26 Tax Deductions in 2026 Most Small Business Owners Miss

This article provides general information, not tax advice for your specific situation. Consult a qualified professional before acting on it.

Why do small business owners miss tax deductions in 2026?

Most missed deductions come down to timing. Ten of the 26 below only work if you act before December 31. A 2025 tax law, the One Big Beautiful Bill Act, also known as the Working Families Tax Cuts, changed several of the rules, so last year’s advice may be out of date.

Our list is sorted by deadline:

• Part one: moves to make before December 31.
• Part two: bookkeeping fixes to finish before the year closes.
• Part three: deductions you claim when you file in 2027.

What tax moves should small business owners make before December 31, 2026?

These ten deductions depend on something you do this quarter. If you wait until January, then most of them move to next year or disappear.

1. Bonus depreciation (Restored by the new law). 

When you buy equipment for your business, you can write off the full cost this year instead of spreading it over several years. This applies to qualifying property bought after January 19, 2025 (IRS). The catch is that it must be “placed in service” by December 31, which means the equipment is set up and ready to use (IRS Pub. 946). 

Watch the loss limit. A big write-off can push your business into a loss. In 2026, owners of sole proprietorships, partnerships, and S corporations can use no more than $256,000 of business losses (up to $512,000 if married filing jointly) against their other income. The rest rolls forward to future years (Tax Notes; IRS Pub. 334). Your state may not follow the federal rules, and Louisiana has its own (Bloomberg Tax).

2. Section 179 expensing (Higher limit for 2026). 

This is another way to write off equipment in the year you buy it, up to $2,560,000 in 2026. The limit shrinks once you buy more than $4,090,000 of equipment in a year. The equipment must be used for business more than half the time, and the write-off can’t be more than the taxable income from businesses you actively run. Anything you can’t use rolls forward (IRS Pub. 946; 26 CFR §1.179-2).

3. Business vehicles (Updated limits for 2026).

For most cars, light trucks, and vans, generally those 6,000 pounds or less, the first-year write-off is capped at $20,300 in 2026 when you use bonus depreciation (IRS Schedule C instructions; IRS Rev. Proc. 2026-15; Journal of Accountancy). Sport utility vehicles have their own $32,000 Section 179 cap (IRS Pub. 946).

4. Small-purchase write-off (Unchanged). 

The IRS calls this the de minimis safe harbor. If your bookkeeping has expensed small purchases since January 1, you can deduct items costing $2,500 or less per invoice or item in full, rather than depreciating them. Businesses with audited financial statements get $5,000. You claim it with a short statement attached to your return. No policy yet? Start one on January 1, 2027 (IRS).

5. Retirement plans (Higher limits for 2026).

You can put up to $24,500 into a 401(k) in 2026, plus $8,000 more if you’re 50 or older (IRS). Each type of plan has its own deadline (IRS Pub. 560):

• New SIMPLE IRA: had to start by October 1, so it’s too late for 2026 for most businesses.
• SEP IRA: can be opened as late as your tax filing deadline, including extensions.
• New solo 401(k) for a sole proprietor with no employees: can be opened after year-end, up to your filing deadline, not counting extensions.
• Existing 401(k): owners must decide how much to contribute from their pay by December 31.

What you contribute for employees is a business expense. Sole proprietors and partners deduct their own contributions on their personal return instead (IRS Pub. 560).

6. Charitable giving (New rules for 2026).

If you itemize, only giving above 0.5% of your adjusted gross income counts. On $200,000 of income, the first $1,000 you give doesn’t count (Regions). If you take the standard deduction, you can now deduct up to $1,000 in cash gifts, or $2,000 if married filing jointly (IRS). C corporations now deduct only giving above 1% of taxable income, up to 10% (The Tax Adviser). If you give every year, ask whether doubling up your gifts in one year saves more.

7. Holiday party (Unchanged).

Most entertainment isn’t deductible, but a party or picnic for your employees is an exception. It also isn’t held to the usual 50% limit on meals (IRS Pub. 463). Plan something nice for the end of the year to show your team some appreciation – it pays back. 

8. Paying your kids (Unchanged). 

Wages are a business expense (IRS Schedule C instructions). If your child works for your sole proprietorship, or for a partnership in which every partner is the child’s parent, that pay is free of Social Security and Medicare tax until age 18 and federal unemployment tax until 21. This break doesn’t apply to corporations (IRS).

What deductions do new clients miss most often?

“Some easy ones I see new clients miss most are the Augusta rule and paying their children, or paying them too late in the year. Many also miss the chance to open a Roth IRA for their children.” –John Roberts, Principal

The Augusta rule refers to homes that you live in: if you rent one out for fewer than 15 days a year, you don’t report the rental income or deduct rental expenses (IRS Topic 415). Wages you pay your child count as compensation, when properly documented, which lets the child contribute to a Roth IRA up to the amount they earned, capped at $7,500 for 2026 (IRS).  

9. Owner health insurance (Unchanged). 

If you’re self-employed, you can deduct your health insurance premiums, up to the profit of the business that sponsors the plan (IRS Schedule C instructions; IRS Form 7206 instructions). If you own more than 2% of an S corporation, you get this deduction only if the company pays your premiums and adds them to your W-2. Set that up before the last payroll of the year (IRS).

10. Start-up costs (Unchanged). 

Opening this quarter? You can deduct up to $5,000 of start-up costs in your first year. That amount shrinks dollar-for-dollar once start-up costs pass $50,000 and is gone at $55,000. The rest is deducted evenly over 15 years (Congressional Research Service).

If you find yourself facing this particular question, read What Is a Fractional CFO and Do You Need One?

Every item above needs a decision before December 31. We’ll run your 2026 numbers against the new rules and build a year-end plan that fits your cash flow.

Book Your Q4 Tax Planning Meeting

What should you fix in your books before the year closes?

These seven deductions depend on clean records. Fix them now, while receipts and invoices are easy to find.

11. Business mileage (Rate changed July 1). 

The IRS raised the mileage rate midyear: 72.5 cents per mile for January through June, and 76 cents for July through December (IRS). Split your mileage log at July 1.

12. Employee meals (Restricted for 2026). 

Starting in 2026, snacks, coffee, and meals you provide employees at work for your own convenience may no longer be deductible at all. Restaurants that feed their own staff are an exception (BDO). Ask your bookkeeper how these costs are recorded.

13. Client meals (Unchanged). 

A meal with a client, customer, or other business contact is 50% deductible if you or an employee attend, and the meal isn’t lavish (IRS Schedule C instructions).

14. Client gifts (Unchanged). 

You can deduct up to $25 per person per year. Engraving and shipping usually don’t count toward the $25, and items costing $4 or less with your logo don’t count at all (IRS). Food or drinks the client will enjoy later count as a gift (IRS Pub. 463).

15. Bad debts (Unchanged). 

You can write off money a customer owes you only if you already counted it as income. Most businesses that record income when they’re paid can’t deduct unpaid invoices. You deduct the debt in the year it becomes worthless, and you need proof you tried to collect (IRS Topic 453). Review unpaid invoices before December 31.

16. Research and software development (Restored by the new law). 

Money spent developing new products or software can again be deducted in full in the year you spend it. You can instead choose to spread it over five years or more, a choice you make on your tax return (IRS Rev. Proc. 2025-28). Track these costs by project now, so you can choose with good numbers.

17. Prepaid insurance (Unchanged). 

Business insurance is deductible (IRS Schedule C instructions), but paying next year’s premium in December may not lower this year’s taxes. The IRS’s own example splits a one-year policy between the two years it covers (IRS Pub. 334).

Which deductions will you claim when you file in 2027?

These nine deductions need no year-end decision, only good records. Owners miss them because the expenses are small, scattered, or filed in the wrong category.

18. The 20% pass-through deduction (Made permanent). 

If your business income flows to your personal return, you may be able to deduct up to 20% of it. This deduction, called the qualified business income or QBI deduction, is now permanent (IRS Pub. 334). New for 2026: if you actively work in the business and it earns at least $1,000, your deduction is at least $400 (TaxAct).

19. Business loan interest (Unchanged for most small businesses). 

Businesses that averaged $31 million or less in yearly sales over the past three years can deduct all of their business interest, with no extra limit (IRS Schedule C instructions; IRS Pub. 334). Larger businesses also got more room under the new law.

20. Home office (Unchanged). 

The simplified method lets you deduct $5 per square foot of office space, up to 300 square feet, or $1,500. The space must be used regularly and only for business, and the deduction can’t be more than the business earns. W-2 employees can’t claim it (IRS).

21. Business travel (Unchanged). 

You can deduct airfare, hotels, rideshares, dry cleaning, and tips on trips that take you away from the area where you normally work, long enough that you need to stop for sleep or rest (IRS Topic 511).

22. Software and subscriptions (Unchanged). 

Subscriptions that last a year or less are regular business expenses. Software you buy outright, off the shelf, is written off over three years, or all at once with Section 179 or bonus depreciation (IRS Pub. 946). One exception: if you prepay a plan that runs more than 12 months, or past the end of next year, you may have to spread out the deduction (IRS Schedule C instructions).

23. Accounting and legal fees (Unchanged). 

Fees for your accountant and attorney are deductible when they relate to running the business, including tax advice and preparing your business tax forms (IRS Schedule C instructions).

24. Licenses and business taxes (Unchanged). 

Business licenses, property taxes on business assets, and your share of employees’ Social Security and Medicare are deductible. Federal income tax isn’t, but self-employed owners can deduct half of their self-employment tax (IRS Schedule C instructions).

25. Office supplies and books (Unchanged). 

Supplies, postage, books, or tools you’ll use up within a year are deductible (IRS Schedule C instructions).

26. Storm, fire, and theft losses (Unchanged). 

If business property is destroyed, you can deduct what you had invested in it for tax purposes, minus insurance and any salvage value. If it’s damaged but not destroyed, you deduct the smaller of that amount or the drop in its value, minus insurance (IRS Topic 515).

For planning moves beyond deductions, see Tax Planning Strategies 2026: 11 Ways Small Business Owners Can Lower Taxes.

How do you capture every deduction before December 31?

Start with part one, because those deadlines are firm. Equipment has to be in use by December 31, 401(k) contributions have to be set by year-end, and S corporation health insurance has to run through payroll. Then clean up your records using part two, so the deductions in part three hold up when you file.

At Attracct, we meet with owners in the fourth quarter, run their numbers under the new law, and build a year-end plan that fits their cash flow. That same meeting sets up next year’s decisions. 

Book your Q4 tax planning meeting. Call 225.460.4700 or reserve a time online.