The new year brings new updates and revisions to business tax laws. Staying on top of these tax changes can be challenging due to the volume of new information introduced. However, there's no need to feel overwhelmed. At Huddle Business Capital, we did the homework for you. We took the initiative to review the latest business tax developments and highlight some key updates.
Stay ahead of the curve by understanding these business tax changes for 2026 that could impact your business's financial health, strategy, and investment plans. Please note that the following information is subject to change by the Internal Revenue Service (IRS) at any time, so it is essential to consult an accountant if you have questions or need assistance.
In 2026, the Section 179 tax deduction limit increases to $2,560,000 (up and the phase-out threshold rises to $4,090,000.1 Section 179 allows business owners to immediately write off the cost of qualifying equipment, machinery, vehicles, or technology, rather than depreciating it over time.
In 2026, bonus depreciation increased to 100% (up from 40%).2 This means businesses can write off 100% of the purchase price of qualifying business property (equipment, machinery, vehicles, and technology) acquired and placed in service within the eligible time period.
If your business provides childcare services to your employees, it could be eligible for a sizeable increase in the employer-provided childcare tax credit for the 2026 tax year. This year, the maximum employer-provided childcare tax credit will rise to $500,000, with eligible small businesses being able to claim up to $600,000.3 This is a substantial increase from last year's limit of $150,000.
Congress introduced a new benefit for small businesses—a 20% deduction for qualified business income (QBI).4 This deduction starts in 2026 and is designed to provide financial relief and further incentivize entrepreneurial activity, making it easier for businesses to thrive in a competitive market. The permanent 20% small business tax deduction applies to pass-through entities (e.g., S corporations, partnerships, and sole proprietorships), which account for over 95% of all businesses in the United States.
If your company uses a vehicle for business purposes, you will be glad to know the optional standard mileage rate for business use increased to 72.5 cents per mile in 2026.5 The rate reflects increases in fuel prices, maintenance, and other operational costs associated with owning and using a vehicle for business purposes. It is important to keep accurate records of your business mileage to take full advantage of this deduction.
In 2026, businesses that hire independent contractors (e.g., marketing content writers, marketing agencies, and accountants) and make third-party transactions for business purposes (e.g., via PayPal or Venmo) will have a lower administrative burden. That's because the Form-1099 reporting threshold for payments increased from $600 to $2,000.6 This change will affect tax returns filed in early 2027.
If your business operates in the food or beverage industry and has employees who receive tips, you may be eligible to claim the Federal Insurance Contributions Act (FICA) Tip Credit. This credit allows you to lower your business's taxable income by the amount you pay for the employer's portion of Social Security and Medicare taxes on specific employee tips.7 Currently, the employer's portion of the FICA tax is 7.65%. There are rules to follow to claim the FICA Tip Credit, so consult your accountant for more information.
Employees who work overtime at your company in 2026 might be able to claim a federal deduction of up to $12,500 for qualified overtime compensation.8 The "No Tax on Overtime" law will remain in effect until 2028, and applies to non-exempt employees and single filers with a modified gross income of less than $275,000. As an employer, it is essential to update your payroll procedures and systems to track all overtime hours your employees work. Moreover, overtime pay must be reported on IRS Form W-2, Form 1099, or another income tax statement.
1, 2 - https://www.nerdwallet.com/taxes/learn/section-179-deduction
3 - https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
4 - https://www.nerdwallet.com/business/taxes/learn/qualified-business-income-deduction
5 - https://www.irs.gov/pub/irs-drop/n-26-10.pdf
6 - https://www.irs.gov/pub/taxpros/fs-2025-08.pdf
7 - https://www.irs.gov/businesses/small-businesses-self-employed/fica-tip-credit-for-employers
8 - https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-individuals-who-received-tips-or-overtime-during-tax-year-2025
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind. Huddle Business Capital is not affiliated with nor endorses NerdWallet or the Internal Revenue Service.