How the One Big Beautiful Bill Act Impacts Small Businesses in 2026

Tax Policy & Small Business · April 2026

When the One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, it represented the most consequential rewrite of U.S. tax law since the 2017 Tax Cuts and Jobs Act. For small business owners — the sole proprietors, S-corps, LLCs, and partnerships that make up over 95% of all American businesses — the law lands with real force. Some provisions are permanent wins. Others require careful planning. All of them deserve your attention now.

Editorial Note: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary. Please consult a qualified CPA or tax professional before making decisions based on any provisions discussed here.

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QBI Deduction: 20% — Permanent (Pass-throughs: LLC, S-corp, Sole proprietors)

Bonus Depreciation: 100% — Permanent (Retroactive to Jan. 19, 2025)

Section 179 Cap: $2.5 Million (Up from $1 million; phase-out at $4M)

Childcare Credit Cap: $600,000 (Up from $150,000 for small businesses)

1099-NEC / MISC Threshold: $2,000 (Up from $600; effective 2026)

QSBS Gain Exclusion: Up to $15M (Expanded; 3-yr partial holding period)

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✓ Permanent Win

1. The 20% Pass-Through Deduction Is Here to Stay

If there is a single provision in the OBBBA that most directly benefits small business owners, this is it. The Section 199A Qualified Business Income (QBI) deduction — which allows most pass-through businesses to deduct 20% of their net business income — was set to expire at the end of 2025. That expiration would have amounted to a significant tax increase on over 33 million small businesses overnight. The OBBBA makes it permanent.

The deduction remains at 20%, meaning a sole proprietor or S-corp owner with $150,000 in qualified business income can deduct $30,000 before calculating their tax bill. The law also expanded access by widening the phase-in range where limitations apply — from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers. And starting in 2026, a new inflation-adjusted $400 minimum deduction ensures that very small businesses with at least $1,000 in qualified business income can always access some benefit.

Permanence is the real gift here. Tax planning is nearly impossible when foundational deductions have expiration dates. Small business owners can now make hiring, investment, and structure decisions knowing the QBI deduction is a stable part of the landscape.

Key QBI facts for small businesses

• Applies to sole proprietorships, S-corporations, partnerships, and LLCs taxed as pass-throughs

• Some “specified service trades or businesses” (law, health, finance) face phase-out at higher income levels — confirm your eligibility with your CPA

• The deduction is limited to the lesser of 20% of QBI or 50% of W-2 wages paid for higher-income filers — employee payroll matters

• New $400 minimum deduction for businesses with at least $1,000 of QBI, inflation-adjusted after 2026

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✓ Major Investment Incentive

2. 100% Bonus Depreciation Returns — Permanently

Under the Tax Cuts and Jobs Act, businesses enjoyed 100% first-year bonus depreciation on qualifying assets — meaning the full cost of new equipment, machinery, vehicles, technology, and certain improvements could be deducted in the year of purchase rather than spread over years. That benefit had been phasing down since 2023, dropping to 60% in 2024 and 40% in 2025, on a path toward 20% in 2026 and eventual elimination.

The OBBBA permanently restores 100% bonus depreciation, retroactive to assets acquired after January 19, 2025. That means qualifying purchases made earlier this year that you may have planned to depreciate partially can now be fully expensed. The after-tax cost of new equipment has, in effect, fallen by roughly 21% for businesses in the 21% corporate bracket — a meaningful shift in the math behind capital investment decisions.

YearBonus Depreciation Rate (Pre-OBBBA)Rate Under OBBBA202460%100% (retroactive)202540%100% (retroactive to Jan. 19)202620% (scheduled)100% (permanent)2027+0% (scheduled phase-out)100% (permanent)

The law also restores the immediate deductibility of domestic research and development (R&D) expenses — reversing a painful rule that had required businesses to amortize domestic R&D costs over five years. Small businesses with average annual gross receipts of $31 million or less may retroactively apply the new deduction rules back to 2022 (by July 4, 2026 deadline), potentially unlocking amended returns and meaningful refunds.

What typically qualifies for small businesses

• Equipment, machinery, and tools with a recovery period of 20 years or less

• Computers, servers, point-of-sale systems, and off-the-shelf software

• Work vehicles (subject to luxury auto limitations for passenger vehicles)

• Qualified improvement property — interior improvements to leased commercial space

• Domestic R&D costs — software, product development, process innovation

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✓ Expanded Expensing

3. Section 179 Expensing Gets a Major Upgrade

Section 179 is the provision that allows small businesses to immediately expense the full cost of qualifying property — rather than depreciate it over time — up to a set annual limit. It is often the more practical tool for small businesses compared to bonus depreciation because it applies to both new and used equipment and gives more flexibility in how deductions are allocated across assets.

The OBBBA doubled the Section 179 cap from $1 million to $2.5 million, with the phase-out threshold rising from $3.13 million to $4 million. Both amounts are now inflation-indexed, meaning they will increase automatically over time rather than eroding with every passing year. This is effective for property placed in service in tax years beginning after December 31, 2024.

For most small businesses, the practical effect is straightforward: you can now expense more qualifying assets in a single year without hitting the cap, and you can purchase significantly more total property before the deduction begins to phase out. A business that routinely spends $1–3 million annually on equipment now has far more room to fully expense those investments in year one.

What Section 179 covers that bonus depreciation may not

• Used equipment — not just new property

• Off-the-shelf software

• HVAC systems, roofing, security systems, and fire protection in nonresidential property

• Certain listed property (with limits) — vehicles, computers used in business

• The deduction can be applied selectively by asset, giving more control than bonus depreciation

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✓ Paperwork Relief

4. 1099 Thresholds Rise — Finally

For decades, the reporting threshold for Forms 1099-NEC and 1099-MISC — the forms businesses must issue when paying contractors, freelancers, or vendors — sat at $600. That number had not been updated since 1954. The OBBBA changes that: starting with the 2026 tax year, the threshold rises from $600 to $2,000, with inflation adjustments every year thereafter.

For small businesses that rely on a network of independent contractors, this is meaningful administrative relief. If you pay a freelance designer $1,500 for a project, or a part-time consultant $1,800 for the year, you no longer need to issue a 1099-NEC or gather their W-9 for that purpose. The House Ways and Means Committee estimates this change alone will eliminate the need for more than one-third of all 1099-MISC filings.

Separately, the 1099-K threshold — which governs what payment processors like PayPal, Stripe, and Venmo must report — has been restored to its pre-2021 level of $20,000 and more than 200 transactions. The planned reduction to $600 has been permanently repealed.

Raising the 1099 threshold is one of those changes that sounds modest in the abstract and turns out to be enormous in practice. January compliance workload for businesses with many contractors will drop substantially. It’s a genuine win for Main Street.

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✓ Talent & Retention Tools

5. Employee Benefits Credits Get Significantly Stronger

Attracting and retaining good employees is one of the defining challenges for small businesses competing against larger employers. The OBBBA gives small businesses new firepower on this front through expanded employer tax credits — making it more affordable to offer benefits that were previously out of reach for smaller operations.

Childcare Credit: The employer-provided childcare credit cap increases from $150,000 to $500,000 annually — and up to $600,000 for eligible small businesses. The credit covers up to 50% (previously 40%) of qualifying childcare expenses. Businesses can now also pool resources with other local employers to access credits for shared childcare services, opening a practical path for businesses that couldn’t support childcare facilities on their own.

Paid Family & Medical Leave Credit: The credit under Section 45S is made permanent, with the required employee tenure cut from 12 months to 6 months — making more employees eligible, sooner. The cost of family leave insurance is now also eligible for the credit, reducing the effective cost of offering the benefit.

Student Loan Repayment: Employers can continue to contribute up to $5,250 toward an employee’s student loans tax-free, and this benefit is now permanent and will be indexed to inflation after 2026. For recruiting in competitive markets, this benefit has proven to be a differentiator — particularly among younger workers.

Benefit credits worth reviewing now

• Childcare credit: confirm your business qualifies as an “eligible small business” for the $600K cap — review IRS guidance

• Paid leave: lower tenure requirement (6 months) may mean more employees qualify than you think

• Student loan repayment: if not already offered, add to your benefits package — it’s tax-free to both employer and employee

• All three can be offered simultaneously and are especially powerful in combination for recruitment messaging

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✓ Stability & Certainty

6. Tax Rates Made Permanent — The Cliff Is Gone

One of the most underappreciated impacts of the OBBBA is simply the end of uncertainty. The individual income tax rates established by the TCJA — the seven-bracket structure with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% — were set to expire at the end of 2025, which would have restored higher pre-2017 rates. The OBBBA makes these rates permanent.

For small business owners whose business income flows through to their personal return (as it does for sole proprietors, partnerships, and S-corps), this is directly relevant. The 21% flat corporate rate is also permanent for C-corporations. The “tax cliff” that had been hanging over business planning conversations for years is gone.

The standard deduction is also made permanent and temporarily enhanced through 2028 — an additional $1,000 for single filers and $2,000 for married filers on top of the already-increased TCJA amounts. For business owners who take the standard deduction personally, this provides modest additional relief. For 2026, single filers can deduct $16,550 and married joint filers $33,100.

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✓ Big Win for Founders

7. Qualified Small Business Stock Gets a Powerful Upgrade

For founders and investors in qualifying small business C-corporations, the OBBBA significantly expands the Section 1202 Qualified Small Business Stock (QSBS) exclusion — one of the most powerful capital gains tools in the tax code.

Under prior law, investors who held QSBS for more than five years could exclude 100% of capital gains on the sale, up to $10 million. The OBBBA introduces a tiered structure for stock issued after July 4, 2025: a 50% exclusion after a 3-year hold, a 75% exclusion after 4 years, and the full 100% exclusion after 5 years. The maximum excludable gain rises from $10 million to $15 million, and the qualifying asset threshold for the issuing corporation increases from $50 million to $75 million — both indexed for inflation after 2026.

This matters both for founders planning exits and for early investors evaluating whether to back small businesses. The shorter holding periods for partial exclusion reduce the risk premium on earlier-stage investments, potentially improving access to capital for qualifying businesses.

QSBS eligibility basics

• Must be an active domestic C-corporation (S-corporations, LLCs, partnerships do not qualify)

• Gross assets must not exceed $75 million at the time of stock issuance (new limit under OBBBA)

• Several industries are ineligible: professional services, finance, banking, insurance, restaurants, hospitality, and mining

• The expanded tiered holding periods apply to stock issued after July 4, 2025 — earlier stock follows the old rules

• Work with a tax advisor before structuring a deal around QSBS benefits — the rules are detailed and entity-specific

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⚠ Watch Closely

8. What to Watch: ERC Enforcement & Energy Credits

Employee Retention Credit (ERC) Crackdown: The OBBBA tightens enforcement and limits refunds for ERC claims filed after January 31, 2024, for the third and fourth quarters of 2021. If your business filed late ERC claims — particularly through a third-party promoter — review your position with a qualified CPA now. The IRS is actively auditing these claims, and the OBBBA gives it additional tools to disallow them. Penalties can be significant.

Energy Efficiency Credits Largely Gone: The Section 179D deduction for energy-efficient commercial buildings will be eliminated for projects beginning construction after June 30, 2026. If you own commercial property or were planning qualifying energy-efficiency improvements, the window to begin construction and lock in the deduction is closing fast. Projects that begin before the deadline can still qualify even if placed in service later.

Tariffs Remain an Independent Risk: The OBBBA does not address the tariff environment, which continues to create cost pressure for small businesses that import goods or components. These are separate legislative and executive actions that require separate planning — particularly for businesses with China-sourced supply chains.

Your OBBBA Small Business Action Checklist for 2026

• Schedule a mid-year tax review with your CPA to model the impact of all relevant OBBBA provisions on your 2026 tax bill

• Confirm your QBI deduction eligibility and whether expanded phase-in ranges affect your calculation

• Review any equipment, technology, or R&D purchases planned for 2026 — model the 100% bonus depreciation impact before finalizing timing

• If you’re a small business with average gross receipts under $31M, ask your CPA about amending 2022–2024 returns for retroactive R&D deductions (deadline: July 4, 2026)

• Audit your contractor list — update your 1099 tracking to reflect the new $2,000 threshold (but still collect W-9s upfront)

• Review your employee benefits: childcare credit, paid leave, and student loan repayment benefits are all stronger in 2026

• If you received ERC credits through a promoter for Q3–Q4 2021 after January 31, 2024, have a CPA review the claim now

• If you own commercial property, evaluate whether energy-efficiency improvements should begin before June 30, 2026, to qualify for the 179D deduction

• For C-corp founders: review QSBS eligibility if you’ve issued stock after July 4, 2025 — tiered holding period benefits now apply

A Genuine Turning Point for Small Business Taxes

The One Big Beautiful Bill Act is not a perfect piece of legislation — no tax law ever is. But for small businesses, the OBBBA delivers something that hasn’t existed in years: predictability. The QBI deduction is permanent. Bonus depreciation is permanent. The tax rates are permanent. Business owners can finally make capital investment, hiring, and structural decisions without hedging against a scheduled tax cliff.

The businesses that benefit most from this law won’t be the ones who read about it — they’ll be the ones who act on it. That means sitting down with a qualified CPA now, not in December, to model the specific impact on their numbers and make deliberate decisions about timing, structure, and investment. The provisions are generous. The planning window is open. Both close eventually.

OBBBA Small Business Guide 2026© 2026 · For Informational Purposes Only · Consult a Tax Professional