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The 2026 tax year brings significant opportunities for small business owners to reduce their tax burden and keep more cash in their business. Recent federal tax legislation, particularly the One Big Beautiful Bill Act (OBBBA), has reshaped several key deductions and created new planning opportunities. With the Qualified Business Income (QBI) deduction now permanently structured with guaranteed minimums and Section 179 expensing expanded to approximately $2.56 million, business owners have more ways than ever to lower taxable income strategically.
Ready to maximize your deductions? Start with LayerNext's free tax planning assessment to identify opportunities you might be missing.
A tax deduction reduces your taxable income, which directly lowers the amount of tax you owe. To qualify as deductible, business expenses must meet IRS criteria: they must be ordinary (common in your industry) and necessary (helpful and appropriate for your business). Common deductible expenses include operational costs like rent, utilities, payroll, and professional services, as well as capital investments like equipment and software.
Pro Tip: Start organizing your records now don’t wait until April. Business owners who track expenses monthly save an average of 12 hours during tax season and typically identify 15-20% more deductions, including real estate tax deductions, home improvement and rental property tax deductions, and pet taxes for businesses where applicable.
The 20% QBI deduction remains available for pass-through entities, including sole proprietorships, partnerships, S corporations, and many LLCs. What's new for 2026 is the guaranteed minimum deduction: businesses with at least $1,000 in qualified business income can now claim a deduction even if they would otherwise lose eligibility based on income thresholds.
Example: A consultant earning $180,000 in QBI could save up to $36,000 in taxable income, translating to roughly $8,600 in federal tax savings at the 24% bracket.
For 2026, Section 179 allows businesses to immediately deduct up to approximately $2.56 million of qualifying property and equipment in the year it's placed in service. This is a major increase from previous thresholds and provides immediate tax relief for businesses investing in technology, vehicles, or machinery.
Bonus depreciation continues at 100%, letting you fully deduct the cost of qualified property in the year it's used rather than spreading depreciation over several years. This pairs powerfully with Section 179 for businesses making significant capital investments.
For more details on current tax law, visit the IRS Small Business Tax Center.
What qualifies: Rent, utilities (electricity, internet, phone), office supplies, computers, furniture, and coworking space fees.
How to maximize: Keep lease agreements, utility receipts, and supplier invoices organized digitally. Even if you work from home, many of these costs can still be deductible through the home office deduction.
Tax savings example: A business spending $2,000/month on office rent saves approximately $7,200 annually in taxes at the 30% effective rate.
What qualifies: Salaries, wages, bonuses, employer-paid payroll taxes, and employer-paid health benefits are fully deductible.
Strategic advantage: Offering retirement contributions through SEP IRAs or Solo 401(k)s not only reduces current taxable income but also helps you save for the future. Employer contributions are deductible up to 25% of employee compensation.
Tax savings example: Contributing $15,000 to employee retirement plans could reduce your tax bill by $4,500.
What qualifies: If you use a vehicle for business (meeting clients, delivering goods, making bank runs), you can deduct related costs.
Two deduction methods:
Critical requirement: Keep a detailed mileage log or use an app to track business trips. Without documentation, the IRS will disallow these deductions.
Tax savings example: Driving 10,000 business miles at the standard rate could yield a $6,700 deduction worth roughly $2,000 in tax savings.
To qualify, your home space must be used regularly and exclusively for business. You can deduct a proportionate share of:
Two calculation methods:
Tax savings example: A 200-square-foot home office using the simplified method provides a $1,000 deduction, saving approximately $300 in taxes.
What qualifies: Business-related travel costs including flights, hotels, and meals when directly tied to business activities.
Important details:
Smart strategy: Document the business purpose of each meal or trip immediately not months later during tax prep.
Real estate tax deductions and rental property tax deductions can significantly impact small business owners who rent out space or own commercial real estate. These deductions may include property taxes, mortgage interest, insurance, and repairs related to the business property. Also, any improvements made to the property may be depreciated over time.
Tax savings example: If you own a commercial rental property worth $250,000, the depreciation deduction alone could save you thousands in taxes over the years.
Fees paid to accountants, bookkeepers, consultants, lawyers, marketing agencies, and other business advisors are fully deductible as ordinary and necessary business expenses.
Tax savings example: Spending $5,000 on professional services could reduce your tax bill by $1,500.
Monthly and annual software subscriptions are fully deductible when used for business operations. This includes:
Why this matters: Many business owners overlook small recurring charges that add up to thousands annually.
If your business involves animals (e.g., veterinary practices, pet grooming, or boarding), expenses related to pets, including food, veterinary care, and supplies, may be deductible. The IRS allows deductions for business expenses related to pets that serve as part of your business operations.
Don’t wait for tax season to organize receipts and invoices. Businesses with organized records throughout the year claim 15-20% more deductions on average and reduce audit risk significantly.
Action step: Set aside 30 minutes weekly to categorize expenses and upload receipts.
Apps and cloud-based tools that automatically log miles, categorize expenses, and store receipts make deductions easier to claim and defend during audits.
Recommended tools:
With Section 179 and bonus depreciation, you can shift deductions to years with higher income to maximize tax benefits.
Example strategy: If you expect higher revenue in 2026, accelerate equipment purchases before year-end to offset that income. If you expect lower revenue, delay purchases to 2027 when deductions will be more valuable.
Commingling funds is one of the biggest red flags for IRS audits. Use dedicated business bank accounts and credit cards exclusively for business expenses.
Why it matters: Mixed transactions make it nearly impossible to defend deductions during an audit and can jeopardize your entire business structure.
The 2026 tax landscape includes complex provisions under OBBBA and varying deduction thresholds based on business structure and income levels. A qualified tax professional can identify opportunities specific to your situation and ensure compliance.
When to seek help:
For professional guidance, visit the IRS Directory of Tax Preparers.
To fully leverage these deductions, you need clean, accurate financials year-round, not scrambled paperwork at tax time. LayerNext, an AI bookkeeping solution, helps businesses automate bookkeeping tasks seamlessly, ensuring your books are always audit-ready and no deductible expense slips through the cracks.
LayerNext captures and categorizes every transaction as it happens, mapping them to IRS-relevant categories to make tax preparation more efficient. With automated bookkeeping, you get an optimized workflow that saves time and ensures accuracy.
LayerNext captures and categorizes every transaction as it happens, ensuring your books are always audit-ready and no deductible expense slips through the cracks.
Transactions are automatically mapped to IRS-relevant categories, making it simple to identify office expenses, travel costs, marketing spend, and other deductible items.
Real-time dashboards and cash flow forecasts help you plan major purchases strategically, timing equipment investments to maximize Section 179 benefits or managing income recognition to optimize QBI deductions.
When tax season arrives, your CPA receives organized, categorized financial data instead of shoeboxes of receipts reducing preparation time and costs while improving accuracy.
Result: LayerNext clients typically identify 15-25% more deductions than businesses using manual tracking methods and reduce their tax preparation time by 60%.
Start your free LayerNext trial and see how much you could save in 2026.
Business tax deductions represent one of the most powerful tools for reducing your tax burden and keeping capital in your business for growth. The 2026 tax environment shaped by expanded Section 179 expensing, permanent QBI deduction structures, and clear pathways for common business expenses rewards business owners who plan strategically, track meticulously, and act proactively.
The difference between businesses that minimize taxes effectively and those that overpay often comes down to organization and awareness. With proper documentation, strategic timing, and the right tools, you can claim every deduction you're entitled to while staying fully compliant with IRS requirements.
Start maximizing your 2026 tax savings today:
The tax savings you capture this year compound over time, building equity, funding growth, and strengthening your financial foundation. Don't wait until tax season to start planning.
Schedule a free consultation with LayerNext to discover your personalized tax-saving opportunities for 2026.
