One Big Beautiful Bill: Small Business Tax Changes 2026

Quick answer: The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, made the 20% QBI deduction permanent, restored 100% bonus depreciation, doubled Section 179 to $2.5 million, let businesses deduct domestic R&D immediately, raised the 1099-NEC threshold to $2,000 from 2026 and added temporary deductions for tips and overtime.

Most of the headlines about the law focused on individual tax cuts, but the One Big Beautiful Bill small business changes are where many owners and freelancers will feel the real difference in 2026. This guide walks through each change in plain English, shows who it helps, and links to our deeper guides on each topic. Where a figure is adjusted for inflation, we use the 2026 number published by the IRS.

Important: This is general information, not tax or legal advice. Several provisions are still receiving IRS guidance, and how they apply depends on your entity type, income and state. Check with a qualified tax adviser before you act on any of it.

One Big Beautiful Bill small business changes at a glance

Here is a summary of the provisions that matter most to sole proprietors, single-member LLCs, S corporations and small partnerships. The rest of the article explains each one.

Provision	Before the law	After the law (2026)
QBI deduction (Section 199A)	20%, set to expire after 2025	20%, permanent, wider phase-in range, $400 minimum
Bonus depreciation	Phasing down; 20% for 2026	100% for property acquired after January 19, 2025, permanent
Section 179 expensing	About $1.25 million limit	$2,560,000 limit, phase-out from $4,090,000 (2026, inflation adjusted)
Domestic R&D costs	Amortized over 5 years	Deductible in the year paid (new Section 174A)
1099-NEC and 1099-MISC threshold	$600	$2,000 for payments made after 2025
1099-K threshold	Scheduled to fall to $600	More than $20,000 and more than 200 transactions
SALT deduction cap	$10,000	$40,400 for 2026, phased down above $505,000 MAGI
Tips and overtime	Fully taxable	Deductions up to $25,000 (tips) and $12,500 (overtime), 2025 to 2028

QBI deduction: permanent, with a wider phase-in

The qualified business income deduction lets owners of pass-through businesses deduct up to 20% of their qualified business income. It was one of the 2017 provisions due to expire at the end of 2025. The OBBBA tax changes made it permanent and kept the 20% rate.

Two practical changes help smaller businesses:

• Wider phase-in range. Once taxable income passes the threshold ($201,750 single and $403,500 joint for 2026), the wage limits and the specified service business restrictions now phase in over $75,000 (single) or $150,000 (joint), instead of $50,000 and $100,000. That softens the cliff for consultants, accountants and other service providers.
• $400 minimum deduction. From 2026, owners who materially participate in an active business and have at least $1,000 of qualified business income get a deduction of at least $400. This mostly helps side businesses with small profits.

For thresholds, specified service rules and worked examples, read our full guide to the QBI deduction under Section 199A.

Bonus depreciation and Section 179: buy equipment, deduct it now

Before the law, bonus depreciation was phasing down by 20 percentage points a year and would have been only 20% in 2026. The new law restored 100% bonus depreciation permanently for qualified property acquired after January 19, 2025. Property under a binding contract signed on or before that date keeps the old rate.

Section 179, the other main way to expense equipment in year one, was also expanded. The base limit became $2.5 million with a $4 million phase-out threshold for property placed in service in tax years beginning after 2024. Both figures are now inflation adjusted, giving a 2026 limit of $2,560,000 that starts to shrink once you place more than $4,090,000 of qualifying property in service.

For most small businesses, either route lets you write off a laptop, vehicle, machine or furniture in the year you buy it. The differences, such as Section 179 being capped at business income while bonus depreciation can create a loss, are covered in our guide to Section 179 vs bonus depreciation.

A related new rule, 100% expensing for qualified production property under Section 168(n), applies to certain new factory and manufacturing buildings where construction begins after January 19, 2025 and before 2029. It is aimed at manufacturers rather than service businesses.

R&D costs: domestic expensing is back

From 2022, research and experimental costs, including software development, had to be capitalized and amortized over five years (15 years for foreign research). That hit software startups, agencies and product businesses hard, because salaries spent building products could not be deducted in full.

The OBBBA created Section 174A. For tax years beginning after December 31, 2024, domestic research and experimental costs can be deducted in the year paid or incurred, or capitalized over at least 60 months if you prefer. Foreign research still has to be amortized over 15 years. Small businesses with average annual gross receipts of $31 million or less could also apply the new rule back to 2022, but that election closed on July 6, 2026. The details, including what is left for unamortized 2022 to 2024 costs, are in our guide to Section 174 R&D expensing.

1099 thresholds: fewer forms from 2026

This is the change most freelancers and their clients will notice first. For payments made after December 31, 2025, a business generally has to file Form 1099-NEC or Form 1099-MISC only when it pays someone $2,000 or more in a calendar year, up from the $600 threshold that had been in place for decades. The $2,000 figure is scheduled to be indexed for inflation after 2026.

The law also reversed the planned drop in the Form 1099-K threshold. Payment apps and online marketplaces report only when a payee receives more than $20,000 and has more than 200 transactions in the year.

Two points to keep in mind:

• Income is taxable whether or not you receive a 1099. A smaller pile of forms does not mean less income to report.
• Clients still need your W-9 details to decide whether a form is due, so keep collecting and supplying them.

See our explainers on the 2026 Form 1099-NEC threshold and the Form 1099-K threshold for the full rules.

SALT cap: higher for most owners through 2029

The cap on itemized deductions for state and local taxes rose from $10,000 to $40,000 for 2025 and $40,400 for 2026, with 1% increases each year through 2029 before reverting to $10,000 in 2030. The cap is reduced by 30% of modified adjusted gross income above $505,000 for 2026, though never below $10,000.

For small business owners this matters mainly if you itemize, live in a high-tax state or own property. The law did not shut down state pass-through entity taxes, which many states offer so partnerships and S corporations can pay state tax at the entity level and deduct it federally. If your business uses one, ask your adviser whether it still makes sense with the higher cap.

Tips and overtime: new deductions for workers

Two of the most talked-about OBBBA tax changes are temporary deductions for tax years 2025 through 2028:

• No tax on tips. Up to $25,000 of qualified tips per return, including for self-employed people in listed tipped occupations, with a phase-out starting at $150,000 of modified adjusted gross income ($300,000 joint). See our guide to no tax on tips for the self-employed.
• No tax on overtime. Up to $12,500 ($25,000 joint) of the premium part of FLSA-required overtime, with the same income thresholds. It applies to employees, not independent contractors. Our no tax on overtime guide covers who qualifies and how employers report it.

Both are deductions, not exclusions, and neither reduces Social Security and Medicare taxes. If you employ tipped staff or pay overtime, the main job for your business is accurate payroll records and correct reporting on Forms W-2.

Other changes worth knowing

A few smaller provisions may affect you depending on your situation:

• Standard deduction. $16,100 single and $32,200 joint for 2026.
• Senior deduction. An extra $6,000 per person aged 65 or older for 2025 through 2028, phased out above $75,000 MAGI ($150,000 joint).
• Car loan interest. Up to $10,000 of interest on a new, US-assembled vehicle for personal use, 2025 through 2028. Business vehicles do not qualify under this rule; deduct business vehicle costs as normal business expenses instead.
• Employer childcare credit. The maximum rose to $500,000, or $600,000 for eligible small businesses, from 2026.
• Trump accounts. Employers can contribute up to $2,500 a year per employee toward these new children's accounts, generally tax-free to the employee.
• Charitable deduction for non-itemizers. From 2026, up to $1,000 ($2,000 joint) of cash gifts.

What to do now: a 2026 checklist

Turning the One Big Beautiful Bill small business rules into actual savings comes down to records and timing. A simple plan:

1. Review your 2026 estimated payments. Bigger deductions may mean you are overpaying. Rework your figures using our guide to quarterly estimated taxes for freelancers.
2. Time equipment purchases. Confirm when each asset was acquired and placed in service, and keep invoices that show the date and price.
3. Separate R&D costs. Track developer time and contractor costs by project, and note where the work was done.
4. Update 1099 processes. Apply the $2,000 threshold to 2026 payments but keep collecting W-9s from every contractor.
5. Check the deductions you already claim. Our list of self-employed tax deductions is a good starting point.
6. Talk to an adviser about state conformity, entity choice and whether to elect out of any default treatment.

How invoices support your deductions

Every deduction above depends on documents. Purchase invoices prove what you bought and when, which drives depreciation. Sales invoices support the business income that sets your QBI deduction and your Section 179 limit. Clear invoices with dates, descriptions, quantities and tax lines make year-end work faster and audits less painful.

A practical example: a freelance video editor buys a $6,500 camera package in March 2026 and $1,800 of software. With 100% bonus depreciation or Section 179, the camera can be deducted in full in 2026, but only if the supplier invoice shows the purchase date and the editor can show it was placed in service. The same editor's sales invoices to clients show the income that the QBI deduction is based on.

Who gains most from the One Big Beautiful Bill small business provisions? Broadly, three groups. Owners who buy a lot of equipment, such as trades, transport and production businesses, benefit from full expensing. Software and product businesses benefit from domestic R&D expensing. And service providers with income near the QBI thresholds benefit from the wider phase-in range. Freelancers with modest profits and few purchases will mostly notice the higher 1099 threshold and, if they also hold a W-2 job, the overtime deduction.

It is also worth knowing what the One Big Beautiful Bill small business changes did not do. The law did not change the self-employment tax rate, the rules for deducting a home office, the standard mileage method or the basic rules on what counts as an ordinary and necessary business expense. Your day-to-day bookkeeping stays the same; what changed is how quickly some costs can be deducted and how much of your profit is taxed.

Conclusion

The One Big Beautiful Bill small business package is mostly good news for 2026: a permanent QBI deduction, full expensing for equipment and domestic R&D, and fewer 1099 forms. The catch is that every benefit depends on clean records and correct timing. Start by keeping professional, dated invoices for everything you sell, using our free US invoice generator, and browse more guides in our tax and compliance section. Then review the changes with a qualified tax adviser before you file.