2026 brings the biggest shake-up to small business taxes in years. The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, raised reporting thresholds, made several valuable deductions permanent, increased others, and reversed a planned 1099-K change. For most small businesses the result is less paperwork and bigger deductions — but the same duty to report every dollar of income.
Here’s a plain-English rundown of the 2026 small business tax changes that matter most — what’s changing, the numbers, and what you should do about each.
Quick reference: what changed for 2026
Part 1 — Reporting changes
1. The new $2,000 1099 threshold
For years, if you paid a contractor or vendor $600 or more for services in a year, you had to issue a Form 1099-NEC (or 1099-MISC). OBBBA raises that threshold to $2,000. Timing matters:
- The $2,000 threshold applies to payments made on or after January 1, 2026.
- Payments made in 2025 still use the old $600 threshold — those 1099s are due in early 2026.
- The first 1099s under the new rule cover the 2026 tax year and are filed in early 2027.
- From 2027 on, the $2,000 figure is adjusted for inflation each year.
A higher threshold means fewer forms — not less tax. If you earn income, you still owe tax on it, whether or not a 1099 is issued.
That last point is critical: all business income is still taxable and must be reported, even if it falls under $2,000 and no form is generated. Fewer 1099s just means the IRS is doing less matching for you — your own records now carry more weight.
2. The 1099-K threshold reverts to $20,000
If you accept payments through platforms like PayPal, Venmo, Stripe, Etsy, or Amazon, you’ve heard the confusing back-and-forth about Form 1099-K. A planned drop to a $600 threshold caused years of uncertainty. For 2026, that’s reversed: you’ll receive a 1099-K only if you exceed both $20,000 in gross payments and 200 transactions through a third-party platform in the year.
Whether or not you receive a 1099-K, you must reconcile your platform income to your books. (See our ecommerce bookkeeping guide for how to do that cleanly.)
Part 2 — Deductions that got better
This is where 2026 gets genuinely good for business owners. Several deductions were made permanent or expanded, which can meaningfully cut your taxable income — with planning.
3. 100% bonus depreciation is back — permanently
Bonus depreciation had been phasing down (to 40% in 2025), but OBBBA permanently restored 100% bonus depreciation for qualifying business assets placed in service on or after January 19, 2025. Instead of deducting the cost of qualifying equipment a little at a time over several years, you can generally deduct the full cost in the year you put it into service — computers, machinery, tools, business vehicles (within IRS limits), and certain furniture and fixtures.
4. Section 179 expensing limit jumps to about $2.5 million
Section 179 is the other way to write off equipment immediately. OBBBA raised the annual expensing limit to roughly $2.5 million for 2026 (up from about $1.25 million), with a higher phase-out threshold. Section 179 and bonus depreciation overlap but have different rules — a good tax preparer will use them together to maximize your deduction. If you’re planning a big equipment or vehicle purchase, timing it well can save real money.
5. The 20% QBI deduction is now permanent
The Qualified Business Income (QBI) deduction under Section 199A — which lets eligible pass-through owners (sole proprietors, LLCs, S-corps, partnerships) deduct up to 20% of qualified business income — was scheduled to expire after 2025. OBBBA made it permanent. It also widened the income phase-in ranges and added a new minimum $400 deduction for taxpayers with at least $1,000 of QBI from an active business they materially participate in. For most small business owners, this is one of the most valuable deductions on the return — and now it’s here to stay.
6. R&D costs are immediately deductible again (Section 174)
Since 2022, businesses had to spread domestic research and development costs over five years — a cash-flow headache for anyone building software, products, or processes. OBBBA restored immediate expensing of domestic R&D, and small businesses may be able to claim retroactive relief back to 2022. If you’ve capitalized R&D costs in recent years, this is worth reviewing with a professional.
Part 3 — Other changes worth knowing
7. The SALT cap jumps from $10,000 to $40,000
The deduction for state and local taxes (SALT) was capped at $10,000 since 2018. OBBBA raised the cap to $40,000 (about $40,400 for 2026, rising ~1% a year). This is a personal-return item, but it matters to business owners in higher-tax states like California and New York — and it’s scheduled to revert to $10,000 in 2030, so it’s a temporary window worth planning around.
8. New deductions for tips and overtime
OBBBA created temporary deductions for qualified tips and qualified overtime pay (generally for tax years 2025–2028). If you run a restaurant, salon, or any business with tipped or hourly employees, this affects payroll reporting and your team’s withholding. The rules have income limits and caps, so confirm how they apply to your payroll with a professional.
9. E-filing is now the standard
The threshold for mandatory electronic filing dropped sharply. If you file 10 or more information returns in total — counting all your W-2s and 1099s together — you must e-file them. Even a small business with a few contractors and one or two employees will likely cross that line, so set up payroll and 1099 e-filing now.
Key 2026 filing deadlines
For the full year of federal due dates, see our 2026 tax deadline calendar.
What these changes mean for your bookkeeping
The theme running through all of these updates is the same: the IRS is issuing fewer automatic paper trails while offering bigger deductions — so your own records matter more than ever. With higher thresholds, more income won’t be reported to the IRS by third parties, yet you’re still fully responsible for reporting it. And you can’t claim a deduction like bonus depreciation, Section 179, or QBI accurately if your books are a mess.
To stay clean, audit-ready, and deduction-ready in 2026:
- Track every payment, not just the ones that trigger a form.
- Reconcile 1099-K and platform income to your books so you don’t over- or under-report.
- Keep W-9s on file for contractors so you can issue accurate 1099s.
- Log fixed-asset purchases so you can apply bonus depreciation or Section 179.
- Set up e-filing now so January isn’t a scramble.
This is exactly the year-round organization we handle for clients. At Cloud Accountants, we keep your books reconciled and your 1099s and payroll filings on time — so tax changes like these become an opportunity, not a headache. We support small businesses nationwide, with state-specific guides for Colorado, Texas, Florida, and Washington State.
Frequently asked questions
Do I still need to report income under $2,000 if I don’t get a 1099?
Yes. The higher threshold only changes when a form is required — it does not change your tax liability. All business income is taxable and must be reported, form or no form.
When does the $2,000 1099 threshold start?
It applies to payments made on or after January 1, 2026. Payments made in 2025 still use the old $600 threshold, and the first 1099s under the new rule are filed in early 2027.
Is the QBI deduction really permanent now?
Yes. OBBBA made the 20% Qualified Business Income (Section 199A) deduction permanent, so eligible pass-through owners can continue to claim it beyond 2025. It also expanded the phase-in ranges and added a minimum $400 deduction for smaller active businesses.
What’s the difference between Section 179 and bonus depreciation?
Both let you deduct equipment costs up front. Section 179 has an annual dollar limit and can’t create a loss; bonus depreciation has no dollar cap and can. A tax pro often uses them together to maximize your write-off.
How much is the SALT cap now?
OBBBA raised the state and local tax deduction cap from $10,000 to $40,000 (about $40,400 for 2026), rising roughly 1% a year, before it’s scheduled to revert to $10,000 in 2030.
Do I have to e-file my 1099s?
If you file 10 or more information returns in total (W-2s plus 1099s), yes — e-filing is mandatory. Most small businesses with employees and contractors will cross that threshold.
Related reading
- US Small Business Tax Deadlines 2026: The Complete Calendar
- Ecommerce Bookkeeping: The Complete 2026 Guide for US Online Sellers
- How Much Does a Bookkeeper Cost for a Small Business in the US?
- Our Tax Services →
- Our Bookkeeping Services →
Cloud Accountants LLC is a US remote bookkeeping and tax firm serving small businesses nationwide. This article is general information, not tax advice. Tax rules change and individual situations vary — please consult a qualified professional about how these 2026 changes apply to you.
