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Big Beautiful Bill: small business tax changes for 2025 and 2026

The One Big Beautiful Bill's small business changes are law, from a permanent 20% QBI deduction to 100% bonus depreciation. Here is what changed, and when.

Vishant Mehta, CPA, Ex-Big 4

Published

  • small business tax
  • One Big Beautiful Bill
  • QBI deduction
  • bonus depreciation
  • Section 179
  • 1099-NEC
  • legislation

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The One Big Beautiful Bill Act is law. It was signed on July 4, 2025, and many of its business changes already apply to 2025 returns. For small business owners, the biggest are a permanent 20% qualified business income (QBI) deduction and permanent 100% bonus depreciation.

Two changes matter before this year ends. Most equipment you buy and start using by December 31, 2026 can be deducted in full on your 2026 return. And for 2026 payments, you file a Form 1099-NEC only for contractors you paid $2,000 or more.

LawPublic Law 119-21, commonly known as the One Big Beautiful Bill Act
SignedJuly 4, 2025
Status on October 9, 2026Law, and in effect
First returns affected2025 returns, filed in 2026
CaliforniaDid not adopt the main business changes

What did the Big Beautiful Bill do for small business owners?

It cut the tax on business profit and on new equipment, and it cut 1099 paperwork. These eight changes matter most.

  1. The QBI deduction is permanent. The 20% deduction for owners of pass-through businesses was due to end after 2025. From 2026, an owner who materially participates in a business with at least $1,000 of QBI gets at least $400.
  2. 100% bonus depreciation is back for good. Equipment and other qualified property acquired after January 19, 2025 can be written off in full in the year you start using it. Under the old law, the rate was set to fall to 40% for 2025 and 20% for 2026. If you later sell the asset, the write-off can come back as ordinary income through depreciation recapture.
  3. The Section 179 limit doubled. You can expense up to $2,500,000 of equipment in 2025. The limit shrinks once purchases pass $4,000,000. For 2026, the figures are $2,560,000 and $4,090,000.
  4. US research costs are deductible again. Domestic research costs, including software development, can be deducted right away for tax years starting in 2025. Since 2022 they had been spread over five years.
  5. Fewer 1099 forms. For payments made in 2026, you file Form 1099-NEC only for a contractor you paid $2,000 or more. Most Form 1099-MISC payments, such as rent, moved to $2,000 too.
  6. Form 1099-K is back to $20,000. Payment apps and online marketplaces report your sales only when you pass both $20,000 and 200 transactions in a year. The $600 rule set in 2021 is repealed.
  7. A higher SALT cap. If you itemize, you can deduct up to $40,000 of state and local taxes for 2025 and $40,400 for 2026. The cap shrinks, but not below $10,000, once modified adjusted gross income passes $500,000 ($505,000 for 2026). The bill set no limit on the state pass-through entity taxes (PTET) that many S corps and partnerships elect.
  8. A bigger childcare credit. From 2026, an employer can claim 40% of its employee childcare costs, or 50% for an eligible small business. The credit can reach $500,000 a year, or $600,000.

Do small business owners get a tax break?

Yes, owners of pass-through businesses get the QBI deduction, and the bill made it permanent. It lets sole proprietors, partners and S corp shareholders deduct up to 20% of their qualified business income. An S corp owner's salary does not count toward it, but the profit does.

In 2026, wage and service-business limits begin above $201,750 of taxable income, or $403,500 on a joint return.

How will new tax laws affect small businesses?

You will see the changes on two returns: your 2025 return, filed in 2026, and your 2026 return, filed in 2027.

ChangeApplies to
100% bonus depreciationProperty acquired after January 19, 2025
Section 179 at $2,500,000Tax years starting in 2025
Research costs deductedTax years starting in 2025
SALT cap of $40,000Tax years starting in 2025
1099-NEC at $2,000Payments made from January 1, 2026
$400 minimum QBI deductionTax years starting in 2026
Larger childcare creditCosts paid from January 1, 2026

Forms 1099-NEC for 2026 payments are due February 1, 2027, because January 31 falls on a Sunday.

Does your state follow the new rules?

Not always, so your state return can differ from your federal one. California's Franchise Tax Board says the state did not adopt 100% bonus depreciation, the higher Section 179 limits, the QBI deduction or research expensing.

California caps Section 179 at $25,000, reduced once purchases pass $200,000. So a $100,000 machine written off in full on your federal return is mostly depreciated over several years in California.

At what point do you have to pay taxes on a small business?

You owe self-employment tax, and must file a return, once your net earnings from self-employment reach $400 in a year. The bill did not change this. To avoid an underpayment penalty, pay estimated tax during the year if you expect to owe $1,000 or more after withholding. The last 2026 payment is due January 15, 2027.

Which old figures should you stop using?

Four outdated figures still appear in articles and AI answers.

  • "Bonus depreciation is 40% for 2025." It is 100% for property acquired after January 19, 2025.
  • "The 2025 Section 179 limit is $1,250,000." It is $2,500,000.
  • "You file a 1099-NEC at $600." For 2026 payments, it is $2,000.
  • "The 2026 mileage rate is 72 cents." The IRS set 72.5 cents a mile through June 30, 2026, and 76 cents from July 1.

What should you do now?

  • If you plan to buy equipment, put it in service by December 31, 2026 to deduct it on your 2026 return.
  • Get a Form W-9 from each contractor, and track what you pay each one in 2026.
  • If you file in California, keep separate federal and state depreciation records.
  • If your taxable income is near $201,750 ($403,500 joint), plan salary and wages before December 31 to protect your QBI deduction.

For business returns and planning all year, see our small business CPA service.

Sources.