2026 Tax Law Changes for Small Business Owners

What Every Entrepreneur Needs to Know Before Tax Season

By Diana Davis, CPA — Davis CPA PLLC

As we move into 2026, small business owners are facing several important tax updates. Understanding these changes early can help you avoid penalties, stay compliant, and make better financial decisions throughout the year.

Here are the key tax law changes small business owners should be aware of in 2026, along with expert guidance to help you stay ahead.

1. Updated Standard Mileage Rates

The IRS adjusts mileage rates each year to reflect fuel, maintenance, and vehicle cost trends.

2026 Mileage Rates:

• Business miles: 72.5 cents

• Medical/Moving: 20.5 cents

• Charitable: remains 14 cents

If driving is a core part of your business, accurate tracking reduces audit risk and maximizes deductions. Davis CPA helps business owners set up compliant mileage tracking systems that integrate with their bookkeeping.

2. 100% Depreciation for Vehicles Over 6,000 lbs (Updated for 2026)

If you’re considering purchasing a heavy vehicle for your business — such as certain SUVs, trucks, or vans that have a Gross Vehicle Weight Rating (GVWR) of 6,000 lbs or more — 2026 continues to offer strong tax benefits.

Under current tax rules, qualifying vehicles may still be eligible for up to 100% first-year depreciation, subject to IRS limits. This means you may be able to deduct the entire cost of the vehicle in the year it is placed into service, as long as:

• The vehicle is used more than 50% for business, and

• The GVWR is 6,000 lbs or higher, and

• It meets the IRS definition of qualified property.

This accelerated depreciation is extremely valuable for small business owners who rely on a larger vehicle for operations, travel, client work, or hauling equipment.

A properly planned vehicle purchase can dramatically reduce your taxable income for the year. However, the rules are complex — and certain vehicles have caps on first-year depreciation depending on classification.

This is an area where strategic timing is essential. A CPA can help ensure the vehicle qualifies, confirm the allowable deduction, and structure the purchase correctly for maximum tax savings.

3. Increased Scrutiny for S-Corp Owner Salaries

The IRS is heavily monitoring S-Corp reasonable compensation.

Expect stricter enforcement on:

• Low owner salaries

• Inconsistent payroll

• Owners paying distributions instead of wages

Davis CPA works with S-Corp owners to help structure IRS-safe owner payroll while balancing tax savings and compliance.

4. Retirement Plan Contribution Limit Increases

Inflation adjustments will increase contribution limits for:

• Solo 401(k)

• SEP IRA

• Traditional & Roth IRA

This is great news if you want to lower taxes while building long-term wealth.

Small business owners benefit the most when retirement planning and tax planning are aligned — a key area where having a CPA makes a noticeable difference.

Davis CPA helps business owners choose the right retirement plan, calculate allowable contributions, and integrate retirement savings into year-round tax planning.

5. Arizona-Specific Tax Updates (Important for Local Business Owners)

Arizona is expected to update:

• Individual income brackets

• Small Business Income (SBI) election calculations

• Withholding tables

• Business credit program amounts

Arizona small business owners should pay close attention to these changes, as they affect payroll, estimated payments, and year-end tax planning.

As a Gilbert-based CPA firm, Davis CPA stays up to date on Arizona’s annual tax adjustments so clients never miss a requirement.

6. IRS Enforcement Increases for Cash-Based and Contractor Businesses

The IRS continues expanding audits for:

• contractors

• subcontractors

• restaurant/retail

• gig workers

• service trades

With 1099-K reporting tightening and digital payment transparency increasing, businesses must keep cleaner books than ever.

Accurate bookkeeping protects you — and partnering with a CPA ensures every dollar is properly documented.

7. Estimated Tax Payments Remain Critical

Quarterly estimated taxes for business owners are due:

• April 15

• June 15

• September 15

• January 15, 2027

Underpaying can lead to unnecessary penalties.

Regular tax planning with a CPA helps ensure you’re paying the proper amount each quarter, not too much, not too little.

8. 1099-NEC and 1099-MISC Requirements (2026 Update)

Businesses must issue 1099s to contractors paid $600+ by:

📌 January 31, 2026

Beginning in 2026, the IRS has increased the reporting threshold for contractor payments.

Businesses must now issue a 1099-NEC or 1099-MISC to any contractor who is paid $2,000 or more during the calendar year. This is a significant change from the previous $600 threshold.

This requirement applies to subcontractors, freelancers, virtual assistants, labor-only workers, and any independent contractor your business pays for services.

If you hire subcontractors, virtual assistants, or freelancers, this requirement applies to you.

Davis CPA offers full 1099 filing services to ensure you meet this deadline accurately and on time.

Why These Changes Matter

Tax laws shift every year, and 2026 is no exception. The rules can feel overwhelming, especially for small business owners trying to manage operations, cash flow, payroll, and growth all at once.

With the right guidance, these changes are manageable and even opportunities for smarter planning.

This is where Davis CPA can help.

How Davis CPA Helps Small Business Owners in 2026

At Davis CPA PLLC, we specialize in supporting Arizona small businesses with:

✔ Monthly bookkeeping

✔ Individual & business tax preparation

✔ S-Corp setup and salary planning

✔ Year-round tax planning

✔ Quarterly estimated tax calculations

✔ IRS compliance

✔ Spanish-speaking support (bilingual services)

We focus on proactive strategy, not just filing your return, to help you keep more of your hard-earned money.

If you want a smoother, stress-free 2026 tax year, we’re here to help.

📩 Visit https://www.daviscpa.cpa/contact-us to book your free 30 minutes consultation.