Tax Policy Small Business Compliance Business Strategy

The OBBBA Provisions Your SMB Should Be Planning Around Right Now

Published May 18, 2026 by Invisible LLC Team · 9 min read

The short version

The One Big Beautiful Bill Act, signed July 4, 2025, made permanent or expanded several tax provisions that materially change the planning environment for small and medium-sized businesses. Most of the changes are net-positive for SMBs — and most require active planning to capture rather than passive filing to receive.

Five provisions matter most for general SMBs in 2026: the QBI deduction permanent at 23%, 100% bonus depreciation permanently restored, Section 179 expensing raised to $2.56 million, the Section 174 R&D expensing reversal, and the 1099 reporting thresholds raised. The combined value of these changes for a typical small business is real — often in the tens of thousands of dollars in tax savings annually — but only if the business is structured and documented to capture them.

Below: what each provision actually does, what it means for your 2025 return (filing now) versus your 2026 planning, and what to actually do about each one before the year is over.

QBI deduction: 20% to 23%, made permanent

The Section 199A Qualified Business Income deduction was set to expire December 31, 2025. The OBBBA made it permanent and raised the rate to 23% for tax years beginning after December 31, 2025.

What this means concretely: your 2025 return (which you may still be finalizing) uses the 20% rate. Your 2026 return uses 23%. For a pass-through business owner with $200,000 in qualified business income, the difference between the two rates is $6,000 in additional deduction — which, at a marginal federal rate of 24%, equals $1,440 in actual tax savings.

The OBBBA also introduced a $400 minimum deduction for anyone with at least $1,000 in qualified business income who materially participates in the business. The phase-in range for married-filing-jointly taxpayers expanded from $100,000 to $150,000, which lets more higher-income owners qualify for the full deduction.

The QBI deduction applies to pass-through entities: sole proprietorships, S-corporations, partnerships, and LLCs taxed as partnerships. C-corporations don't qualify. If you operate as an S-corp or considered the structure question previously, the QBI permanence locks in a real long-term advantage for pass-through structures relative to C-corps.

What to do: If you've been making 2026 estimated payments based on the 20% rate, you're slightly overpaying. Recalculate at 23% and adjust your Q2 estimated payment downward. If you're a higher-income owner who phased out of the deduction in prior years, run the numbers again under the expanded phase-in range — you may now qualify partially or fully.

100% bonus depreciation, permanent

Bonus depreciation was on track to be eliminated entirely by 2027 under the TCJA phase-down schedule. The OBBBA reversed the phase-down and restored 100% first-year bonus depreciation permanently for qualifying property acquired and placed in service after January 19, 2025.

For SMBs that buy equipment, vehicles, computers, software, or qualified improvement property, this is the single largest cash-flow effect of the OBBBA. A small business that spends $150,000 on qualifying equipment in 2026 can deduct the full $150,000 in year one instead of spreading the deduction over 5-7 years. At a marginal rate of 24-32%, the immediate tax savings are $36,000-$48,000 in year one rather than $7,200-$9,600 in year one with the difference spread out.

Qualifying property includes most tangible personal property with a MACRS recovery period of 20 years or less — machinery, equipment, furniture, computers, commercially available software, and certain vehicles. It also includes qualified improvement property (interior improvements to nonresidential real estate), with some specific rules.

Two important details. First, bonus depreciation is automatic — you have to affirmatively opt out if you don't want it. Opting out happens at the asset-class level, not asset-by-asset. Second, bonus depreciation can drive your taxable income below zero, which generates a net operating loss you can carry forward. Section 179 can't. This is one of several factors in deciding which provision to apply first.

What to do: If you've been deferring equipment purchases waiting for tax certainty, you have it. If you're planning capital investments for 2026, model them with 100% bonus depreciation applied and look at the after-tax cash impact. Also check state conformity — not every state conforms to federal bonus depreciation rules, and some treat it differently for state income tax. Illinois generally conforms; California notably does not.

Section 179 expensing: $2.56 million in 2026

Section 179 lets a business immediately expense the full purchase price of qualifying business equipment and software in the year placed in service, rather than depreciating it over time. The OBBBA raised the maximum deduction from $1.25 million to $2.5 million effective for tax years beginning after December 31, 2024. For 2026, inflation-adjusted, the limit is $2.56 million. The phase-out threshold rises to $4.09 million.

For most SMBs, the Section 179 ceiling is theoretical — small businesses rarely spend $2.5 million on equipment in a year. But the larger ceiling does two useful things even for smaller buyers. First, it widens the range of businesses that can use Section 179 strategically. Second, when combined with bonus depreciation, it lets a growing mid-sized business expense an unusually large capital investment in a single year if the timing is right.

Section 179 differs from bonus depreciation in three important ways:

State conformity. Section 179 has broader state-level acceptance than bonus depreciation. For multi-state businesses, this matters.
Asset-level flexibility. Section 179 can be applied to specific assets you choose; bonus depreciation applies to whole asset classes unless you opt out.
Loss limitations. Section 179 deductions can't reduce taxable income below zero. If you want to generate a net operating loss to carry forward, bonus depreciation is the tool.

The optimal strategy for most SMBs is to apply Section 179 first to assets that need its specific features (state-favored treatment, selective asset choice), then apply 100% bonus depreciation to remaining qualifying assets.

What to do: Work through your 2025-2026 capital purchase plan with both Section 179 and bonus depreciation on the table. The right answer is often a combination, not one or the other. If you operate in multiple states with different conformity rules, the answer changes.

Section 174 R&D expensing, restored

This one matters even for SMBs that don't think of themselves as doing R&D. Under the TCJA, domestic research and experimentation expenses had to be capitalized and amortized over five years starting in 2022. The OBBBA permanently restored same-year expensing for domestic R&D costs starting in 2025.

Why this matters for SMBs: the definition of "research and experimental expenditures" under Section 174 is broader than most business owners realize. Software development costs typically fall under Section 174. So do many product improvement, process improvement, and engineering-related expenses. Businesses doing custom software work, manufacturing process design, product engineering, or technology development have been capitalizing significant costs under the 2022-2024 rules without realizing the magnitude of the cash-flow hit.

The restoration means full deductibility in 2025 for new domestic R&D expenses. For domestic costs that were capitalized between 2022 and 2024 but haven't been fully amortized, businesses can either deduct the entire remaining unamortized balance in 2025 or spread it over 2025 and 2026. The election deadline for the catch-up treatment is July 6, 2026.

Foreign R&D costs still must be amortized over 15 years. The reversal is domestic-only.

What to do: Three steps. First, identify whether your business has been capitalizing any R&D expenses under the 2022-2024 rules — your tax preparer should know, but if your books are in-house, look for any costs labeled as research, development, software development, or similar. Second, decide whether to take the full catch-up deduction in 2025 or spread it across 2025-2026. The right answer depends on your income in each year and any loss limitations. Third, make sure the July 6, 2026 election deadline doesn't slip by — missing it forecloses the choice.

1099 reporting thresholds, raised significantly

Two changes here, both effective for 2026 reporting:

1099-NEC and 1099-MISC: threshold raised from $600 to $2,000, with inflation adjustments going forward.
1099-K (third-party payment platforms): threshold restored to $20,000 / 200 transactions, reversing the much lower thresholds that had created widespread confusion in 2023-2024.

For SMBs that work with contractors and pay vendors, this is meaningful administrative relief. A small business that paid $50 stipends to ten different speakers at an event no longer has to issue ten 1099s. A retailer using Square or Stripe that processes occasional personal transactions on the same account no longer has to deal with 1099-K forms that don't reflect business income.

Two important reminders. First, income is taxable regardless of whether a 1099 is issued — the threshold change is a reporting threshold, not an income-recognition rule. Second, state thresholds can be different from federal thresholds. Some states maintain lower 1099 thresholds for state reporting purposes.

What to do: Update your 1099 tracking systems and your AP processes to reflect the new thresholds. If you've been issuing 1099s for payments between $600 and $2,000 out of habit, you may be doing administrative work that no longer needs to be done. But also make sure your state requirements haven't moved differently — Illinois generally follows federal thresholds, but verify for your specific state mix.

Putting it together

These five provisions don't operate independently. The OBBBA was designed to interact:

A small business that buys $200,000 of equipment, has $300,000 in QBI, and conducts modest R&D activity could see combined first-year tax benefits worth $50,000+ that didn't exist (in this combination) two years ago.
The QBI deduction and bonus depreciation interact: aggressive depreciation that drives net business income lower can also reduce the QBI deduction since QBI is calculated from net business income.
Section 179 elections affect both federal and state tax positions; the right choice depends on your state conformity environment.
The Section 174 catch-up election (deduct now or spread) interacts with bonus depreciation strategy in years where you might generate a loss.

The complexity means there's no one-size-fits-all answer. But the size of the prize is large enough that running the planning analysis matters for any SMB with meaningful capital investment, R&D activity, or pass-through income.

The OBBBA also includes provisions that may matter to your specific situation but didn't make this list: the SALT cap raised to $40,000 through 2028 (relevant in high-tax states), the QSBS expansion (relevant for stock issued after July 4, 2025), the estate and gift tax exemption raised to $15 million, and various smaller changes to tips and overtime taxation. If any of those apply, they're worth a separate planning conversation.

What to do this quarter

Three concrete moves before the end of June.

Pull a list of every capital purchase your business has made since January 19, 2025. For each one, confirm with your tax preparer that 100% bonus depreciation is being applied. Don't assume — verify.

If your business has been capitalizing R&D-related costs since 2022, decide on the Section 174 catch-up election before the July 6, 2026 deadline. The choice between deducting the full unamortized balance in 2025 versus spreading it over 2025-2026 depends on income and loss positions you can model now.

Recalculate Q2 estimated tax payments at the 23% QBI rate. If you've been paying based on 20%, you're overpaying and can adjust the Q2 payment due June 17.

These changes are real and they're permanent — which means the planning conversation isn't a one-time exercise. Build them into the way you think about every capital purchase, every R&D-adjacent investment, every contractor payment, and every year-end tax projection going forward.

Sources

Internal Revenue Service, "One, Big, Beautiful Bill provisions," ongoing implementation page (irs.gov/newsroom/one-big-beautiful-bill-provisions)
IRS Notice 2026-11, "Interim Guidance on Additional First Year Depreciation Deduction under § 168(k)," January 14, 2026
IRS Notice 2026-15, "Guidance to Apply Interim Safe Harbors for Section 174," 2026
DHJJ, "What the OBBBA Means for Your Business," January 2026 (dhjj.com)
Carr, Riggs & Ingram, "Bonus Depreciation is Back!" September 2025 (criadv.com)
Porte Brown, "OBBBA: Bonus Depreciation and Section 179 Changes," February 2026 (blog.portebrown.com)

This post is for general information and isn't tax advice. The specific application of OBBBA provisions to your business depends on your entity structure, income, state tax environment, and capital investment timing. If you want to talk through how the changes affect your 2025 return or your 2026 planning, get in touch.