Small business owners in 2026 must navigate key provisions originating from the Tax Cuts and Jobs Act (TCJA) alongside recent legislative updates. While TCJA was enacted in 2017, its long-term framework — including permanent corporate adjustments and updated pass-through rules — shapes current tax planning.
Key TCJA Provisions Impacting Small Businesses in 2026
- Standard Deduction Increases: Higher baseline standard deductions continue to make itemizing unnecessary for most owners:
- Married Filing Jointly: $32,200
- Single / Married Filing Separately: $16,100
- Head of Household: $24,150
- Elimination of Personal Exemptions: Personal exemptions remain eliminated, offset by the elevated standard deduction.
- Corporate Tax Rate: The flat 21% federal corporate tax rate for C corporations remains permanent.
- Qualified Business Income (QBI) Deduction (Section 199A): Pass-through entities (sole proprietorships, partnerships, LLCs, S corporations) can deduct up to 20% of eligible qualified business income:
- Full Deduction Thresholds (2026): Taxable income up to $201,750 (Single) or $403,500 (Married Filing Jointly).
- Phase-Out Ranges (2026): Limitations phase in between $201,750–$276,750 for single filers and $403,500–$553,500 for joint filers based on W-2 wages, depreciable property, and Specified Service Trade or Business (SSTB) status.
- Minimum Deduction: A minimum deduction of $400 applies to active qualified business owners with at least $1,000 in QBI.
Specific Deductions and Limitations in 2026
- 100% Bonus Depreciation & Domestic R&D: Eligible equipment purchases qualify for full first-year bonus depreciation, and domestic R&D expenses are fully deductible in the year incurred.
- Medical and Dental Expenses: Out-of-pocket medical expenses exceeding 7.5% of AGI remain deductible if itemizing.
- Casualty and Theft Losses: Personal casualty and theft loss deductions remain restricted to federally declared disaster areas, subject to the 10% AGI floor.
- Charitable Giving: Cash contributions to qualified public charities remain deductible up to 60% of AGI for itemizers.
- Home Mortgage Interest: The cap on deductible mortgage interest applies to loans up to $750,000 ($375,000 if married filing separately) taken out after December 15, 2017.
- State and Local Taxes (SALT): The $10,000 aggregate cap ($5,000 for married filing separately) on state and local property, sales, or income taxes remains in effect.
How the $10,000 SALT Cap Impacts Washington State
Even without a state personal income tax, Washington taxpayers are subject to the $10,000 SALT limit because the cap aggregates:
- State and Local Property Taxes: Levied on residential and commercial real estate.
- State and Local Sales Taxes: Deductible on Schedule A in lieu of state income tax.
- Personal Property Taxes: Assessed on certain business equipment and vehicles.
High property valuations and combined state/local sales tax rates in Washington frequently push combined tax payments over $10,000, limiting the federal deduction for homeowners and pass-through owners claiming local taxes personally.
Small Business Tax Planning Strategies for 2026
Staffing & Contractor Alignment: Balance direct payroll against contractor expenses to optimize both operating costs and W2 wage baselines required for upper-tier QBI deductions.
Maximize QBI Tiering: Monitor taxable income near the $201,750 / $403,500 thresholds to prevent unnecessary phase-outs on pass-through earnings.
Leverage Capital Expensing: Utilize 100% bonus depreciation and Section 179 for equipment, technology, and facility improvements placed in service during the year.
Evaluate Pass-Through Entity Taxes (PTET): For businesses in states with high local taxes, explore state-level PTET elections to deduct state tax liabilities at the entity level, bypassing the individual $10,000 SALT cap.