2026 Small Business Deduction Quick Reference
| Deduction | 2026 Limit / Rate | Where Reported | IRS Source |
|---|---|---|---|
| QBI Deduction (§199A) | 23% of net QBI | Form 1040, Schedule 1 | IRC § 199A (OBBBA) |
| Section 179 Expensing | $1,160,000 | Form 4562 | IRC § 179 |
| Bonus Depreciation | 100% (2025–2029) | Form 4562 | IRC § 168(k), OBBBA |
| Home Office (Simplified) | $5/sq ft, max $1,500 | Schedule C, Line 30 | IRC § 280A; Rev. Proc. 2013-13 |
| Business Mileage | 70¢/mile | Schedule C, Line 9 | IRS Rev. Proc. 2025-61 |
| Self-Employed Health Insurance | 100% of premiums | Schedule 1, Line 17 | IRC § 162(l) |
| SEP-IRA Contribution | Lesser of 25% or $70,000 | Schedule 1, Line 16 | IRC § 408(k) |
| Solo 401(k) | Up to $70,000 total | Schedule 1, Line 16 | IRC § 401(k) |
| SE Tax Deduction (50%) | 50% of SE tax paid | Schedule 1, Line 15 | IRC § 164(f) |
| Business Meals | 50% of meal costs | Schedule C, Line 24b | IRC § 274 |
| Startup Costs | $5,000 first year | Schedule C / Form 4562 | IRC § 195 |
| Retirement Startup Credit | Up to $5,000/yr (3 yrs) | Form 8881 | IRC § 45E, SECURE 2.0 |
Deduction Estimator
Enter your income and expenses to estimate your potential 2026 deductions.
Estimated 2026 Deductions
Estimates only. QBI deduction phased out for SSTBs above $197,300 (single). Retirement deduction capped at 25% of net SE compensation or $70,000. Consult a tax professional. Run the full SE Tax Calculator →
1. Qualified Business Income (QBI) Deduction — 23%, Now Permanent
The QBI deduction (Section 199A) is the single largest deduction available to most self-employed individuals. At $100,000 net income, it's worth $23,000 off your taxable income — without any cash outlay.
2026 QBI Deduction Rates (OBBBA)
- Rate: 23% of qualified business income (increased from 20% under TCJA)
- Permanent: No sunset date — the OBBBA made it permanent
- New $400 minimum: Any freelancer with $1+ of QBI qualifies for at least $400
- Phase-out (SSTBs): Begins at $197,300 (single) / $394,600 (MFJ)
- Available to: Sole proprietors, LLCs, partnerships, S-corporations
- Not available to: C-corporations, W-2 employees
Specified service trades or businesses (SSTBs) — healthcare, law, consulting, financial services, performing arts — face phase-out above the income thresholds. Non-SSTB businesses (technology, real estate, manufacturing) are not subject to phase-out but may face W-2 wage limitations at very high incomes.
Calculate Your QBI Deduction
Enter your income, filing status, and business type to get your exact 23% QBI deduction with SSTB phase-out logic, OBBBA $400 minimum, and W-2 wage limitations applied.
2. Section 179 Equipment Deduction — Up to $1,160,000
Section 179 lets businesses immediately expense the full purchase price of qualifying equipment in the year it's placed in service — rather than depreciating it over 5–7 years. For 2026, the limit is $1,160,000.
What qualifies for Section 179 in 2026
- Machinery and equipment
- Business computers, tablets, and phones
- Office furniture and fixtures
- Business vehicles (with limits — passenger cars capped at $12,400 first year)
- Off-the-shelf software
- Qualified improvement property (QIP)
Bonus Depreciation (OBBBA Restoration)
The OBBBA restored 100% bonus depreciation for property placed in service from 2025 through 2029. This applies to new and used property, works in parallel with Section 179, and has no dollar limit. A $500,000 equipment purchase can be fully deducted in 2026 even if it exceeds Section 179's income limitation.
Phase-out: Section 179 phases out dollar-for-dollar when total property placed in service exceeds $2,890,000 — this limit only affects very large businesses.
Source: IRC § 179; IRC § 168(k) as amended by OBBBA
3. Home Office Deduction
If you use part of your home regularly and exclusively for business, you can deduct those costs. This is available only to self-employed individuals — W-2 employees cannot claim a home office deduction (eliminated by TCJA).
Two methods
Simplified Method
Max $1,500$5 per square foot × office square footage. Maximum 300 sq ft = maximum $1,500 deduction. Simple, no depreciation recapture risk, no Form 8829.
Regular Method
No capActual home expenses (rent/mortgage interest, utilities, insurance, repairs, depreciation) × (office sq ft ÷ total home sq ft). Larger deduction, but requires Form 8829 and creates depreciation recapture risk on home sale.
The exclusive use test: The space must be used regularly and exclusively for business. A desk in your bedroom doesn't qualify — a dedicated room does. Document with photos and floor plans.
→ Home Office Deduction Calculator
→ Full Home Office Deduction Guide 2026
4. Vehicle and Mileage Deduction
Business use of a vehicle is deductible. You have two methods — choose the one that produces the larger deduction (you must choose by the first year the vehicle is placed in business service).
Standard mileage rate: 70¢/mile (2026)
Multiply total business miles by 70 cents. Mileage includes driving to client meetings, business errands, professional development, and work sites. Commuting to a regular office is not deductible.
Actual expense method
Deduct the business-use percentage of actual costs: gas, oil, insurance, repairs, tires, registration, and depreciation (or Section 179/bonus depreciation for new vehicles). Track total and business miles to compute the percentage.
Documentation required: A contemporaneous mileage log with date, starting point, destination, business purpose, and miles. Apps like MileIQ or a simple spreadsheet work. Reconstructed logs are treated skeptically by the IRS.
Source: IRS Publication 463; IRC § 179; IRS Rev. Proc. 2025-61
5. Self-Employed Health Insurance Premiums
Self-employed individuals can deduct 100% of health insurance premiums paid for themselves, their spouse, and dependents. This deduction comes off gross income (above-the-line) — it does not require itemizing.
Key rules
- Covers medical, dental, and qualified long-term care insurance
- Deduction cannot exceed your net self-employment income for the year
- Not available for any month you were eligible to participate in an employer plan (e.g., a spouse's employer plan)
- S-Corp owners: premium must be included in W-2 wages first, then deducted
- Reported on Schedule 1, Line 17 — not subject to the 7.5% AGI floor for itemized medical deductions
Source: IRC § 162(l); IRS Publication 535
6. Retirement Plan Contributions
Retirement contributions are among the most powerful tools available to self-employed individuals — they reduce income tax AND can reduce SE tax indirectly by lowering AGI. The 2026 limits are significant.
SEP-IRA
- Limit: Lesser of 25% of net self-employment compensation or $70,000
- Deadline: Tax filing deadline including extensions (October 15, 2027 for 2026 contributions)
- Who benefits: High earners, sole proprietors, small businesses with employees
- Simplicity: Easiest to set up — no annual filings required under $250K
Solo 401(k)
- Employee contribution: Up to $23,500 (2026) + $7,500 catch-up if age 50+
- Employer contribution: Up to 25% of net SE compensation
- Total limit: $70,000 (or $77,500 with catch-up)
- Roth option: Available — contribute after-tax for tax-free withdrawals
- Best for: Owner-only businesses who want to maximize contributions
SIMPLE IRA
- Employee limit: $16,500 (2026), plus $3,500 catch-up if age 50+
- Employer match: Required 2–3% match or 2% non-elective contribution
- Best for: Businesses with employees who want a simpler plan than a 401(k)
Retirement startup credit: New retirement plans may qualify for a tax credit of up to $5,000/year for 3 years (Form 8881) under SECURE 2.0.
Source: IRS Publication 560; IRC §§ 401(k), 408(k), 408(p)
7. Ordinary Business Expenses (IRC § 162)
Any "ordinary and necessary" business expense is deductible — these are costs that are common and accepted in your industry and helpful for your business. Deducted on Schedule C.
Common deductible business expenses
- Software and subscriptions: Accounting software, project management tools, cloud storage, professional subscriptions — fully deductible
- Professional services: CPA fees, attorney fees, bookkeeping — fully deductible
- Business insurance: General liability, professional liability (E&O), business property — fully deductible
- Marketing and advertising: Website hosting, ads, design services, business cards — fully deductible
- Office supplies: Paper, toner, postage, minor equipment — fully deductible
- Business meals: 50% of meals with clients where business is discussed
- Education and training: Courses, books, professional development directly related to your current trade — fully deductible
- Professional dues: Industry association memberships, professional licenses — fully deductible
- Phone and internet: Business-use percentage of your phone and internet bill
- Bank and payment fees: Business checking fees, credit card processing fees — fully deductible
Not deductible: Commuting, personal clothing (unless it's a required uniform not suitable for everyday wear), personal meals, entertainment (concerts, golf, sporting events — eliminated by TCJA).
Source: IRS Publication 535; IRC § 162; IRC § 274
8. Self-Employment Tax Deduction (50%)
Self-employed individuals pay SE tax at 15.3% on 92.35% of net earnings (12.4% Social Security capped at the $184,500 wage base + 2.9% Medicare). To partially equalize this with W-2 employees — who only pay half — the IRS lets you deduct 50% of your SE tax from gross income.
At $100,000 net income, SE tax is approximately $14,130, and the deduction is $7,065 — this is automatic and requires no special documentation.
Calculate Your SE Tax →9. Startup and Organizational Costs
New businesses can deduct up to $5,000 of startup costs in the first year of operation, with the remainder amortized over 180 months. Startup costs include market research, advertising before opening, training, legal fees, and accounting setup.
The $5,000 deduction phases out dollar-for-dollar when total startup costs exceed $50,000. Separately, up to $5,000 of organizational costs (attorney fees to form an LLC or corporation) can be deducted in the first year.
Source: IRC § 195
10. Entity Structure: The Meta-Deduction
Your entity structure determines which deductions you can access and how much SE tax you pay. This isn't a deduction itself — it's the container that affects your entire tax picture.
- Sole Proprietor / LLC: All net income subject to 15.3% SE tax. Full QBI deduction available. Simplest structure.
- S-Corporation: Only the W-2 salary is subject to FICA taxes. Distributions escape SE tax. At $150,000 net income, saves ~$8,687/year in SE tax vs. sole prop (single filer, California). QBI deduction available on distribution income.
- C-Corporation: 21% flat rate. No QBI deduction. Dividends taxed again at the individual level. Generally not recommended for small business owners unless retaining profits.
Compare Your Entity Tax Burden
See exactly how much you'd save switching from sole prop to S-Corp at your income level, filing status, and state.
Frequently Asked Questions
Deduction Stacking Example: $120,000 Freelancer
To illustrate how deductions work together, here's a realistic example for a self-employed consultant earning $120,000 in 2026 (single filer, no employees):
| Deduction | Amount | Notes |
|---|---|---|
| Gross business income | $120,000 | Before any deductions |
| Business expenses (software, insurance, marketing) | −$8,000 | Ordinary and necessary expenses |
| Net profit for SE tax | $112,000 | |
| 50% SE tax deduction | −$7,970 | $15,940 SE tax × 50% |
| Health insurance premiums | −$7,200 | $600/month self-employed plan |
| SEP-IRA contribution | −$20,000 | ~25% of net SE compensation |
| Home office (150 sq ft, simplified) | −$750 | 150 × $5 |
| Vehicle mileage (3,000 mi) | −$2,100 | 3,000 × $0.70 |
| Adjusted gross income | $73,980 | Before QBI deduction |
| QBI deduction (23% of $112,000) | −$25,760 | Applied on Form 1040 |
| Standard deduction (single 2026) | −$15,000 | IRS Rev. Proc. 2025-61 |
| Taxable income | $33,220 | Effective rate ~14% on gross income |
This example shows how a $120,000 gross income can be reduced to $33,220 in taxable income through systematic deduction stacking — a 72% reduction. The biggest levers: SEP-IRA contribution and QBI deduction. Increasing the SEP-IRA to the maximum ($25,000+ at this income) would reduce taxable income further.
Run Your Full Tax Picture
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