A number of beneficial small business tax breaks have returned in 2026 with the passing of last year’s federal tax bill. The One Big Beautiful Bill (OBBB) Act has reshaped depreciation, R&D, interest limits, and key employee benefits in ways that should not be ignored.
Why These Small Business Tax Breaks Matter
For many closely held businesses, tax rules over the last few years have meant slower write-offs for equipment and research, tighter interest limits, and expiring credits. OBBBA reverses several of those trends, permanently restoring 100% bonus depreciation, bringing back immediate expensing for domestic R&D, and making certain credits more generous or permanent. But not everything is coming up roses: The bill came with added complexity, new elections, retroactive options, and overlapping rules. Carefully strategize to seize your best tax savings.
How Have Depreciation and Expensing Changed?
One of the most eagerly anticipated small business tax breaks is the permanent restoration of the 100% bonus depreciation, which kicked in for most qualified property acquired and placed in service after January 19, 2025, and ends the phase-down that would have reduced bonus rates through 2027. New machinery, equipment, and technology purchases and certain building improvements can be fully deducted in the year placed in service instead of being recovered over several years.
Section 179 expensing has also become more powerful for small and midsize businesses that spend less than $6.65 million per year on qualifying purchases. The annual dollar limit has increased to about $2.5 million, with phase-out beginning around $4 million of qualifying property (which, by the way, includes software). These thresholds are now indexed for inflation, allowing many smaller businesses to expense most or all of their annual equipment purchases.
A new Qualified Production Property (QPP) category allows a 100% first‑year deduction for certain nonresidential real property, including some manufacturing and production facilities and activities.
For businesses that qualify, this can turn what used to be a 39-year depreciation into a current-year write-off. However, there are many restrictions, and guidance is forthcoming, so be sure to seek qualified advice before acting.
R&D: Full Expensing Plus Retroactive Relief
Full expensing returns for domestic research and experimental/development (R&E or R&D) costs for years beginning after 2024. This reverses a 5-year amortization rule that took effect under the 2017 tax law. Now, qualifying U.S. R&D costs can be deducted in the year incurred, with an option to continue capitalizing and amortizing if that better fits a taxpayer’s planning.
We have long touted R&D as one of the more valuable small business tax breaks for those who qualify. And we’re not just talking about typical research and development activities. Any time you improve or create a product, service, or process to enhance your business, ask your tax advisor whether that activity qualifies as R&D.
Other Key Small Business Tax Breaks
There are dozens of other tax considerations that have changed due to the OBBB, depending on your specific tax profile. Three others worthy of pointing out here are:
- A higher business interest limit: A 30% cap on business interest is now calculated using “adjusted taxable income” that ignores depreciation, amortization, and depletion, effectively raising the amount of deductible interest for many businesses starting in 2025.
- Paid family and medical leave credit: The federal credit for wages paid to qualifying employees on family and medical leave, previously temporary, is made permanent and expanded to cover certain employer payments for family leave insurance, with a lower service requirement (as little as six months).
- Employer-provided child care credit: The long-standing credit increases to cover 40% of qualifying child care costs, up to $500,000, for many employers. For qualifying small businesses, the credit can reach 50% of costs, up to $600,000, potentially offsetting a large share of employer-sponsored childcare costs.
Steps to Take
Because many new provisions carry different effective dates, elections, and transition rules, the first step is to improve record-keeping and forecasting. Businesses should track capital purchases, research costs, financing structures, and employee coverage and benefits in greater detail than ever before to match specific expenses to the appropriate deduction or credit.
Next, revisit your choice of entity and operating structure in light of the new small business tax breaks, since the mix of deductions and credits can interact differently with corporate versus pass-through structures.
And, finally, 2026 is a prime year to sit down with a tax adviser to build a multi‑year plan that sequences major investments, R&D projects, and benefit enhancements to maximize 100% depreciation, R&D expensing, and available credits while managing taxable income and estimated tax payments.
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Shutterstock _179081669 | February 24, 2026