2026 Tax Changes: What Business Owners and Investors Need to Know Now

Tax law is never static, and 2026 brings several meaningful changes that business owners, real estate investors, and high-income earners need to act on. Some provisions from the 2017 Tax Cuts and Jobs Act are expiring. New thresholds have kicked in. And a few under-the-radar rules are shifting how certain deductions and credits are calculated. Here is your practical guide to what changed, what it means, and what to do about it.

1. The QBI Deduction Faces Uncertainty

The 20% Qualified Business Income deduction, one of the most valuable provisions for pass-through businesses, is scheduled to expire at the end of 2025 unless Congress acts to extend it. As of May 2026, the political landscape remains uncertain. If the deduction is not extended, pass-through business owners will see an effective tax rate increase of up to 7.4 percentage points on their business income.

2. Bonus Depreciation Drops to 40%

Bonus depreciation, which allows immediate deduction of a percentage of qualifying asset costs, continues its scheduled phase-down. For 2025, it was 40%. For 2026, it drops to 20%. This is a dramatic shift from the 100% bonus depreciation available in 2022. Business owners planning major equipment purchases should consider whether accelerating purchases into 2025 (at 40%) makes more sense than waiting for 2026 (at 20%).

3. Higher Standard Deductions and Bracket Adjustments

Standard deductions and tax brackets are indexed for inflation each year. For 2026, the standard deduction increases to $15,650 for single filers and $31,300 for married filing jointly. Tax bracket thresholds have also risen roughly 2.5-3%, which provides modest relief but does not offset the larger structural changes for most business owners.

4. 401(k) and Retirement Contribution Limits

Retirement contribution limits for 2026 are adjusted for inflation. The 401(k) employee deferral limit rises to $24,000 ($32,000 if age 50+). The total Solo 401(k) contribution limit (employee + employer) increases to $71,000 ($78,500 if 50+). SEP-IRA limits remain tied to 25% of compensation with a dollar cap that also adjusts upward. These increases mean high earners can shelter slightly more income than in 2025.

• 401(k) employee deferral: $24,000 ($32,000 age 50+)
• Solo 401(k) total: $71,000 ($78,500 age 50+)
• SEP-IRA: Up to 25% of compensation, dollar cap adjusted for inflation
• HSA individual: $4,400; family: $8,800

5. The Estate Tax Exemption Is Shrinking

The lifetime estate and gift tax exemption, which reached an all-time high of $13.99 million per person in 2025, is scheduled to drop to roughly $7 million per person in 2026 (adjusted for inflation) unless Congress intervenes. This is a seismic shift for high-net-worth business owners and real estate investors with significant appreciated assets.

6. State and Local Tax (SALT) Cap Still in Place

The $10,000 cap on state and local tax deductions remains in effect for 2026. High-tax states like California, New York, and New Jersey continue to push workarounds — primarily pass-through entity (PTE) tax elections that allow business owners to pay state tax at the entity level and deduct it as a business expense, bypassing the individual SALT cap. If your state offers a PTE election and you have not opted in, consult your tax advisor immediately.

7. 1099-K Reporting Threshold Drops

For payment platforms like Venmo, PayPal, Stripe, and Square, the 1099-K reporting threshold dropped to $600 in aggregate payments for 2025 and remains there for 2026. This means significantly more freelancers, side hustlers, and small businesses will receive 1099-K forms. If you receive one, the income is reportable — even if it represents reimbursements, personal transactions, or sales of personal items at a loss.

Strategic Planning for the Rest of 2026

With so much in flux, proactive planning matters more than ever. Here are the highest-impact moves to consider now:

1. 1Max out retirement contributions early: Front-loading deductions reduces QBI (if still available) and locks in tax savings regardless of legislative changes.
2. 2Accelerate equipment purchases: At 20% bonus depreciation, the immediate deduction is weaker — but Section 179 still offers full expensing for qualifying assets.
3. 3Review your entity structure: If QBI expires, C-Corps may become more attractive for high-income businesses. Model both scenarios before switching.
4. 4Harvest tax losses: Volatile markets create opportunities to offset capital gains and up to $3,000 of ordinary income annually.
5. 5Implement estate planning before year-end: The reduced exemption means more estates will face transfer taxes. Gifting, valuation discounts, and irrevocable trusts take time to execute properly.
6. 6Opt into PTE tax elections: If your state offers a pass-through entity tax workaround, the math almost always favors participation.

The Bottom Line

2026 is not a year to file an extension and figure it out later. The combination of expiring provisions, lower bonus depreciation, and a reduced estate exemption creates both risk and opportunity. Business owners who plan proactively — ideally with a licensed tax professional who monitors legislative changes in real time — will be positioned to adapt quickly and minimize their tax exposure.

Tax planning is not about guessing what Congress will do. It is about building flexibility into your strategy so you can pivot quickly when the rules change. The clients who thrive in years like 2026 are the ones who planned in May, not December.

Tiffany Nellums, Tax Principal