your home used for business, then deduct that percentage of:

• Rent or mortgage interest
• Property taxes
• Utilities
• Homeowners insurance
• Repairs and maintenance
• Depreciation (for homeowners)

The actual expense method requires more documentation but often yields larger savings, especially if your home office is a significant portion of your living space.

Critical requirement: The space must be used exclusively for business. A desk in your bedroom that doubles as a vanity won't qualify.

Vehicle Expenses

With the 2025 IRS mileage rate at 70 cents per mile—an all-time high—vehicle deductions can add up quickly. If you drive 100 business miles weekly, that's $3,640 in annual deductions.

You can choose between two methods:

Standard mileage rate: Multiply your business miles by the IRS rate (70 cents for 2025; check IRS.gov for 2026 rates). This method is simpler but requires maintaining a mileage log.

Actual expense method: Deduct the business-use percentage of all vehicle costs, including:

• Gas and oil
• Repairs and maintenance
• Insurance
• Registration fees
• Depreciation or lease payments

Vehicle-specific rules for Section 179: Heavy SUVs, trucks, and vans over 6,000 pounds may qualify for larger deductions, but only if business use exceeds 50% and mileage logs are properly maintained. Vehicles with GVWR over 14,000 lbs (commercial trucks, cargo vans, box trucks) may qualify for the full Section 179 deduction without passenger vehicle caps.

Section 179 and Bonus Depreciation

For equipment purchases in 2026, you have powerful deduction options:

Section 179: Allows you to deduct up to $2,560,000 of qualifying equipment in the year of purchase. The deduction phases out dollar-for-dollar once total equipment purchases exceed $4,090,000. Qualifying property includes:

• Machinery and equipment
• Office furniture and equipment
• Computers and software
• Certain vehicles
• Qualified improvement property

Bonus Depreciation: After applying Section 179, you can use 100% bonus depreciation on remaining eligible property. This applies to both new and used equipment.

Ordering rules: The IRS requires Section 179 to be applied first, then bonus depreciation, then regular MACRS depreciation. Work with a tax professional to optimize the ordering based on your income levels.

Self-Employed Health Insurance

This is one of the most frequently overlooked deductions. If you're self-employed and not eligible for coverage through an employer (including a spouse's employer), you can deduct 100% of health insurance premiums for:

• Yourself
• Your spouse
• Your dependents
• Children under age 27

This deduction is taken "above the line," meaning it reduces your adjusted gross income regardless of whether you itemize deductions.

Retirement Contributions

Tax-advantaged retirement accounts offer both current tax deductions and future tax benefits:

SEP-IRA: Contribute up to 25% of net self-employment income, up to $69,000 in 2024 (check for 2026 limits). Contributions are fully deductible.

SIMPLE IRA: Employee contribution limit of $16,000 (or $19,500 if age 50+), plus employer matching up to 3% of compensation.

Solo 401(k): Combine employee contributions (up to $23,000) with employer contributions (up to 25% of compensation) for a maximum of $69,000 annually.

Retirement plan startup credit: Eligible small employers can claim a tax credit of up to $5,000 for costs of starting a SEP, SIMPLE IRA, or qualified plan.

Operating Expense Deductions

Rent and Utilities

If you rent office, retail, or warehouse space, the rent is fully deductible. You can also deduct:

• Parking lot or garage rental for business vehicles
• Utilities (electricity, gas, water, internet)
• Janitorial services
• Security services

Business Insurance

Premiums for ordinary and necessary business insurance are deductible, including:

• General liability insurance
• Professional liability (errors and omissions)
• Product liability
• Business property insurance
• Business interruption insurance
• Commercial auto insurance
• Cyber liability insurance

Professional Services

Fees paid to professionals for business purposes are deductible:

• Accountants and bookkeepers
• Attorneys
• Consultants
• Business coaches
• IT support services

Software and Subscriptions

All those monthly software fees add up—and they're all deductible when used for business:

• Accounting software
• Customer relationship management (CRM) systems
• Email marketing platforms
• Project management tools
• Cloud storage services
• Industry-specific software

A typical small business might spend $2,000 to $5,000 annually on software subscriptions—all deductible.

Internet and Phone

The business-use portion of your phone and internet bills is deductible. A $100 monthly phone bill with 60% business use equals $720 in annual deductions.

Key requirement: The phone and internet must be essential to your business operations. Keep records documenting business versus personal use.

Advertising and Marketing

Reasonable advertising and promotional expenses directly related to your business are deductible:

• Website hosting and development
• Social media advertising
• Print advertising
• Business cards and brochures
• Trade show booth fees
• Promotional items and giveaways
• SEO and content marketing services

Travel and Meal Deductions

Business Travel

Business travel expenses are deductible when the trip is primarily for business purposes:

• Transportation (airfare, train tickets, rental cars, rideshares)
• Lodging
• 50% of meal costs while traveling
• Baggage fees
• Business calls while traveling
• Tips related to these services
• Dry cleaning on extended trips

Documentation required: Keep records showing the business purpose, date, location, and amounts for each expense.

Business Meals

Business meals remain 50% deductible in 2026. Qualifying meals include:

• Meals with clients or prospects where business is discussed
• Meals with employees for business purposes
• Meals during business travel

Important: Maintain records that include who attended, the business purpose, and the amount. Lavish or extravagant expenses may not be fully deductible.

Taxes as Deductions

You can deduct certain taxes as business expenses:

• Payroll taxes: Employer portion of Social Security, Medicare, and unemployment taxes
• State and local income taxes: On business income (subject to SALT limitations on personal returns)
• Property taxes: On business property
• Sales tax: Collected and remitted to state governments
• Self-employment tax: 50% of self-employment tax is deductible
• Excise taxes: If applicable to your industry
• Business vehicle registration fees

Education and Professional Development

Investments in professional development are fully deductible:

• Industry conferences and seminars
• Online courses and certifications
• Professional books and publications
• Trade association memberships
• Professional licensing fees and continuing education

Annual professional development costs often range from $2,000 to $5,000—all potentially deductible.

Startup Costs

If you started a business in 2026, you can deduct up to $5,000 in qualifying startup costs in your first year, plus another $5,000 in organizational costs. Amounts exceeding these limits can be amortized over 15 years.

Qualifying startup costs include:

• Market research
• Pre-opening advertising
• Employee training
• Consultant fees
• Travel to secure suppliers or customers
• Legal and accounting fees for business formation

Commonly Overlooked Deductions

Don't miss these frequently forgotten deductions:

Bank and Transaction Fees

Processing fees, monthly charges, and transaction costs can total $3,000 to $5,000 annually for a small business. All deductible.

Business Interest

Interest on business loans and business credit cards is deductible. Personal credit card interest is not deductible, even if used for business purchases—so keep business and personal expenses separate.

Bad Debts

If you use the accrual method of accounting and have accounts receivable that become uncollectible, you can deduct the bad debt.

Casualty and Theft Losses

If business property is damaged or destroyed by theft, vandalism, fire, storms, or other sudden disasters, you may be able to claim a deduction for the unreimbursed loss.

Charitable Contributions (for Corporations)

C-corporations can deduct charitable contributions up to 10% of taxable income. For sole proprietors, partnerships, and S-corporations, charitable deductions pass through to personal tax returns.

Moving Expenses for Business

If you relocated your business, the moving costs for equipment and inventory are deductible.

The QBI Deduction: Don't Forget Your 20%

The Qualified Business Income deduction is one of the most valuable tax benefits for pass-through businesses (sole proprietors, partnerships, S-corporations, and certain trusts).

How to Calculate It

The basic calculation: Take the lesser of 20% of your qualified business income OR your taxable income minus net capital gains and dividends.

Who Qualifies

• Sole proprietors
• Partners in partnerships
• S-corporation shareholders
• Certain trust and estate beneficiaries

C-corporations and employees do not qualify.

How to Claim It

Use Form 8995 (simplified version) or Form 8995-A (for higher incomes and more complex situations). The deduction is available whether you itemize or take the standard deduction.

Best Practices for Maximizing Deductions

Keep Meticulous Records

Without documentation, you can't claim deductions—even for legitimate business expenses. Maintain:

• Receipts for all expenses
• Mileage logs for vehicle use
• Records of business purposes for meals and travel
• Contracts and invoices for professional services

Separate Business and Personal Finances

Use dedicated business bank accounts and credit cards. This simplifies recordkeeping and helps substantiate deductions in case of an audit.

Track Throughout the Year

Don't wait until tax time to organize expenses. Regular bookkeeping ensures you capture every deduction and have documentation ready when needed.

Review Expenses Quarterly

Schedule quarterly reviews of your expenses to identify deductions you might be missing and to ensure proper categorization.

Consult a Tax Professional

Tax law is complex, and the OBBBA changes for 2026 add new considerations. A qualified tax professional can help you maximize deductions while staying compliant.

Simplify Your Financial Management

Tracking every deductible expense across multiple categories can be overwhelming—especially when you're also running a business. Having a clear, organized system for your financial records makes tax time less stressful and ensures you never miss a legitimate deduction.

Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data. With version-controlled records and AI-ready data formats, you can easily track expenses by category, generate reports for your tax preparer, and maintain the documentation the IRS requires—without being locked into proprietary software. Get started for free and take control of your business finances.