US Small Business Tax Changes 2026: What the One Big Beautiful Bill Means for You

Washington Changed the Rules — Here’s What Actually Affects You

The One Big Beautiful Bill Act (OBBBA), signed into law in early 2026, is the most significant US tax legislation since the Tax Cuts and Jobs Act of 2017. It’s a sprawling bill that touches everything from individual income tax brackets to corporate provisions. But if you run a small business, you don’t need to read 1,100 pages. You need to know what changed for you.

This guide covers the provisions that directly affect small business owners, freelancers, and independent contractors — with practical steps for each.

The 7 Changes That Matter Most

1. 1099 Reporting Threshold: $600 → $2,000

This is the headline change for gig economy workers and small businesses that use contractors.

Before: You had to file a 1099-NEC for any contractor paid $600 or more in a calendar year.

Now: The threshold is $2,000. If you pay a contractor less than $2,000 in total during the year, you don’t need to file a 1099 for them.

What this means in practice:

• Fewer 1099s to file. If you use occasional contractors for small jobs, many will fall under the new threshold
• Less administrative burden. No more tracking $650 payments to a one-time web designer
• But: the IRS still requires you to report all business expenses for your own deductions, regardless of whether you file a 1099 for the payee. The $2,000 threshold is about the reporting obligation to the IRS about the recipient, not about your deductibility

What to do: Update your accounting software’s contractor tracking threshold. If your ERP automatically flags 1099-eligible payments, make sure it uses the new $2,000 limit, not the old $600.

2. No Tax on Tips

One of the most publicized provisions: tips received by service workers are exempt from federal income tax, starting in tax year 2026.

Who it affects: Employees in tipped industries (restaurants, bars, hotels, salons, ride-share, delivery). It does not apply to business owners or self-employed tip income reported on Schedule C — only W-2 tip income reported through an employer.

If you’re a small business owner with tipped employees:

• Payroll calculations change. Tips are still subject to FICA (Social Security and Medicare taxes) and must be reported, but they’re excluded from federal income tax withholding
• Your payroll software needs to handle the distinction: tips reported for FICA but not for income tax
• State tax treatment varies. Some states conform to the federal exemption; others don’t. Check your state’s position

What to do: Verify your payroll system can split tip treatment (FICA-taxable but income-tax-exempt). If it can’t, you need an update before your next payroll run.

3. Section 199A Deduction Extended and Expanded

The Qualified Business Income (QBI) deduction — the 20% deduction for pass-through entities (sole proprietors, partnerships, S-corps, LLCs) — was set to expire after 2025. The OBBBA extends it permanently and expands the income limits:

• Previous phase-out: began at $182,100 for single filers, $364,200 for joint filers (2024 figures, adjusted annually)
• New phase-out: thresholds raised significantly (exact figures indexed to inflation, but roughly 15-20% higher)
• Specified Service Trades or Businesses (SSTBs): the limitations for professionals in law, medicine, consulting, etc. remain, but the phase-out is more generous

What this means: If you’re a sole proprietor or S-corp owner earning between $180,000-$400,000, you may now qualify for a larger QBI deduction than before. This is a meaningful tax cut for profitable small businesses.

What to do: Review your entity structure with your CPA. The permanent extension makes pass-through status more valuable long-term. If you’ve been considering incorporating as a C-corp, factor the extended QBI deduction into that analysis.

4. Bonus Depreciation Reset

100% bonus depreciation was phasing down:

• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20% (would have been)

The OBBBA resets bonus depreciation to 100% for qualified property placed in service from 2026 onward, through at least 2029.

What this means: If you buy equipment, vehicles (with limitations), furniture, technology, or make qualified improvements to your business property, you can deduct the full cost in year one instead of depreciating it over multiple years.

What to do: If you deferred capital purchases waiting for this, now’s the time. Your ERP should support Section 168(k) bonus depreciation — verify it applies the 100% rate to 2026 purchases, not the phased-down 20%.

5. SALT Deduction Cap Raised

The State and Local Tax (SALT) deduction cap was $10,000 since the 2017 TCJA. The OBBBA raises it to $40,000 for tax years 2026 through 2028 (with income phase-outs for high earners).

What this means for business owners: If you operate as a sole proprietor or single-member LLC and your state/local taxes (income tax + property tax) exceed $10,000, you get a larger deduction on your personal return. For S-corp or partnership owners, the impact flows through to personal returns.

Caveat: This primarily benefits business owners in high-tax states (California, New York, New Jersey, Massachusetts, Illinois). If you’re in a no-income-tax state (Texas, Florida, Nevada, Wyoming), the impact is minimal.

6. Child Tax Credit Increase

The Child Tax Credit increases from $2,000 to $2,500 per qualifying child for tax years 2026-2028. If you’re a business owner with children, this directly reduces your tax liability.

Not a business provision per se, but for small business owners whose business income and personal income are intertwined (which is most of them), this matters.

7. Standard Deduction Maintained

The higher standard deduction from the 2017 TCJA ($14,600 for single, $29,200 for joint in 2024) is made permanent. This doesn’t directly affect business deductions (which are above-the-line), but it affects your overall tax planning.

What Did NOT Change

Just as important as what changed:

• Self-employment tax (SE tax): Still 15.3% (12.4% Social Security + 2.9% Medicare) on net self-employment income, with the Social Security portion capped at $168,600 (2024; indexed for 2026). The 0.9% Additional Medicare Tax still applies above $200,000/$250,000
• Estimated quarterly tax payments: Still required. Underpayment penalties still apply
• Section 179 expensing: Remains in place with its own limits (separate from bonus depreciation)
• Business meal deduction: 50% for meals with a business purpose. The temporary 100% for restaurant meals (2021-2022) was already gone
• Retirement plan contribution limits: Continue to increase with inflation
• Sales tax nexus rules: No federal change. Still state-by-state based on economic nexus thresholds (typically $100,000 in sales or 200 transactions)

What Your ERP Needs to Handle

If you’re evaluating or updating your accounting software, here’s what should work correctly for 2026:

Contractor and 1099 management

• Track payments to contractors with $2,000 threshold (not $600)
• Alert when a contractor approaches the threshold
• Generate 1099-NEC forms for eligible contractors at year-end
• Handle both W-9 collection and tax ID validation

Payroll (if you have employees)

• Separate tip income treatment: FICA-taxable, income-tax-exempt
• Updated federal withholding tables for 2026
• State tax conformity awareness (tips may still be state-taxable)
• Correct FUTA calculation with current rates

Asset management

• 100% bonus depreciation for qualified property placed in service in 2026
• Section 179 expensing as alternative
• Depreciation schedules that reflect the reset (not the phased-down 20%)
• Vehicle depreciation limits (luxury auto caps still apply)

Tax estimation

• Quarterly estimated tax calculation incorporating QBI deduction
• SALT deduction at new $40,000 cap
• Child Tax Credit at $2,500/child
• Self-employment tax calculation with current SS wage base

Multi-state compliance

• Sales tax nexus tracking by state (economic nexus thresholds)
• State income tax apportionment (if operating in multiple states)
• State-by-state tip tax treatment

How Odiverse Handles US Tax Compliance

Odiverse is built for multi-country operations, and the US is one of 11 supported jurisdictions. For American small businesses:

US GAAP chart of accounts: 212 accounts out of the box, aligned to US accounting standards. No manual setup needed.

1099 tracking with updated thresholds: Odiverse tracks contractor payments and alerts you when someone approaches the $2,000 reporting threshold. Year-end 1099 generation is automated.

Sales tax nexus monitoring: Track your sales by state. Odiverse flags when you’re approaching economic nexus thresholds so you can register before you’re non-compliant. Rates are calculated automatically based on ship-to address.

Multi-state awareness: If you sell into multiple states, Odiverse handles the tax rate variations automatically — including the jurisdictions that stack state + county + city + special district taxes.

AI that understands US tax context: Ask Odi “how much did I pay contractors this quarter?” or “what’s my estimated quarterly tax?” and get an answer drawn from your actual data, not a generic calculation.

Bonus depreciation support: Asset management with 100% bonus depreciation for 2026 purchases, Section 179 alternative, and proper depreciation schedules.

What To Do This Quarter

1. Update your 1099 tracking to the $2,000 threshold — don’t over-report
2. Check your payroll if you have tipped employees — tip tax exemption is in effect now
3. Review capital purchases — 100% bonus depreciation is back, so front-load equipment buys if you were waiting
4. Talk to your CPA about QBI — the permanent extension and higher phase-outs may change your entity structure calculation
5. Check your SALT situation — if you’re in a high-tax state, the $40,000 cap may save you significant money
6. Make sure your software is updated — the wrong 1099 threshold or depreciation rate creates compliance issues

The OBBBA is generally favorable for small businesses. But only if your systems reflect the changes.

Get started with Odiverse — or read our 1099 reporting guide and sales tax nexus guide for deeper dives on specific topics.