Deductions
Small business tax deductions: the 2025 and 2026 numbers from IRS publications
The deductions IRS publications describe for small businesses, with 2025 and 2026 limits side by side: Section 179, bonus depreciation, the 20% QBI deduction, the home office rules, half of self-employment tax, meals, research costs and the excess business loss cap.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
IRS Publication 334 and Rev. Proc. 2025-32 set the main small business deduction numbers. The Section 179 limit is $2.5 million for 2025 and $2,560,000 for 2026, 100% bonus depreciation applies to qualified property acquired after January 19, 2025, and the 20% qualified business income (QBI) deduction is now permanent, with a $400 minimum from 2026 for at least $1,000 of QBI. Self-employed owners also deduct half of their self-employment tax on Schedule 1.
Who these deductions apply to, and where they're reported
Publication 334 says a trade or business is generally an activity carried on to make a profit, and the facts and circumstances of each case decide whether an activity is one. Sole proprietors report business income and deductions on Schedule C (Form 1040). A single-member LLC is generally disregarded for income tax and reports its income and deductions on its owner's return.
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| Item | 2025 | 2026 | Source |
|---|---|---|---|
| Section 179 expensing limit | $2.5 million | $2,560,000 | Pub 334, Rev. Proc. 2025-32 |
| Section 179 phase-out starts at | $4 million of property placed in service | $4,090,000 | Pub 334, Rev. Proc. 2025-32 |
| Section 179 cap on a sport utility vehicle | See Form 4562 instructions | $32,000 | Rev. Proc. 2025-32 |
| Bonus depreciation | 100% for qualified property acquired after January 19, 2025 | 100% for qualified property acquired after January 19, 2025 | Pub 334 |
| QBI deduction | 20%, now permanent | 20%, with a $400 minimum for at least $1,000 of QBI | Pub 334, Rev. Proc. 2025-32 |
| QBI threshold (married filing jointly / other returns) | See Form 8995 instructions | $403,500 / $201,750 | Rev. Proc. 2025-32 |
| Excess business loss threshold | See Form 461 instructions | $256,000 ($512,000 joint) | Rev. Proc. 2025-32 |
| Social Security cap for self-employment tax | $176,100 | $184,500 | Pub 334 |
| Business standard mileage rate | 70 cents a mile | See our standard mileage rate guide | Pub 334 |
| Small business taxpayer gross receipts test | $31 million | $32,000,000 | Pub 334, Rev. Proc. 2025-32 |
The IRS has discontinued Publication 535, Business Expenses. Its bad debt guidance moved into Publication 334, and home office rules are in Publication 587. The numbers below come from those publications and Rev. Proc. 2025-32, the IRS's 2026 inflation adjustments.
Equipment: Section 179 and bonus depreciation
Beginning in 2025, the maximum Section 179 expense deduction is $2.5 million, reduced by the amount that Section 179 property placed in service during the year costs over $4 million. For taxable years beginning in 2026, Rev. Proc. 2025-32 sets the limit at $2,560,000, reduced dollar for dollar above $4,090,000, and caps the cost of a sport utility vehicle that can be taken into account at $32,000.
Publication 334 says a 100% additional first-year depreciation deduction is allowed for certain qualified property acquired after January 19, 2025.
Office equipment that isn't expensed is depreciated. Publication 587 lists computers, peripheral equipment, calculators and copiers as 5-year property, and office furniture and fixtures such as desks, files and safes as 7-year property. Listed property placed in service during the year must be used more than 50% for business to take a Section 179 deduction or accelerated depreciation.
The 20% qualified business income deduction
P.L. 119-21 made the 20% QBI deduction permanent for qualified active trades or businesses, and the income thresholds for its limits increased. Starting with taxable years beginning after December 31, 2025, there is a minimum deduction of $400, and a taxpayer needs at least $1,000 of qualified business income to be eligible.
For 2026, the threshold amounts are $403,500 for married filing jointly, $201,775 for married filing separately and $201,750 for all other returns. The phase-in ranges end at $553,500, $276,775 and $276,750.
Business use of your home
Publication 587 sets the tests. Under the exclusive use test, a specific area of the home must be used only for the trade or business. A home office counts as the principal place of business if it is used exclusively and regularly for administrative or management work and there is no other fixed location where substantial administrative or management work is done. The exclusive use test doesn't apply to space used to store inventory or product samples, or used as a daycare facility.
Under the simplified method, the deduction is $5 times the area used for business, limited to 300 square feet. Under the actual expense method, an owned home's business part is depreciated as nonresidential real property using the straight line method over 39 years when business use starts in 2025. Either way, the deduction is limited to the gross income from the business use.
The basic local service charge for the first landline into a home is a nondeductible personal expense. Business long-distance calls on that line, and a second line used only for business, are deductible. Records are generally kept until the later of 3 years from the return's due date or filing date, or 2 years after the tax was paid.
Other deductions in Publication 334
Timing depends on the accounting method. Under the cash method, expenses are generally deducted in the year paid. Under an accrual method, an expense is generally deducted when the all-events test is met and economic performance has occurred.
- Half of self-employment tax: deducted as an adjustment to income on line 15 of Schedule 1 (Form 1040). Self-employment tax is 15.3% and applies at $400 of net earnings
- Business meals: generally still limited to 50% of the cost
- Domestic research and experimental costs: beginning in 2025, deductible currently or amortized over 60 months or more
- Car loan interest: beginning in 2025, qualified passenger vehicle loan interest may be deductible on Schedule 1-A (Form 1040)
- Qualified sound recording productions: up to $150,000 of costs for productions commencing after July 4, 2025 and before January 1, 2026
- Energy efficient commercial buildings (Section 179D, Form 7205): eliminated for property beginning construction after June 30, 2026
When deductions exceed income
The limit on excess business losses is now permanent. An excess business loss is included as income on line 8p of Schedule 1 (Form 1040) and treated as a net operating loss carried forward to a later year. For taxable years beginning in 2026, the threshold is $256,000, or $512,000 for joint returns.
Contractor payments are reported, not just deducted. For payments made after December 31, 2025, the base threshold for reporting under section 6041(a) is $2,000.
Aldro prepares and files the return these deductions go on, including Schedule C, Form 4562 and Form 8829 where they apply, for one flat yearly price that covers everything tax.
Worked example
Say a sole proprietor uses a 250-square-foot room only for the business and runs no other office. Under the simplified method the home office deduction is 250 x $5 = $1,250, as long as the business's gross income from that use is at least $1,250. A 400-square-foot office would be capped at 300 x $5 = $1,500. In 2026 the same owner places $3,000,000 of Section 179 property in service. That is under the $4,090,000 phase-out start, so the full $2,560,000 limit is available. If they had placed $4,200,000 in service instead, the limit would drop by $110,000, to $2,450,000.
Common questions
What is the Section 179 limit for 2026?
$2,560,000, reduced dollar for dollar once Section 179 property placed in service exceeds $4,090,000. Sport utility vehicles are capped at $32,000. For 2025 the limit was $2.5 million with a $4 million phase-out.
Is the 20% QBI deduction still available?
Yes. P.L. 119-21 made it permanent, and from 2026 there is a $400 minimum deduction for taxpayers with at least $1,000 of qualified business income.
How is the home office deduction figured?
Either the simplified method, $5 per square foot of business area up to 300 square feet, or actual expenses on Form 8829. The space must pass the exclusive and regular use tests unless it is used for inventory storage or daycare.
Are business meals deductible?
Generally at 50% of the cost. Publication 334 says meal deductions generally remain limited to 50%.
Can self-employed people deduct self-employment tax?
Half of it. It is an adjustment to income on line 15 of Schedule 1 (Form 1040).
What happened to IRS Publication 535?
The IRS discontinued it. Its bad debt guidance is now in chapter 8 of Publication 334.
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Sources
- IRS: Publication 334, Tax Guide for Small Business · checked October 31, 2026
- IRS: Rev. Proc. 2025-32 · checked October 31, 2026
- IRS: Publication 587, Business Use of Your Home · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.