Every legitimate deduction lowers your taxable profit, and for most small business owners that means less income tax and less self-employment tax. The catch is that deductions only count if they meet IRS rules and you can back them up.
Tax year 2026 is a good year to review your approach. The One Big Beautiful Bill Act (OBBBA) restored some generous write-offs for equipment and research costs. Here's what to know.
The basic test: ordinary and necessary
To be deductible, a business expense must be both:
- Ordinary: common and accepted in your trade or business, and
- Necessary: helpful and appropriate for your business. It doesn't have to be indispensable.
Personal expenses don't qualify, even if they're paid from a business account. If something is used for both, such as a phone or a car, generally only the business-use share is deductible.
Common deductions worth tracking
- Rent for office, shop or storage space
- Wages paid to employees and payments to contractors
- Business insurance
- Interest on business loans and credit cards
- Business taxes and licenses
- Software, subscriptions, phone and internet (business share)
- Advertising and marketing
- Professional fees, such as legal and accounting
- A home office, if you meet the rules (see our home office guide)
Equipment: bonus depreciation and Section 179
Normally, the cost of equipment, machinery, computers and similar property is spread over several years through depreciation. Two provisions let you deduct much more up front.
100% bonus depreciation is back, and permanent
OBBBA made a permanent 100% additional first-year depreciation deduction for qualified property acquired after January 19, 2025. Before the law changed, bonus depreciation had been phasing down. Now, eligible property you buy and place in service in 2026 can generally be fully deducted in the first year. You can elect a smaller amount or opt out if spreading the deduction works better for you.
Section 179 limits for 2026
| Section 179 (tax years beginning in 2026) | Amount |
|---|---|
| Maximum deduction | $2,560,000 |
| Phase-out begins when qualifying purchases exceed | $4,090,000 |
| Maximum for certain sport utility vehicles | $32,000 |
Section 179 is an election, and it can't create a loss from your business, but you can choose which assets to apply it to. Bonus depreciation and Section 179 work differently, so it's worth deciding which to use asset by asset.
Say you buy a $40,000 piece of equipment in March 2026 and start using it right away. Instead of deducting a slice each year, you may be able to deduct the full $40,000 on your 2026 return.
Research and experimental costs
From 2022 through 2024, businesses had to spread domestic research and experimental (R&E) costs over five years. OBBBA added new Section 174A, which once again lets you deduct domestic R&E expenses in the year you pay them, for tax years beginning after December 31, 2024. You can still choose to amortize them over at least 60 months.
The IRS also gave eligible small businesses a chance to apply the change retroactively to 2022 through 2024. That election generally had to be made by July 6, 2026, so if you think it applied to you and it wasn't made, talk to a professional about where things stand.
This can matter for more businesses than you'd think, including software development and product design.
Business meals: still 50%
You can generally deduct 50% of the cost of business meals. The meal can't be lavish or extravagant, you (or an employee) must be present, and it must be with someone you could reasonably expect to do business with, such as a client, customer or consultant.
Keep a note on the receipt of who attended and what was discussed.
Vehicle expenses
For a car used in your business, you can use either the standard mileage rate or actual expenses. For 2026, the IRS business rate is 72.5 cents per mile for January 1 through June 30, and 76 cents per mile for July 1 through December 31. Parking and tolls are deductible on top of that. Commuting isn't deductible.
Actual expenses (gas, repairs, insurance, depreciation) may give a bigger deduction for a pricier vehicle, but they require more records. Our gig economy guide covers the choice in more detail.
Health insurance for the self-employed
If you're self-employed with a net profit, a partner, or a more-than-2% S corp shareholder, you may be able to deduct health insurance premiums for yourself, your spouse and dependents using Form 7206. Two limits apply:
- You can't deduct premiums for any month you were eligible for a subsidized health plan through your own employer or your spouse's employer, even if you didn't enroll.
- The deduction can't exceed your net earnings from the business the plan is established under.
Retirement plans
Contributing to a retirement plan is one of the few deductions that also builds your own savings. Self-employed people and small businesses can choose from options such as a SEP-IRA, a SIMPLE IRA or a solo 401(k). Each has different contribution limits, deadlines and setup rules. See our 2026 retirement contribution limits article for this year's figures.
Documentation: the part that protects you
The IRS expects you to keep supporting documents like receipts, invoices, canceled checks and account statements. For meals, travel and vehicle use, records should show the amount, time, place and business purpose, and they should be made at or near the time, not rebuilt at year-end.
Keep asset records (purchase invoices, dates placed in service) until the statute of limitations runs out for the year you sell or dispose of the asset. Our bookkeeping habits guide has a simple system to follow.
When it's worth getting help
Choosing between bonus depreciation and Section 179, deciding whether to deduct or amortize R&E costs, and timing big purchases all affect more than one year's taxes. A tax professional can help you plan purchases before year-end and make sure each deduction is properly supported.
Our business tax solutions team works with small businesses on exactly these decisions. Book an appointment to review your 2026 plans. This article is general information, not advice for your specific situation.
Sources
- IRS: Credits and deductions for businesses (ordinary and necessary)
- IRS: Guidance on additional first-year depreciation under the One Big Beautiful Bill (IR-2026-06, Notice 2026-11)
- IRS: Tax inflation adjustments for tax year 2026
- IRS: Rev. Proc. 2025-32
- IRS: Rev. Proc. 2025-28 (Section 174A research and experimental expenditures)
- IRS Publication 463: Travel, Gift, and Car Expenses
- IRS: Standard mileage rates
- IRS: Instructions for Form 7206
- IRS Publication 583: Starting a Business and Keeping Records
- IRS: How long should I keep records?
General information, not tax advice. Tax rules change and depend on your situation. Figures are for tax year 2026 unless noted; confirm current amounts at IRS.gov or talk to a Stellar Tax professional before acting.