2026 Year-End Tax Planning for Business Owners: What the One Big Beautiful Bill Act Changed

On this page: 1. Equipment and property: full expensing is back for good2. The qualified business income deduction is permanent3. S corporation owner pay has to run through payroll4. The SALT cap rose, with a catch5. Domestic research costs are deductible again6. Tipped businesses: the credit and the new reporting7. Entity check for 2027How to approach the next ten weeks

The One Big Beautiful Bill Act, signed July 4, 2025, settled questions business owners had been planning around for years. Provisions that were scheduled to shrink or expire became permanent, and several limits rose sharply. 2026 is the first full year under the new rules, and most of the decisions that determine this year's tax bill have to be made before December 31. These are the ones that matter most.

1. Equipment and property: full expensing is back for good

Bonus depreciation had been phasing down by 20 points a year. The Act restored it to 100% permanently for qualifying property acquired after January 19, 2025. Section 179 expensing also rose: for tax years beginning in 2026, the limit is $2,560,000, phasing out dollar for dollar once more than $4,090,000 of qualifying property is placed in service in the year.

Three practical points decide whether the deduction lands in 2026:

• Placed in service, not purchased. Equipment ordered in December but delivered and installed in January is a 2027 deduction.
• Section 179 and bonus are not interchangeable. Section 179 is limited to business income and can be applied asset by asset; bonus depreciation can create a loss. The right mix depends on the rest of the return.
• States often disagree. Many states, including Arkansas, do not follow federal bonus depreciation. A purchase that wipes out federal income may still leave state income, so the state return belongs in the analysis.

The Act also created a new 100% allowance for certain qualified production property, generally nonresidential real property used in manufacturing and similar production activities placed in service after July 4, 2025. It is narrow, but for owners building or acquiring production facilities it can be significant.

2. The qualified business income deduction is permanent

The 20% deduction under Section 199A for owners of pass-through businesses had been set to expire after 2025. It is now permanent, with wider phase-in ranges for the income-based limits. Starting in 2026, owners with at least $1,000 of qualified business income from active businesses in which they materially participate receive a minimum deduction of $400.

For higher-income owners, the deduction can be limited by W-2 wages paid by the business and by the basis of its property. Year-end payroll, and the timing of equipment purchases, can move that limit, which is why the QBI calculation belongs in the same conversation as owner pay and depreciation.

3. S corporation owner pay has to run through payroll

Shareholders who work in an S corporation must take reasonable compensation as W-2 wages before taking distributions. That compensation affects payroll taxes, the QBI deduction and retirement plan contributions at the same time, and it has to be paid through payroll by December 31 to count for 2026. A year-end bonus processed in January belongs to 2027.

The same deadline applies to many retirement decisions. Employee deferrals into a 401(k) have to come out of 2026 paychecks, while employer contributions can generally be made up to the return due date. Knowing which is which is the difference between a plan that works and a missed year.

4. The SALT cap rose, with a catch

The cap on deducting state and local taxes rose from $10,000 to $40,000 for 2025 and $40,400 for 2026, increasing 1% a year through 2029 before reverting to $10,000 in 2030. The higher cap phases down once modified adjusted gross income exceeds $505,000 for 2026, falling back toward $10,000 for the highest earners.

That phase-down is why pass-through entity tax elections still matter. Most states with an income tax, Arkansas among them, let an S corporation or partnership elect to pay state tax at the entity level, where it is deductible against business income and outside the individual cap. For owners above the phase-down range, the election is often worth more now than it was before.

5. Domestic research costs are deductible again

Since 2022, businesses had to amortize domestic research and experimental expenditures over five years. For tax years beginning after December 31, 2024, the Act restored immediate deduction for domestic research costs, while foreign research remains amortized over fifteen years. Software development, product design and process improvement can all qualify. Businesses that have been amortizing these costs should review how the change applies to amounts from earlier years, since the transition rules offer choices with real dollar consequences.

6. Tipped businesses: the credit and the new reporting

For restaurants, and since 2025 for salons, barbershops and spas, the FICA tip credit deserves a year-end look, along with any open prior years. The new "No Tax on Tips" deduction belongs to employees, but employers carry the reporting burden: tips and occupation information need to be captured accurately on payroll records so the 2026 Forms W-2 are right the first time.

7. Entity check for 2027

A business that has outgrown its structure should decide before year-end. An S corporation election for a calendar-year business that wants it effective January 1, 2027 generally must be filed by March 15, 2027, and a change in structure affects payroll, retirement plans and state filings from the first day of the year. The analysis is far easier in December than in March.

How to approach the next ten weeks

Year-end planning works best as a single projection rather than a list of separate ideas. Equipment timing changes the QBI limit; owner pay changes payroll tax and retirement contributions; a pass-through entity tax election changes the state picture. Modeling them together, with a realistic estimate of the full year's income, is what turns these rules into actual savings, and it is the reason the conversation is worth having in November rather than in April.

Frequently asked questions

This article is general information as of October 6, 2026, not tax advice for any specific situation. Tax law changes frequently, and the right answer depends on your facts. Illustrative figures are examples, not projections.