The 2026 tax year is almost over, but businesses still have time to consider year-end tax planning moves that may reduce federal income tax liability. The right approach depends on your facts, cash flow, projected income, and long-term goals.
Here are five strategies to discuss with your tax advisor before year-end.
1. Review capital asset purchases
Businesses that acquire and place eligible new or used assets in service in 2026 may benefit from 100% first-year bonus depreciation. Eligible property can include machinery, equipment, certain vehicles, off-the-shelf computer software, and qualified improvement property (QIP).
Bonus depreciation generally applies automatically to eligible purchases placed in service during the tax year. A business can elect out, but the election applies to an entire asset class. Bonus depreciation can also create a net loss that generally may be carried forward to future tax years.
Section 179 offers another option. For 2026, businesses can deduct up to $2.56 million of eligible asset costs. The deduction begins to phase out dollar for dollar when qualifying purchases exceed $4.09 million. Unlike bonus depreciation, Section 179 is limited to taxable income from the business activity, so it cannot create a net loss. Unused amounts may be carried forward.
Section 179 is not automatic. It can be applied asset by asset, or even to part of an asset’s cost. That added flexibility may make it useful in year-end planning.
Before making a major purchase, consider cash flow, revenue projections, financing terms, and the effect on other tax benefits. A deduction may be more valuable in a later year.
2. Consider the deduction for qualified production property
Manufacturers with new construction nearing completion may want to review the timing before year-end. A temporary depreciation deduction may be available for qualified production property (QPP) placed in service after July 4, 2025, and before January 1, 2031. Eligible businesses can claim a deduction equal to 100% of the property’s adjusted basis in the year it is placed in service. The deduction requires an election.
QPP generally must be nonresidential real property in the United States and used as an integral part of a qualified production activity, such as manufacturing, production, or refining. Areas used for offices, administrative services, lodging, parking, sales, research, software development, engineering, or storage of finished products generally do not qualify. Other requirements apply, including rules for construction dates and property use.
3. Identify qualifying research expenses
Research-related tax benefits are not limited to companies known for cutting-edge innovation. Businesses in many industries may have expenses worth reviewing.
Section 174 covers certain research and experimental (R&E) expenses related to activities intended to discover information that would eliminate uncertainty about developing or improving a product. Domestic qualified expenses can be deducted in the tax year they are incurred or paid, even if the project is not complete, or amortized over at least five years. Foreign qualified expenses must be amortized over 15 years.
Some expenses may also qualify for the Section 41 research credit. A business generally cannot claim both a deduction and a credit for the same expense without an adjustment. A Section 280C election may allow the full deduction while reducing the credit by the maximum corporate tax rate of 21%.
Because the rules differ, modeling the alternatives can help businesses evaluate which approach best supports their tax position.
4. Review your qualified business income deduction
Section 199A allows owners of sole proprietorships and pass-through entities, including partnerships, S corporations, and most limited liability companies, to deduct up to 20% of qualified business income (QBI).
At higher income levels, wage and investment limits may reduce the deduction. For 2026, those limits generally begin to apply when taxable income falls between $201,750 and $276,750, or between $403,500 and $553,500 for married couples filing jointly.
Within the phase-in range, the deduction may be limited based on W-2 wages and qualified business property. Another income-based limitation can restrict the Section 199A deduction for income from a specified service trade or business.
If projected taxable income is near a threshold, planning steps such as retirement plan contributions may affect the result. Cash-basis businesses may also consider the timing of income and expenses. If the limits cannot be avoided, wages or qualified property purchases may affect the calculation, but these choices can have other consequences, including higher payroll taxes.
5. Assess the excess business loss limitation
Noncorporate taxpayers generally can use business losses to offset income from other sources, but an annual limit applies. Losses above that limit generally become net operating loss (NOL) carryforwards to later years and are generally subject to the 80% taxable-income limitation on NOL deductions.
The One Big Beautiful Bill Act made the excess business loss limitation permanent. For 2026, the source states that the limit is $256,000, or $512,000 for joint filers, compared with $313,000 and $626,000, respectively, for 2025.
Businesses expecting significant losses from bonus depreciation, currently deductible research expenses, or other deductions should review how this limitation could affect the timing of tax benefits. Accelerating income or deferring deductions may help in some situations, but shifting items between years can also affect future NOL deductions and overall tax liability.
Take a proactive approach to year-end planning
Year-end tax planning works best when it supports both near-term needs and longer-term business goals. Before acting, review how these strategies fit your projected income, cash flow, investments, and other tax positions.
BeachFleischman can help you evaluate the implications of these and other year-end tax planning strategies so you can make informed decisions and plan ahead with confidence.
Frequently Asked Questions
What is 100% bonus depreciation for 2026?
Eligible new or used assets acquired and placed in service in 2026 may qualify for a 100% first-year bonus depreciation deduction. Eligible assets can include machinery, equipment, certain vehicles, off-the-shelf computer software, and qualified improvement property.
How does Section 179 differ from bonus depreciation?
For 2026, Section 179 allows a deduction of up to $2.56 million for eligible asset costs, with phaseout beginning when qualifying purchases exceed $4.09 million. Section 179 is limited to taxable income from the business activity and is elective, while bonus depreciation generally applies automatically to eligible assets unless the business elects out for an asset class.
Who may qualify for the Section 199A QBI deduction?
Owners of sole proprietorships and pass-through entities, including partnerships, S corporations, and most limited liability companies, may qualify for a deduction of up to 20% of qualified business income. Income thresholds and other limitations can reduce the available deduction.
What happens when business losses exceed the excess business loss limit?
For noncorporate taxpayers, business losses above the applicable annual limit generally cannot be deducted in the current year. Instead, they are generally treated as net operating loss carryforwards to future tax years and are generally subject to the 80% taxable-income limitation on NOL deductions.
©2026
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