2026 Tax Changes for Tiny Teams: QBI, 1099s, and Section 179 Explained

Accounting Bookkeeping Taxation Small Business USA Section 179 QBI Deduction 1099 OBBBA

If you run a U.S. small business with fewer than 10 employees, 2026 brings several tax changes worth understanding now—not just when tax season arrives.

The One Big Beautiful Bill Act (OBBBA) changed rules affecting the Qualified Business Income (QBI) deduction, information reporting for certain business payments, and depreciation. At the same time, the Social Security wage base increased for 2026.

For a small business owner, these changes can affect tax planning, contractor paperwork, equipment purchases, and bookkeeping.

Here are four areas to put on your 2026 checklist.

1. The QBI Deduction Is Now Permanent

The 20% Qualified Business Income deduction under Section 199A was originally introduced as a temporary provision. The OBBBA made it permanent for qualifying active trades or businesses.

For 2026, the law also introduces a minimum $400 deduction for eligible taxpayers with at least $1,000 of qualified business income. The $400 and $1,000 amounts will be adjusted for inflation beginning after 2026. (IRS)

Who can potentially benefit?

The QBI deduction can apply to income from qualifying pass-through businesses, including:

• Sole proprietorships
• Partnerships
• LLCs taxed as partnerships or sole proprietorships
• S corporations

However, the deduction is subject to several limitations. For 2026, the QBI taxable-income threshold is:

• $201,750 for most individual filers
• $403,500 for married taxpayers filing jointly
• $201,775 for married taxpayers filing separately

The phase-in ranges extend to $276,750 for most individual filers and $553,500 for married filing jointly. (IRS)

Simple Example:
Suppose a single-member LLC generates $60,000 of qualified business income, and the owner otherwise meets the requirements.
A simplified calculation would be:

$60,000 × 20% = $12,000 potential QBI deduction

The actual deduction can be affected by taxable income and other limitations, so the $12,000 should not automatically be treated as the final deduction.

What should small-business owners do?

Start tracking QBI-related information throughout the year rather than trying to reconstruct it during tax season. Your bookkeeping system should make it easy to identify:

• Business income and expenses
• Capital gains and losses
• W-2 wages
• Depreciable business property
• Other items that may affect the QBI calculation

If you're considering an S corporation, don't make the decision based solely on the QBI deduction. Compare the potential tax savings with payroll taxes, reasonable-compensation requirements, payroll administration, and additional compliance costs.

2. The Federal 1099 Reporting Threshold Is Now $2,000

One of the most noticeable changes for small businesses is the increase in the federal information-reporting threshold.

For payments made in 2026, the threshold for certain reportable payments increased from $600 to $2,000. The IRS confirms that the new $2,000 threshold applies to payments made after December 31, 2025. (IRS)

For example, a business paying an independent contractor for services may need to issue Form 1099-NEC when payments to that payee reach the applicable threshold.

Examples:

• Freelance designer ($1,800 during 2026): Under the federal $2,000 threshold, that payment generally does not trigger a 1099-NEC filing based solely on the amount.
• Virtual assistant ($2,400 during 2026): The business may have a federal 1099-NEC reporting obligation, assuming the other requirements are met.

Don't make this bookkeeping mistake

The higher threshold does not mean you can stop collecting W-9s or tracking contractor payments. You should continue to:

1. Obtain W-9s from applicable contractors
2. Track payments by vendor/payee
3. Reconcile contractor expenses
4. Keep invoices and supporting documentation
5. Review payments before year-end
6. Check state-specific reporting requirements

Also remember that the IRS rules contain exceptions. For example, backup withholding can create a filing requirement regardless of the payment amount in certain circumstances. Starting in 2027, the $2,000 threshold will be adjusted for inflation. (IRS)

3. Section 179 Is Much More Generous in 2026

Businesses purchasing equipment, machinery, computers, and other qualifying property have another important planning opportunity.

For tax years beginning in 2026, the maximum Section 179 deduction is $2.56 million.

The deduction begins to phase out when the total cost of qualifying Section 179 property placed in service exceeds $4.09 million. The maximum Section 179 deduction for qualifying sport utility vehicles is $32,000 for 2026. (IRS)

Example:
Imagine a landscaping company with six employees purchases commercial mowers, trailers, equipment, and computer systems totaling $180,000.

Depending on the property's eligibility, business income, and other limitations, Section 179 could allow the business to deduct a significant portion of the cost in the year the assets are placed in service.

The important point is that buying equipment does not automatically mean you receive the entire deduction. Eligibility, business-use requirements, taxable-income limitations, and other tax rules still apply.

4. 100% Bonus Depreciation Is Back

The OBBBA also made 100% additional first-year depreciation permanent for qualifying property acquired after January 19, 2025.

The IRS has confirmed that eligible property generally includes qualifying depreciable property with a recovery period of 20 years or less, certain computer software, and other specified property. Certain used property can also qualify. (IRS)

This is important because Section 179 and bonus depreciation are not the same thing:

• Section 179 has specific dollar and income limitations.
• Bonus depreciation operates under a different set of rules and can potentially provide 100% first-year depreciation for qualifying property.

Why timing matters

Buying equipment in December isn't enough. The property generally needs to be placed in service according to the applicable tax rules.

A simple year-end equipment conversation with your tax professional might include:

"If we purchase this equipment in November and place it in service before December 31, what deduction can we expect for 2026?"

Bonus: The 2026 Social Security Wage Base Is $184,500

For business owners who pay themselves through self-employment income or payroll, the 2026 Social Security wage base is another important number:

• Social Security tax applies to earnings up to $184,500 (12.4% rate).
• Medicare tax continues to have no wage base limit (2.9% rate). (Social Security Administration)

This can make entity and compensation planning particularly important for profitable businesses. However, an S-corporation election should not be made simply because someone says it will "save payroll taxes." You must consider reasonable compensation, payroll fees, state requirements, and bookkeeping complexity.

📋 2026 Tax Planning Checklist for Businesses With Fewer Than 10 Employees

• ✔ Review whether your business qualifies for the QBI deduction.
• ✔ Track qualified business income separately from non-QBI items.
• ✔ Make sure contractor W-9s are collected and organized.
• ✔ Track payments to each contractor throughout the year.
• ✔ Review 1099 requirements using the new $2,000 federal threshold.
• ✔ Check whether your state has different information-reporting requirements.
• ✔ Identify planned equipment and technology purchases.
• ✔ Review Section 179 and bonus depreciation before purchasing major assets.
• ✔ Confirm when purchased property is actually placed in service.
• ✔ Review vehicle-specific depreciation limitations before buying a business vehicle.
• ✔ If profits are increasing, compare sole proprietor/LLC taxation with an S-corporation structure.
• ✔ Keep bookkeeping current so tax planning decisions are based on accurate numbers.

The Bigger Lesson: Good Bookkeeping Makes Tax Planning Easier

Tax planning isn't something that should happen only after the books are closed. For a small business, accurate monthly bookkeeping gives you the information needed to make better decisions during the year, including profitability, contractor payouts, and equipment planning.

Final Thoughts

The 2026 tax year gives small businesses several opportunities—but also several areas where mistakes can become expensive. The best approach is to review these rules before year-end, when there is still time to make informed business and tax decisions.

Important: Tax rules can vary based on your business structure, income, state, type of payment, and specific assets. This article is for general educational purposes and should not replace advice from your CPA or tax professional.

About Biztally

Biztally helps small businesses keep their bookkeeping organized and stay prepared for tax season. From monthly bookkeeping and account reconciliation to financial review and tax-readiness support, having accurate books can give business owners better visibility into their finances and help them make informed decisions throughout the year.