Most small business owners think about taxes in the April panic. The owners who actually keep more of their money think about them in July. Mid-year is when you still have six months to act — to buy the equipment, open the retirement account, or restructure the expense that changes what you owe. And 2026 is an unusually good year to look early, because several of the biggest small-business tax breaks were just made permanent.
This is a plain-English guide to the moves that matter for the second half of 2026: the write-offs that came back, the retirement accounts that shrink your bill, and a mid-year checklist you can run in an afternoon. One caveat up front — this is general information, not tax advice. Confirm any specific move with your CPA or tax professional before you act.
Why mid-year is the smart time for small business tax planning
Year-end tax planning is mostly damage control — by December, most of your options have expired. Mid-year planning is where the real savings live, because you still have time to change the outcome. You can time a major purchase to land in this tax year, set up and fund a retirement plan, adjust your estimated payments, and shift income or expenses between quarters. Small business tax planning works best as a running habit, and July is the natural moment to check in.
The big 2026 changes that are now permanent
The tax law in effect for 2026 locked in several breaks that had been temporary or scheduled to shrink. Here’s what changed and how to use each one.
100% bonus depreciation is back — permanently
Bonus depreciation lets you deduct the full cost of qualifying equipment in the year you put it in service, instead of spreading it over many years. For property acquired and placed in service in 2026, 100% bonus depreciation is now permanent. If you’ve been putting off buying machinery, computers, qualifying vehicles, or other gear, doing it this year means the full deduction hits your 2026 return.
Section 179 jumps to about $2.56 million
Section 179 is the other big equipment write-off, and for 2026 the deduction limit rose to roughly $2.56 million, with the phase-out beginning around $4.09 million of purchases. For the vast majority of small businesses, that ceiling is effectively unlimited — you can expense virtually any equipment or off-the-shelf software you buy this year. Section 179 and bonus depreciation work together, and your accountant can help you decide which to apply first.
The 20% QBI deduction is now permanent
The Qualified Business Income deduction lets eligible pass-through owners — sole proprietors, partnerships, S-corps, and most LLCs — deduct up to 20% of their qualified business income. It was set to expire, but it’s now permanent, and 2026 adds a new minimum deduction of $400 for taxpayers with at least $1,000 of QBI. If you run a pass-through, this is one of the most valuable deductions you have, and it’s worth structuring your income to make the most of it.
Full R&D expensing is restored
Businesses can once again fully deduct domestic research and development costs in the year they’re incurred, rather than spreading them over several years. If your business builds software, develops products, or improves processes, this change can meaningfully lower your bill — and there may be an opportunity to amend prior returns, which is a conversation to have with your CPA sooner rather than later.
Retirement moves that cut your 2026 tax bill
Funding a retirement plan is the rare move that builds your wealth and lowers your taxes at the same time. For the self-employed and small business owners, the big options are:
- SEP IRA — contribute up to 20% of net self-employment income, to a 2026 maximum of about $72,000. Simple to set up and fund.
- Solo 401(k) — ideal for owner-only businesses; it combines an employee contribution with a profit-sharing piece, often allowing a larger total than a SEP at the same income.
- SIMPLE IRA — a lighter-weight option if you have a few employees.
- Defined benefit plan — for high earners who want to set aside much larger amounts.
Many of these can be established and funded well into next year for the 2026 tax year — but setting one up mid-year gives you time to budget the contribution.
Health accounts that lower your taxable income
Tax-advantaged health accounts cut both income and payroll taxes:
- HSA — paired with a high-deductible health plan, 2026 contribution limits rose to about $4,400 for individuals and $8,750 for families. Triple tax-advantaged and yours to keep.
- FSA — the health FSA limit is around $3,400 for 2026; a dependent-care FSA can shelter up to $7,500 per household.
- HRA — small businesses can reimburse employees’ health costs tax-free through a QSEHRA or ICHRA.
Group health premiums are generally fully deductible too, so review your coverage as part of the same pass.
Everyday deductions small businesses miss
Beyond the headline changes, make sure you’re capturing the ordinary deductions that add up:
- Home office, if you use the space regularly and exclusively for business
- Business use of your vehicle — mileage or actual expenses
- Software, subscriptions, and the AI tools you now run your business on
- Professional development, plus business travel and meals
- Health insurance premiums for the self-employed
If you’re not sure whether your side venture even qualifies for these, our guide to when a side hustle should become an LLC is a good starting point — and if you’re ready to formalize, here’s how to set up an LLC in about 30 minutes.
Your mid-year tax checklist (run this now)
- Pull a profit-and-loss for January through June and estimate your full-year income.
- List any equipment or software you plan to buy and decide whether to accelerate it into 2026.
- Open or plan to fund a retirement account, and pick a target contribution.
- Max out — or set up — your HSA if you’re on a high-deductible plan.
- Check your quarterly estimated payments against your new income estimate and adjust.
- Get your bookkeeping current so deductions aren’t lost; clean books make invoicing and expense tracking painless at year-end.
- Book a mid-year call with your CPA to pressure-test the plan.
Frequently asked questions
When is the deadline to make these tax moves?
Most deductions require the action to happen during the tax year — so an equipment purchase must be placed in service by December 31, 2026. Some retirement contributions can be made up to your filing deadline in 2027, but setting the account up now gives you time to fund it.
Do I need an LLC or S-corp to get these breaks?
Many deductions — equipment, retirement, home office — are available to sole proprietors too. Others, like certain payroll-tax strategies, depend on your structure. If you’re weighing it, start with how to start a business the right way.
Can I still benefit if I had a slow year?
Yes. In a lower-income year, you might do the opposite of the usual advice — deferring deductions to a future higher-income year, or doing a Roth conversion while your rate is low. This is exactly the kind of timing a good CPA can optimize.
A quick example: what accelerating one purchase saves
Say your consulting business will net about $120,000 in 2026 and you plan to buy a $12,000 workstation setup and software in early 2027. Move that purchase into 2026 and place it in service by December 31, and you can deduct the full $12,000 this year under bonus depreciation or Section 179. In a combined federal-and-self-employment bracket, that single timing decision can trim your tax bill by several thousand dollars — for a purchase you were going to make anyway. With 100% expensing back, the timing of ordinary purchases is now one of your biggest levers.
Should you consider an S-corp election?
Once a business consistently earns more than it needs to pay the owner a reasonable salary, an S-corp election can reduce self-employment tax on the remaining profit. It isn’t free — you take on payroll, extra filings, and reasonable-compensation rules — so it rarely makes sense until profits are solidly in the mid five figures or higher. Mid-year is the right time to model it with your accountant, because the payroll and paperwork need to be in place before year-end to count for 2026. Pair the decision with the QBI rules above, since your structure affects how that 20% deduction applies.
Don’t forget state and local taxes
Federal breaks get the headlines, but state and local taxes can matter just as much to your plan. Some states don’t conform to the federal bonus-depreciation and Section 179 rules, so a purchase that’s fully deductible federally may be treated differently on your state return. Sales-and-use tax, local business taxes, and pass-through entity tax elections — which let some owners work around the federal SALT cap — all vary widely by state. A quick mid-year check with a CPA who knows your state can surface savings a national rule of thumb would miss.
Common mid-year tax mistakes to avoid
- Buying equipment just for the deduction. A write-off returns only a fraction of the cost — never spend a dollar to save thirty cents unless you actually need the item.
- Ignoring estimated payments. Underpaying through the year can trigger penalties even if you settle up in April; adjust your Q3 and Q4 payments now.
- Letting bookkeeping slide. Missing receipts are missing deductions — reconcile monthly so nothing is lost.
- Waiting until December. The best moves — retirement plans, entity changes, big purchases — take time to set up.
How much should I set aside for taxes as a small business owner?
A common rule of thumb is to reserve 25–30% of net profit for federal, state, and self-employment taxes, adjusting for your bracket and location. Running a mid-year projection tells you whether you’re on track or need to catch up before year-end.
Time your income and expenses on purpose
One of the simplest mid-year levers is deciding when income and expenses land. If 2026 is shaping up to be a high-income year, pull deductions forward — prepay some expenses, buy needed supplies, or make that equipment purchase before December 31 — and push invoices into January so the income falls in 2027. If this year is lighter than next looks, flip it: accelerate income now and save deductions for when they will offset a higher rate. Cash-basis businesses have the most flexibility here, and a quick projection tells you which way to lean.
The bottom line
2026 handed small business owners a genuinely favorable tax landscape: permanent 100% bonus depreciation, a bigger Section 179 limit, a permanent QBI deduction, and restored R&D expensing. But tax breaks only help if you act while there’s still time — and that time is now, in the middle of the year, not next April. Run the checklist above, make the moves that fit your situation, and book a mid-year call with a professional to lock it in. A little planning this summer is often worth thousands come filing season. This article is general information, not tax advice; a qualified CPA can tailor these strategies to your specific circumstances.