October 22, 2026
Under current law, a business may benefit from one or both of two depreciation-related tax breaks for qualified property placed in service during the year. But the OBBBA can have a major impact on your tax planning for 2026 and thereafter.
YEAR-END MOVE: To ensure you can claim the maximum deductions allowed for 2026, place qualified property in service (i.e., prepare it for its intended use) before the end of the year. Otherwise, your business cannot claim either tax break on its 2026 return.
Section 179 deduction: Section 179 allows a business to currently deduct the cost of qualified property, subject to a phase-out above a specified threshold, up to an annual limit essentially doubled by the OBBBA. The chart below shows the annual limits for this decade.
|
Tax year |
Deduction limit |
Phase-out threshold |
|
2021 |
$1.05 million |
$2.62 million |
|
2022 |
$1.08 million |
$2.70 million |
|
2023 |
$1.16 million |
$2.89 million |
|
2024 |
$1.22 million |
$3.05 million |
|
2025 |
$2.50 million |
$4 million |
|
2026 |
$2.56 million |
$4.09 million |
Be aware that the Section 179 deduction cannot exceed the taxable income from all your business activities this year. This rule could limit your deduction for 2026.
First-year bonus depreciation: The OBBBA permanently restores the first-year bonus depreciation deduction of 100%, retroactive to January 20, 2025. The deduction had been scheduled to be phased out completely after 2027.
TIP: Regular depreciation under the Modified Accelerated Cost Recovery System (MACRS) may be claimed for any remainder. However, other special rules could affect MACRS deductions, such as separate limits on business vehicles.
In this competitive business environment, it is often important for small businesses to keep pace with the latest technological advancements.
YEAR-END MOVE: Increase research and experimental (R&E) activities that will benefit your business. Besides the economic advantages, the OBBBA provides tax breaks for business entities on the cutting edge.
Previously, the tax law permitted a business to fully deduct domestic R&E expenses in the year in which they were incurred. But the TCJA required costs incurred after 2021 to be capitalized and amortized over 60 months. The OBBBA reinstates the prior rules, retroactive to January 1, 2025. (Alternatively, a business can elect to amortize the expenses over 60 months.)
Depending on your company’s situation, it may be beneficial to file an amended return for 2025. Note: The amortization period for foreign R&E expenses remains at 15 years.
TIP: A business may also qualify for a research and development (R&D) credit, but the same expenses cannot be claimed for both the R&E deduction and the R&D credit.
Normally, the costs associated with the start-up of a new business venture must be amortized over 180 months. However, the tax law allows you to claim a current deduction of up to $5,000 for qualified start-up costs. The $5,000 write-off is phased out for costs above $50,000.
YEAR-END MOVE: Make sure you “open for business” before January 1, 2027. Typically, this means you must begin offering goods or services. Otherwise, you cannot claim the current $5,000 deduction.
Some common examples of deductible start-up costs are as follows:
An analysis of potential markets, products, labor supply, transportation facilities, etc.
Advertisements for the opening of the business.
Salaries and wages for employees who are being trained and those instructing them.
Travel costs to secure prospective distributors, suppliers, customers or clients.
Salaries and fees for executives and consultants or similar professional services.
TIP: In addition, you may be entitled to a current deduction of up to $5,000 for qualified organizational expenses (e.g., expenses of a CPA).
In these uncertain economic times, many small businesses are struggling to stay afloat, resulting in large numbers of outstanding receivables and collectibles.
YEAR-END MOVE: Increase your collection activities now. For instance, you may issue a series of dunning letters to debtors asking for payment. Then, if you are still unable to collect the unpaid amount, you can generally write off the debt as a business bad debt in 2026.
Generally, business bad debts are claimed in the year they become worthless. To qualify as a business bad debt, a loan or advance must have been created or acquired in connection with your business operation and result in a loss to the business entity if it cannot be repaid.
Note: Keep detailed records of all collection activities—including letters, telephone calls, e-mails, texts and efforts of collection agencies—in your files. This documentation can help support your position claiming worthlessness of the debt if the IRS ever challenges the bad debt deduction.
The travel and entertainment (T&E) tax rules are fraught with numerous twists and turns.
YEAR-END MOVE: Stay within the tax law boundaries. If you adhere to the strict recordkeeping requirements, you can maximize deductions for 2026. Be aware of the following points as you look to increase deductions at the end of the year.
Under the “luxury car” rules, the deduction limit (including bonus depreciation) for a passenger vehicle placed in service in 2026 is $20,300 ($31,300 for certain heavy-duty SUVs). These figures are based on 100% business use and must be adjusted accordingly.
A company may generally deduct 100% of the qualified business travel costs incurred by employees. To increase your current deduction, accelerate trips planned for 2027 into 2026.
Previously, a business could generally deduct 50% of its qualified entertainment expenses. The deduction for entertainment expenses has been permanently repealed by the OBBBA, but you can still deduct 100% of the cost of a holiday party, provided the entire workforce—not just the higher-ups or company officers—is invited.
TIP: If you use the standard mileage method for deducting auto expenses in lieu of actual expenses, the rate is 72.5 cents per business mile (plus related tolls and parking fees) for the first six months of 2026 and 76 cents per mile for the last six months.
Under the OBBBA, employees may deduct the premium portion of up to $12,500 of overtime pay for single filers or $25,000 for joint filers, subject to a phase-out beginning at $150,000 or $300,000 of MAGI, respectively. Consider the year-end implications.
Stock up on supplies you expect your business to need in the near future. If you buy the supplies in 2026, the cost is deductible this year even if they are not used until 2027.
Maximize the qualified business income (QBI) deduction of up to 20% for pass-through entities and self-employed individuals. Note that special rules apply if you are in a “specified service trade or business” (SSTB). The OBBBA extended this tax break and made it permanent.
Delay bonuses to 2027 if your business is a calendar-year accrual-basis company. The bonuses generally are deductible on its 2026 return as long as they are paid by March 15, 2027. Bonuses received by employees in 2026 are taxable in 2026. Caveat: This technique does not apply to bonuses paid to majority owners of a C corporation or certain owners of an S corporation or a personal service corporation.
Owners of pass-through business entities like S corporations, partnerships and limited liability companies (LLCs) may adopt SALT “workarounds” to qualify for state tax deductions or credits. How it works in brief: The business makes the payments and then tax benefits are passed through to individuals on their personal tax returns. Contact your tax professional for more details pertaining to your situation.
This 2026 Year-End Tax Letter is based on the prevailing federal tax laws, rules and regulations. Of course, it is subject to change, especially if additional tax legislation is enacted by Congress before the end of the year.
Finally, remember that this letter is intended to serve only as a general guideline. Your personal circumstances will likely require careful examination. Please call Larson & Company today at 801-313-1900 to schedule a meeting for assistance with all your tax-planning needs. Larson and Company has developed a suite of services specifically to serve the needs of individuals and companies in a wide range of industries.
For more insights, visit our page for practical guidance on the One Big Beautiful Bill Act (OBBBA), including summaries of the key tax provisions most relevant to you and your business.
Source: Elite Editorial Services, 2026 Year-End Tax Planning Letter, 10/22/2026
This year-end tax-planning letter is published for our clients, friends and professional associates. It is designed to provide accurate and authoritative information with respect to the subject matter covered. The information contained in this letter is not intended or written to be used for the purpose of avoiding any penalties that may be imposed under federal tax law and cannot be used by you or any other taxpayer for the purpose of avoiding such penalties. Before any action is taken based on this information, it is essential that competent, individual, professional advice be obtained.