Small business owners have access to a powerful array of federal tax deductions that can dramatically reduce their tax liability — but only if they know about them, claim them correctly, and maintain proper documentation. This comprehensive guide covers the most valuable deductions available to small businesses and self-employed individuals in 2026.
Section 179 of the Internal Revenue Code allows businesses to deduct the full cost of qualifying business equipment and software in the year of purchase, rather than depreciating it over several years. In 2026, the Section 179 deduction limit is approximately $1.16 million (subject to final IRS confirmation), with a phase-out threshold beginning at $2.89 million of total equipment placed in service. This makes Section 179 particularly valuable for small and mid-sized businesses investing in equipment, computers, software, vehicles, and certain qualified property improvements.
Under TCJA, 100% bonus depreciation was available through 2022, then began phasing down: 80% in 2023, 60% in 2024, 40% in 2026. Note that the 40% rate still applies to new and used qualifying property placed in service in 2026. Unlike Section 179, bonus depreciation is not limited to the business's taxable income and can create a net operating loss (NOL). Congress has periodically extended or restored bonus depreciation rates — check for any legislation enacted after April 2026.
The QBI deduction under IRC Section 199A allows eligible pass-through business owners (sole proprietors, S-corp shareholders, partners, and LLC members) to deduct up to 20% of their qualified business income. For 2026, the phase-out for specified service trade or businesses (SSTBs) begins at $197,300 for single filers and $394,600 for joint filers. The deduction is limited to the lesser of 20% of QBI or 50% of W-2 wages paid by the business (or an alternative 25% of W-2 wages plus 2.5% of unadjusted basis of qualified property). Due to its complexity, the QBI deduction typically requires professional calculation.
| Deduction Category | What Qualifies | Documentation Required |
|---|---|---|
| Home office | Dedicated space used regularly and exclusively for business | Floor plan, measurements, photos |
| Vehicle / mileage | Actual expenses or standard mileage rate (67¢/mile for 2024; confirm 2026 rate) | Contemporaneous mileage log with business purpose |
| Business meals | 50% of qualifying business meals (with client, business discussion documented) | Receipt + who attended + business purpose |
| Travel | Business travel — airfare, hotel, 50% of meals; not commuting | Receipts, itinerary, business purpose |
| Health insurance premiums | Self-employed health insurance deduction (above-the-line) | Premium statements; cannot exceed net self-employment income |
| Retirement contributions | SEP-IRA (up to 25% of compensation / $69,000), Solo 401(k) | Plan documents, contribution records |
| Professional services | Legal, accounting, consulting fees for business purposes | Invoices and contracts |
| Education / training | Courses, conferences, subscriptions that maintain or improve business skills | Receipts; must be job-related, not to enter new field |
Self-employed individuals pay both employer and employee portions of Social Security and Medicare taxes (15.3% on the first $168,600 of net self-employment income in 2026, plus 2.9% Medicare on amounts above that, plus the 0.9% Additional Medicare Tax for high earners). The deduction: self-employed taxpayers can deduct 50% of the self-employment tax paid as an above-the-line adjustment on Form 1040, reducing their adjusted gross income.
New businesses can deduct up to $5,000 of start-up costs and $5,000 of organizational costs in the first year of business, with the remainder amortized over 180 months. Start-up costs include investigative and pre-opening expenses. If total start-up costs exceed $50,000, the $5,000 immediate deduction phases out dollar-for-dollar.