Tax season begins next Monday, but due to the passage of the One Big Beautiful Bill (OBBB) last July, changes have been made to the tax code that will impact the tax returns of small business owners.
Brittany Benson, manager of the tax content team at Block Advisors, part of H&R Block, held an online discussion where she went over the many differences that business owners will encounter when filing their taxes this year.
One of these changes is the filing requirements for 1099 forms – specifically the 1099-K, which is used to report gross payment transaction amounts from online marketplaces, gig work or third-party payment apps like PayPal or Venmo.
In the previous tax season, the threshold for filing this form was $5,000, but under the OBBB, the requirement has been raised to $20,000 and 200 transactions. It should be noted, though, that even if business owners don’t meet the threshold to receive this form, they are still required to report their revenue on their business return.
Another big change for small business owners comes via bonus depreciation: a tax incentive that allows the deduction of a large amount of a newly acquired asset’s cost, like equipment, in the same year that the asset is placed in service.
Under the Tax Cuts and Jobs Act (TCJA), which was signed into law in 2017, owners could deduct 100% of their assets’ costs. That percentage was significantly shortened to 60% after 2022 and was set to be even lower at 40% for this tax season, but it has now rebounded to 100% with the OBBB.
“It can be a really helpful way to reduce your tax liability, especially when you purchase items that qualify for bonus depreciation,” Benson said.
There is a small caveat, though. The asset in question must have been placed in service after Jan. 19, 2025, for the owners to take advantage of the full 100% deductible; otherwise, the incentive is only 40%.
Section 179 of the tax code functions very similarly to bonus depreciation, but instead of percentages, taxpayers deduct a set dollar amount. There are several limitations under this tax code, but two that Benson highlighted were the deduction maximum and the total asset value limitation – which is the total value of all the assets placed into service during the year.
But just like with the aforementioned tax incentive, the limits for Section 179 were raised: the deduction maximum was raised from $1.22 million to $2.5 million, and the total asset value cap was increased to $4 million from $3 million. This allows more businesses to take advantage of immediately expensing equipment.
The TCJA not only expanded bonus depreciation, but it also created the Qualified Business Income (QBI) Deduction for owners of “pass-through entities” – LLCs, partnerships or sole proprietorships where the business profits and losses are passed directly to the owner’s personal tax return.
With the QBI Deduction, owners could deduct 20% of their qualified business income; however, it was set to sunset at the end of 2025. But the passage of OBBB made this deduction permanent and established a $400 minimum deduction for the 2026 tax season.
Lastly, one of the biggest changes doesn’t necessarily affect employers, but rather their employees, as there will be two deductions for qualified tips and qualified overtime.
“But for 2026 through 2028, you will be required to separately state the employee’s or independent contractor’s tips and overtime on their W-2 or 1099,” Benson said. “The IRS [Internal Revenue Service] is going to be updating those forms and … if you do your own payroll, you just need to be aware that this is coming.”