The 2026 tax year is nearly over, but there’s still time to put year-end tax planning strategies in place and lower your business’s federal income tax liability. Here are five moves to consider before New Year’s Day.
Bonus depreciation. If you acquire and place in service eligible new or used assets in 2026, you may qualify for the 100% first-year bonus depreciation deduction. Eligible assets include new and used machinery, equipment, certain vehicles, off-the-shelf computer software, and qualified improvement property (QIP).
Bonus depreciation generally applies automatically to eligible assets placed in service during the tax year. You can elect out, which can sometimes be beneficial, but only for an entire asset class, such as all five-year or all seven-year assets. Bonus depreciation can also create a net loss, which you can generally carry forward to future tax years.
Section 179 expensing. For 2026, you can deduct up to $2.56 million of the cost of eligible new or used assets, such as equipment, furniture, off-the-shelf computer software, and QIP. The deduction begins to phase out dollar-for-dollar when qualifying purchases exceed $4.09 million.
Section 179 is limited to the taxable income from your business activity, so it can’t create a net loss. You can, however, carry forward unused amounts or apply bonus depreciation to the excess.
Unlike bonus depreciation, Sec. 179 expensing isn’t automatic. It can be applied asset by asset, or to only part of an asset’s cost, and that flexibility can be a planning advantage.
Before buying an expensive capital asset, weigh cash flow, revenue projections, financing terms, and the impact on other tax breaks. The deduction may prove more valuable in a later year.
Manufacturers with new construction nearing completion may be able to claim a 2026 deduction by finishing before the new year. Your business may qualify for a temporary depreciation deduction for constructing qualified production property (QPP) placed in service after July 4, 2025, and before January 1, 2031. Eligible businesses can deduct 100% of the QPP’s adjusted basis in the tax year it’s placed in service. Unlike bonus depreciation, the QPP deduction requires an election.
QPP requirements. Among other requirements, QPP generally must be nonresidential real property located in the United States and used as an integral part of a “qualified production activity.” Manufacturing, production, or refining activities must take place within the physical space of the property.
Portions used for the following generally don’t qualify:
Additional requirements apply, including restrictions on construction dates and property use.
The Sec. 174 deduction for research and experimental (R&E) expenses and the Sec. 41 research credit (often called the “research and development” credit) aren’t limited to businesses traditionally associated with cutting-edge innovation. It could pay off to investigate whether you’ve incurred qualified expenses. The definition of qualified expenses is generally broader under the R&E deduction than under the research credit.
R&E deduction. Qualified expenses include costs related to activities intended to discover information that would eliminate uncertainty about the development or improvement of a product. You can deduct domestic expenses in the tax year they’re incurred or paid, regardless of whether the project is complete, or amortize them over at least five years. Foreign qualified expenses must be amortized over 15 years.
Research credit. Your deductible expenses might also qualify for the research credit, but you can’t claim both for the same expense. Generally, if you claim the credit, you must reduce your deduction by the credit amount. Alternatively, you may be able to make a Sec. 280C election, which generally reduces the credit by the maximum corporate tax rate (21%) and lets you take the full deduction. Modeling can help you determine the optimal choice.
The Sec. 199A qualified business income (QBI) deduction lets owners of sole proprietorships and pass-through entities (including partnerships, S corporations, and most limited liability companies) deduct up to 20% of their QBI. QBI is generally the net amount of qualified items of income, gain, deduction, and loss that are effectively connected with the conduct of a U.S. business.
Wage and investment limits. At higher income levels, the allowable 199A deduction is subject to wage and investment limitations, so project your taxable income now to see whether they might apply. The One Big Beautiful Bill Act (OBBBA) expanded the phase-in ranges for these limits beginning in 2026, meaning some taxpayers will qualify for larger deductions.
For 2026, the limits generally kick in when taxable income falls between $201,750 and $276,750 ($403,500 to $553,500 for married couples filing jointly). Within that range, the limits partially reduce your 199A deduction to the greater of:
When taxable income exceeds the top of the range, the deduction is fully reduced to the greater of those two amounts.
Specified service trades or businesses. Another limit that phases in based on income is that the 199A deduction is unavailable for income from a “specified service trade or business.” Examples include businesses that involve investment-type services and most professional practices (other than engineering and architecture).
Ways to preserve your deduction. If your projections put you near the lower end of the phase-in range, consider measures to reduce your taxable income. You can, for example, maximize retirement plan contributions. Cash-basis businesses can defer income into 2027 and accelerate expenses into 2026.
If the limits are unavoidable, you may be able to boost your deduction by increasing wages or purchasing qualified business property before year end. Keep in mind that these maneuvers can have additional consequences, such as higher payroll taxes.
Noncorporate taxpayers can generally use business losses to offset income from other sources, such as salary, self-employment income, interest, dividends, and capital gains, but only up to an inflation-adjusted limit. Losses above the limit generally can’t be deducted in the current year. Instead, they’re treated as net operating loss (NOL) carryforwards to later tax years, generally subject to the 80% taxable income limitation on NOL deductions.
The OBBBA made this “excess” business loss limitation permanent. For 2026, the limit drops to $256,000 ($512,000 for joint filers), down from $313,000 and $626,000, respectively, for 2025. As a result, taxpayers with substantial business losses from bonus depreciation, currently deductible research expenses, or other deductions may be unable to claim the full tax benefit of those losses in 2026.
If your projected 2026 business losses are approaching or exceeding the limit, consider whether accelerating business income or deferring certain deductions could help maximize your current-year tax benefits. Evaluate these strategies carefully, because shifting income or deductions between tax years can affect future NOL deductions and overall tax liability.
Year-end tax planning helps any business minimize its income tax liability and strengthen its financial position. The right strategies can help you make the most of available deductions and credits and avoid missed tax-saving opportunities. Year-End Tax Planning Strategies for Business: 5 Ways to Reduce Your 2026 Tax Bill