Year-End 2026 Tax Planning: Making the 2025 Tax Law Work for Your Business Before Dec. 31

Oct 30

7 min read

Updated: 5 hours ago

The 2025 budget reconciliation law, Public Law 119-21, signed July 4, 2025, and widely called the One Big Beautiful Bill Act, arrived in the middle of the 2025 tax year with a thicket of transition rules. The year ending Dec. 31, 2026, is different: it is the first year in which most of the law's business provisions apply from Jan. 1 to Dec. 31, and the first year in which several new reporting duties take full effect. The IRS, which now refers to the package on its website as the "Working Families Tax Cuts," has spent 2026 issuing guidance, including a Sept. 4 revenue procedure on research-expense accounting changes and new per diem rates for business travel announced in late September.

Do not expect Congress to change the picture before year-end. In a May 2026 outlook, RSM US advised that "major tax legislation appears unlikely before the election," and said the most realistic vehicle is a narrow package after the midterms, possibly covering technical corrections and expired provisions. The practical advice is to plan under current law.

What is in effect for tax year 2026

Depreciation and expensing. The law permanently restored 100% bonus depreciation for qualified property acquired after Jan. 19, 2025. IRS Notice 2026-11 provides interim rules. Property bought under a written binding contract signed before Jan. 20, 2025, generally stays on the old phase-down schedule, which for property placed in service in 2026 means a much smaller first-year deduction. Section 179 expensing for 2026 is capped at $2,560,000, reduced dollar for dollar once qualifying purchases exceed $4,090,000 (Rev. Proc. 2025-32). Manufacturers and producers may also elect a 100% deduction for "qualified production property," generally the production portion of nonresidential buildings, under Notice 2026-16. Construction must begin after Jan. 19, 2025, and before 2029, and a change in use within 10 years triggers recapture.

Research and experimental costs. New Section 174A lets businesses deduct domestic research costs immediately for tax years beginning after 2024, or elect to amortize them over at least 60 months. Foreign research is still amortized over 15 years. The special window for eligible small businesses (average gross receipts of $31 million or less) to amend 2022–2024 returns closed in July 2026. Businesses that chose to recover leftover 2022–2024 balances ratably over 2025 and 2026 will claim the second half this year. Rev. Proc. 2026-32, released Sept. 4, updated the procedures for related accounting-method changes.

Business interest. The Section 163(j) limit again uses an EBITDA-style measure of adjusted taxable income, which generally allows more interest deductions for capital-intensive and leveraged companies.

Qualified business income (QBI) deduction. The 20% Section 199A deduction for owners of pass-through businesses is now permanent. For 2026, the limitations begin at taxable income of $201,750 ($403,500 for joint filers), and the phase-in ranges widen to $75,000 and $150,000. A new $400 minimum deduction applies to taxpayers with at least $1,000 of qualified business income from businesses in which they materially participate.

State and local taxes (SALT). The itemized SALT cap is $40,400 for 2026. It shrinks by 30% of modified adjusted gross income above $505,000, but not below $10,000, and is scheduled to revert to $10,000 in 2030. Entity-level pass-through entity taxes (PTETs), which many states offer as a workaround, were left intact.

Tips and overtime. For 2025 through 2028, eligible workers may deduct up to $25,000 of qualified tips and up to $12,500 ($25,000 joint) of qualified overtime pay, which is only the premium portion that the Fair Labor Standards Act requires. Both phase out above $150,000 of modified AGI ($300,000 joint). The 2025 penalty relief for employers is over: 2026 Forms W-2 carry new Box 12 codes for cash tips (TP), qualified overtime (TT) and employer contributions to Trump accounts (TA), plus a tipped-occupation code in Box 14b.

Information returns. For payments made after Dec. 31, 2025, the general Form 1099-NEC and 1099-MISC reporting threshold rises from $600 to $2,000, and the backup-withholding threshold moves with it. Some items keep lower thresholds: royalties remain at $10, and gross proceeds paid to attorneys remain at $600. Form 1099-K reporting by payment platforms is back to more than $20,000 and more than 200 transactions.

Other items owners should know.

The excess business loss limit is permanent, but the 2026 thresholds fall to $256,000 ($512,000 joint), down from $313,000 and $626,000 for 2025.
Most meals an employer provides for its own convenience or through an on-site eating facility are no longer deductible starting in 2026, with narrow exceptions.
The employer-provided child care credit rises to 40% of qualified costs, up to $500,000 a year (50% and $600,000 for eligible small businesses). The dependent care assistance exclusion rises to $7,500.
Since July 4, 2026, employers may contribute up to $2,500 a year per employee to "Trump accounts" for employees or their dependents. Proposed regulations issued Aug. 11, 2026, require a separate written plan and nondiscrimination testing, and employers may rely on them now.
According to the Congressional Research Service, wages paid to workers hired after Dec. 31, 2025, do not qualify for the Work Opportunity Tax Credit unless Congress extends it.
The Section 45L energy-efficient home credit and the Section 179D commercial building deduction ended for homes acquired or construction begun after June 30, 2026.

The timing decisions that matter

Placed in service means placed in service. Bonus depreciation and Section 179 depend on when an asset is ready and available for its intended use, not when it is ordered or paid for. Equipment still sitting in a crate on Dec. 31 is generally a 2027 deduction.

Permanence changes the question. Because 100% bonus depreciation no longer phases down, there is no expiring benefit to rush toward. The real question is which year's deduction is worth more. Accelerating can backfire. Large write-offs reduce QBI, and therefore the 20% deduction. For pass-through owners, they can push losses past the excess business loss limit, converting them into net operating loss carryforwards that can offset only 80% of future taxable income. Businesses can elect out of bonus depreciation by asset class or use Section 179 selectively to land income where they want it.

Watch the SALT window. For high-income owners who itemize, every dollar of modified AGI between $505,000 and roughly $606,000 reduces the SALT deduction by 30 cents, which raises the effective marginal rate in that band. Year-end deductions, retirement contributions and income deferral are worth modeling against that range. For owners in states with an elective PTET, making the entity payment by Dec. 31 is usually what secures the 2026 federal deduction at the entity level, but each state's election and payment rules differ.

Decide how to treat research costs. Immediate deduction is usually the default choice, but amortizing over 60 months can make sense for a company with losses, credits it cannot yet use, or state rules that diverge from federal law. That choice also interacts with the research credit and the Section 280C election.

Mind the thresholds. Owners near the QBI limits ($201,750 single, $403,500 joint) should review reasonable compensation, W-2 wages and timing of income, especially in specified service businesses such as law, accounting and consulting, where the deduction phases out entirely above the range. Many states do not follow federal bonus depreciation, so a federal win may come with a state add-back.

C corporations and charity. Starting in 2026, corporate charitable deductions count only above a floor of 1% of taxable income. Concentrating gifts in alternating years can keep more of them deductible.

What to document before the books close

Fixed assets: invoices, delivery and installation records showing the placed-in-service date, and the signing date of any purchase contract (pre- or post-Jan. 20, 2025). For qualified production property, keep floor-plan and use allocations; the election requires a statement listing each property and the basis designated.
Research costs: project lists, wage allocations, contractor agreements and a domestic-versus-foreign split.
Payroll: a separate record of FLSA-required overtime premiums, cash tips and the tipped-occupation codes for each tipped employee. Payroll providers need these set up before the first 2027 payroll runs.
Vendors: a current Form W-9 for every vendor, plus payment totals measured against the $2,000 threshold. Collecting W-9s up front still matters for backup withholding.
Travel: businesses that reimburse travel under an accountable plan can use the per diem rates in Notice 2026-60, which took effect Oct. 1, 2026, to simplify substantiation.
PTET: state election confirmations and proof of payment dates.

Key dates

Dec. 31, 2026 (Thursday): assets placed in service, PTET payments, charitable gifts and payroll changes for 2026.
Jan. 15, 2027: fourth-quarter 2026 estimated tax payment for individuals.
Feb. 1, 2027: Forms W-2 to employees and the Social Security Administration, Form 1099-NEC to recipients and the IRS, and Form 1099-MISC to recipients (Jan. 31 falls on a Sunday). Businesses filing 10 or more information returns in total must file electronically.
March 1 / March 31, 2027: Form 1099-MISC to the IRS on paper or electronically.
March 15, 2027: calendar-year partnership and S corporation returns or extensions. Elections such as the qualified production property election are made on the timely filed return, including extensions.
April 15, 2027: individual and calendar-year C corporation returns or extensions.

What to do now

Business owners should schedule a year-end projection with their adviser in November rather than late December, while equipment can still be delivered and payroll settings changed. The projection should test at least two scenarios: maximum write-offs and a moderated approach that preserves the QBI deduction and avoids the SALT phase-down. Owners should confirm that their payroll provider is ready for the new W-2 codes, clean up the vendor file before January, and watch for any lame-duck legislation or 2027 inflation adjustments that could change the numbers.

Sources

This article is general information, not tax, legal, or accounting advice. Consult a qualified professional about your situation.