Tax Season 2026: Key Considerations for SMBs

Quick look: Tax season is here, and it brings important updates for small and medium-sized businesses (SMBs) that could affect filings, deductions, and retirement planning. Staying ahead of changes, maintaining accurate records, and leveraging guidance from a professional employer organization (PEO) can help companies stay compliant while uncovering potential savings opportunities.

For SMB owners, staying informed of tax changes is essential. Tax year 2026, covering 2025 filings, introduces new rules, incentives, and deadlines that could affect your bottom line. To help you prepare, here are five key considerations every employer should keep on their radar.

Note: This is not an exhaustive list of changes affecting SMBs this tax year. Please refer to your accountant and/or tax experts for more information. You may also find more details on federal tax credits for businesses on the IRS website.

1. Key filing deadlines

Meeting tax deadlines is necessary to avoid penalties and interest. Below are the cutoff dates for 2026:

• S corporations and partnerships: Form 1065 is due March 15, 2026, with the ability to extend to September 15, 2026
• C corporations: Form 1120 is due April 15, 2026, with extensions available until October 15, 2026
• Sole proprietors: Schedule C on Form 1040 is Due April 15, 2026, with extension until October 15, 2026
• Single-member LLCs: Also due on April 15, with extension available through October 15, 2026

2. One Big Beautiful Bill Act (OBBBA) provisions

The OBBBA, signed into law on July 4, 2025, consolidates several federal tax changes and incentives relevant to SMBs:

Commercial Clean Vehicle Credit

Businesses should note that the Qualified Commercial Clean Vehicle Credit is no longer available for vehicles acquired after September 30, 2025.

According to the IRS, a “qualified commercial clean vehicle” must be subject to a depreciation allowance (except for vehicles placed into service by a tax-exempt organization and not subject to a lease). Qualified vehicles must also be:

• Made by a qualified manufacturer,
• Acquired for use by the business and not for resale,
• Primarily used in the United States,
• Not allowed a credit under sections 30D or 45W,
• Treated as a motor vehicle for purposes of title II of the Clean Air Act and manufactured primarily for use on public streets, roads, and highways (not including vehicles operated exclusively on a rail or rails) or is mobile machinery as defined in § 4053(8) of the Code, and
• Either:
  • A plug-in electric vehicle that draws significant propulsion from an electric motor with a battery capacity of at least 7-kilowatt hours if the gross vehicle weight rating (GVWR) is under 14,000 pounds, 5-kilowatt hours if the GVWR is 14,000 pounds or more, or
  • A fuel cell motor vehicle that satisfies the requirements of IRC 30B(b)(3)(A) and (B).

The tax credit amount is the lesser of 15% of the taxpayer’s tax basis in the vehicle (30% in the case of a vehicle not powered by a gasoline or diesel internal combustion engine), or the vehicle’s incremental cost.

Lastly, for tax year 2025, the credit is limited to:

• $7,000 for compact plug-in hybrid electric vehicles with a gross vehicle weight rating (GVWR) less than 14,000 pounds,
• $7,500 for all street electric vehicles, other than compact car PHEVs, with a GVWR of less than 14,000 pounds, and
• $40,000 for all other vehicles.

State and local tax (SALT) deduction

For owners of pass-through entities (e.g., S corporations, partnerships, or sole proprietors), the SALT deduction cap rises from $10,000 to $40,000 for 2025–2029, allowing them to deduct more state and local taxes on their federal returns. This benefits SMB owners in high-tax states by lowering federal taxable income and making itemizing more favorable, though the benefit phases out for incomes above approximately $500,000 ($250,000 married filing separately) and the cap reverts to $10,000 after 2029.

SMBs can also still use Pass-Through Entity Taxes (PTET) in states that allow them to bypass the cap, further reducing federal taxes. In lower-tax states, the impact may be limited, while other OBBBA provisions, like permanent pass-through deductions and business expense rules, may matter more.

Overall, the act increases federal relief for SMB owners with high state/local tax obligations, but careful planning is essential for high earners.

Qualified Business Income (QBI) deduction

The OBBBA makes the 20% QBI deduction permanent, extending it beyond its original 2025 expiration. Additionally, it increases income thresholds for limitations, introduces a $400 minimum deduction for active owners in 2026, and expands phase-in ranges, allowing more SMB owners to claim the full deduction.

Bonus depreciation and Section 179 for equipment

These two new rules can help SMBs reduce taxable income and incentivize strategic asset purchases:

• Bonus depreciation: 100% deduction is restored for qualified property (new and used) placed in service after January 19, 2025
• Section 179 limits:The deduction limit increased to $2.56 million for 2025, with a phase-out beginning if purchases exceed $4.09 million

Qualified property includes machinery, equipment, computers, off-the-shelf software, and certain business vehicles, while used equipment may be eligible, provided it’s “new to you” and meets specific criteria.

R&D costs

The OBBA restores immediate expensing (full deduction in the year incurred) for domestic research and experimental (R&E) costs for tax years beginning after December 31, 2024, under new IRC Section 174A. This reverses the 2017 TCJA rule that required domestic R&D costs to be capitalized and amortized over five years. Businesses can now fully deduct domestic R&D costs immediately, improving cash flow and reducing taxable income.

Some additional important considerations include:

• Foreign R&D: R&E costs incurred outside the U.S. must still be capitalized and amortized over 15 years under Section 174.
• Transition Rules
  • Eligible small businesses may retroactively expense domestic R&D costs from 2022-2024 by amending returns.
  • Other taxpayers may accelerate remaining unamortized domestic R&D costs over one or two years starting in 2025.
• R&E Tax Credit Interaction: Taxpayers must reduce their domestic R&E deduction by the amount of any R&D credit claimed to prevent “double dipping” for the same expenditures.

At a Glance: Big Beautiful Bill R&D Tax Credit Changes
Before OBBA:	Domestic R&D expenditures were capitalized and amortized (spread out), delaying tax benefits.
After OBBA:	• Immediate deduction of domestic R&D costs • Optional capitalizing and amortizing • Transition relief for small businesses and accelerated write-offs for others • Interaction rules ensure alignment between deductions and the R&D tax credit calculation

Income from payment apps and online sales

Payment platforms are now required to issue Form 1099-K only when a business exceeds both $20,000 in gross payments and 200 transactions within a calendar year. This restores the higher threshold that existed before the lower $600 rule was enacted under the American Rescue Plan Act.

As a result, many SMBs will no longer receive a 1099-K unless they exceed both limits. However, all income from goods or services remains taxable, even if no form is issued.

Click here to access the full version of the OBBBA >>

3. SECURE 2.0 Act

The SECURE 2.0 Act is designed to help save more for retirement and make it easier for SMBs to offer retirement benefits. By taking advantage of these provisions, small businesses can strengthen their employees’ retirement savings while also reducing their own tax burden.

Here’s what employers need to note as they prepare their 2025 tax returns:

View the entire Secure 2.0 Act >>

Tax credits for retirement plan administration

If your business has 50 or fewer employees, you may qualify for a 100% tax credit (up to $5,000 per year for three years) for costs related to new retirement plans, including third-party administrator fees, recordkeeping, and employee education.

Businesses with 51-100 employees can claim a 50% credit, also capped at $5,000 per year for three years.

Automatic enrollment incentives

Employers who add auto-enrollment to their retirement plans can claim a $500 annual credit per year for the first three years.

Credit for employer contributions

Businesses with up to 100 employees may also receive a credit for contributions to employees’ retirement accounts. The credit is capped at $1,000 per employee earning $100,000 or less and gradually phases down over five years:

• Year 1: 100%
• Year 2: 100%
• Year 3: 75%
• Year 4: 50%
• Year 5: 25%

For employers with 51-100 employees, the credit decreases by 2% for each employee above 50 from the previous year.

Supporting military spouses

According to the Department of Labor, 90% of military spouses are women, yet only 20% of women feel confident about retiring comfortably. Many working military spouses also face interruptions in employment, which can prevent them from becoming eligible for, or fully vested in, their employer’s retirement plans.

These figures highlight the importance of helping military spouses build retirement savings, which the SECURE 2.0 Act supports through business tax credits. Under the Act, businesses with fewer than 100 employees can qualify for a credit if they offer military spouses:

• The ability to participate in a retirement plan within two months of hire,
• Eligibility for matching or non-elective contributions after just two years of service, and
• Immediate 100% vesting in all employer contributions.

4. Remote workforce effects

Employing workers in multiple states may establish tax nexus, which can subject a company to state and local income tax filing and payment requirements.

Companies should review the tax laws in every state where they employ staff to determine whether they have filing obligations or additional tax liability.

5. Standard mileage rates

When filing their tax returns, those who used their car for commercial purposes may be able to take a mileage deduction.

For tax year 2025, if you used your car for business activities, you may deduct 70 cents per mile. This is up three cents from the 2024 rate of 67 cents, and the rate increases to 72.5 cents for tax year 2026.

Partnering up to make the most of tax season (and beyond)

Running a small business means balancing a lot of priorities, and tax season is just one more item on an already full list.

A professional employer organization (PEO) takes some of that burden off your plate. By partnering with a PEO, a type of human resource outsourcing provider, small businesses gain guidance and administrative support that simplifies tax and payroll responsibilities, while helping them maximize available credits and stay compliant with current requirements.

For example, ExtensisHR’s team of tax and payroll professionals assists with:

• Tax filing (federal, state, and local) and W-2 preparation
• Payroll tax liability management
• Payroll processing
• Tax credit support
• Employee records maintenance
• And more

Each ExtensisHR customer is also paired with a dedicated payroll specialist, providing a consistent point of contact and added peace of mind throughout the year.

Tax season brings valuable opportunities for SMBs, from retirement credits to equipment expensing. Early planning, diligent recordkeeping, and a strategic PEO partnership can help you maximize savings, avoid pitfalls, and stay focused on growth.

Is PEO right for your company? Take our free quiz today, or contact the ExtensisHR team to learn more.