2026 Mid-Year Tax Planning Guide for Small Businesses

July 15 , 2026

For many small business owners, the middle of the year is a natural checkpoint. With six months of results on the books, it is when plans made in January meet reality. Revenue, margins, and cash flow are compared against budget, staffing and capacity are evaluated for the second half of the year, customer feedback is reviewed for trends, operations are examined for inefficiencies, and compliance items such as licenses and filings are confirmed. The result is a series of adjustments that shape the remainder of the year.

That same review should include your tax position, and this year it deserves particular attention. The One Big Beautiful Bill Act (OBBBA) permanently changed several of the tax rules small businesses rely on, and those changes are now fully in effect for 2026. Reviewing your tax position while there is still time to act can help turn those changes into planning opportunities rather than year-end surprises.

The scope of a mid-year tax review varies by business, but for many owners it includes confirming estimated tax payments, evaluating planned purchases and tax elections under the new rules, and identifying important filing deadlines before year-end. Addressing these items now provides time to make adjustments rather than discovering issues when the return is prepared.

What the OBBBA Changed for Small Businesses

Several provisions of the OBBBA have a direct impact on small business tax planning in 2026. Among the most significant are:

• Permanent 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025.
• Expanded Section 179 expensing, with a $2,560,000 deduction limit and a phaseout beginning at $4,090,000 of qualifying property placed in service during tax years beginning in 2026.
• Permanent 20% Qualified Business Income (QBI) deduction for eligible owners of pass-through businesses.
• Immediate deduction for qualifying domestic research and experimental expenditures, replacing the prior requirement to capitalize and amortize those costs.
• Higher individual SALT deduction cap of $40,000, subject to income-based phaseouts that may affect pass-through entity tax (PTET) planning.
• New deductions for qualified tips and qualified overtime compensation, creating additional reporting requirements for employers.

Several of these provisions interact with one another and with the owner’s individual tax return, making coordinated tax planning more important than ever. Many of them appear throughout the checklist below.

1. Update Your Books and Project Your Full-Year Results

Every planning decision in a mid-year review begins with one question: Where is the business likely to finish the year?

The answer depends on having accurate, up-to-date financial information. Before evaluating tax-saving opportunities, record any outstanding transactions, reconcile bank and credit card accounts, and resolve any bookkeeping backlog. Current financial records provide the reliable foundation needed to project year-end results and make informed planning decisions.

With your books up to date, project your expected full-year revenue, expenses, taxable income, and estimated tax liability. Rather than simply annualizing year-to-date results, consider how the remainder of the year is expected to unfold. Changes in revenue, profit margins, planned capital expenditures, one-time transactions, hiring decisions, or significant contracts can all materially affect taxable income and should be reflected in the projection.

This projection serves as the foundation for the rest of the planning process. It helps identify potential tax liabilities before year-end, evaluate the timing of income and deductions, and determine which planning strategies are most likely to reduce your tax burden. Without a reliable projection, tax planning becomes reactive rather than proactive.

2. Review Your Estimated Tax Payments

Estimated tax payments are based on expectations established early in the year. By mid-year, actual business performance often differs from those assumptions, making it important to determine whether the remaining payments still align with projected tax liability.

Two estimated tax payment deadlines have already passed in 2026, and the third is due on September 15. That makes mid-year an ideal time to compare projected tax liability with the payments that remain.

For pass-through businesses, taxable income flows through to the owners’ individual tax returns. If business income is higher than originally expected, owners may need to increase their remaining federal and state estimated tax payments to avoid underpayment penalties. Conversely, if income has fallen short of expectations, estimated payments may be reduced to improve cash flow.

Depending on your projections, a mid-year review may allow you to:

• Increase remaining estimated payments to reduce the risk of underpayment penalties.
• Reduce remaining payments if projected taxable income is lower than expected.
• Coordinate federal and state estimated tax payments, which may follow different rules.
• Prepare for any projected balance due before the filing deadline rather than being surprised next spring.

A review is particularly valuable following rapid business growth or significant one-time events, such as the sale of an asset, the acquisition of another business, or a major new customer contract.

3. Evaluate Equipment Purchases Under the New Depreciation Rules

For many small businesses, equipment purchases represent one of the largest tax planning opportunities before year-end. Whether you are replacing machinery, purchasing vehicles, upgrading technology, or investing in other business assets, the timing of those purchases can have a significant impact on your 2026 tax liability.

The OBBBA permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. Bonus depreciation allows businesses to deduct the full cost of qualifying assets in the year they are placed in service, rather than recovering those costs over several years through regular depreciation. The law also expanded Section 179 expensing by increasing the maximum deduction to $2,560,000 for tax years beginning in 2026. Although both provisions allow businesses to recover the cost of qualifying assets more quickly, they operate under different rules. Bonus depreciation generally applies automatically to qualifying property and is not limited by taxable income, while Section 179 is an elective deduction subject to annual dollar limits and generally cannot create or increase a net operating loss.

Together, these provisions can significantly affect the tax treatment of planned capital investments, making mid-year an ideal time to review your purchasing plans.

Planning considerations include:

• Accelerate planned purchases. If equipment, vehicles, technology, or other qualifying assets are already in your capital budget, placing them in service before December 31 generally allows the deduction to be claimed on your 2026 return. Remember that ordering an asset is not enough. The property generally must be delivered and placed in service by year-end.
• Consider projected taxable income. If 2026 is shaping up to be an unusually low-income year, discuss whether certain purchases should be deferred. Depending on your circumstances, a deduction may provide greater value in a future year, particularly when relying on Section 179.
• Review mixed-use assets. Assets used for both business and personal purposes are subject to additional requirements. If business use later falls below the applicable threshold, a portion of the deduction may have to be recaptured.

Businesses that incur domestic research and experimental expenditures should also revisit their projections. Under the OBBBA, qualifying domestic research and experimental expenditures may once again be deducted in the year they are incurred, improving current-year cash flow and potentially affecting both taxable income and estimated tax payments.

4. Consider the Pass-Through Entity Tax Election Before Your State’s Deadline

If your business is organized as an S corporation or partnership, your state may allow it to elect to pay state income tax at the entity level through a pass-through entity tax (PTET) election. For eligible businesses, the election converts what would otherwise be a state income tax paid by the owners into a deductible business expense, potentially reducing the overall federal tax liability.

The OBBBA changed the planning landscape by temporarily increasing the individual state and local tax (SALT) deduction cap to $40,000 in 2025 ($40,400 in 2026, with 1% annual increases through 2029) while also introducing income-based phaseouts for higher-income taxpayers. As a result, the value of a PTET election may be different than it was in prior years. The optimal approach depends on factors such as projected business income, the owners’ overall tax situation, state tax liability, and the specific PTET rules in your state.

Planning considerations include:

• Review your state’s election rules. PTET elections are governed by state law, and the rules vary considerably. Many states require the election to be made by a specific deadline, and some require entity-level estimated tax payments during the year. Missing the deadline may mean waiting until the following tax year to make the election.
• Model the combined federal and state tax impact. Although the election is made by the business, the tax benefit ultimately affects the owners’ individual tax returns. Reviewing the election alongside your year-end tax projection can help determine whether it will reduce your overall tax liability under the new rules.

Because the potential benefit depends on both federal and state tax law, a mid-year review provides an opportunity to evaluate the election before state deadlines limit your option

5. Reassess Your Entity Structure and Owner Compensation

A business’s legal structure and tax classification should evolve as the business grows. An entity that made sense when the business was launched may no longer provide the most favorable tax treatment after profits increase, ownership changes, or long-term business goals shift.

Several developments can make a mid-year entity review worthwhile, including:

• Business profits that have grown well beyond the owner’s compensation needs.
• Self-employment taxes that have become a significant annual expense.
• Plans to retain earnings in the business rather than distribute them each year.
• Changes in ownership, including the addition of partners or shareholders.

Depending on your circumstances, a review may include evaluating whether a sole proprietorship or partnership would benefit from making an S corporation election, or whether C corporation status better supports a long-term strategy of retaining earnings. The permanent 21% corporate tax rate established under current law may make that option more attractive for some businesses, although the decision should consider the broader tax implications of each structure.

If your business already operates as an S corporation, mid-year is also an appropriate time to review owner compensation. The balance between salary and distributions affects payroll taxes, eligibility for the Qualified Business Income (QBI) deduction, and retirement plan contribution limits. The IRS also requires shareholder-employees who provide substantial services to receive reasonable compensation based on the work they perform.

Changing an entity’s tax classification involves filing requirements, election deadlines, and long-term tax consequences. Reviewing your structure before year-end provides time to evaluate the available options and implement any changes by the applicable deadlines.

6. Review Retirement Plan Contributions and Available Credits

Retirement plan contributions remain one of the most effective ways for small business owners to reduce current-year taxes while building long-term financial security. A mid-year review provides an opportunity to determine whether you are on track to maximize available contributions before year-end and whether your current retirement plan continues to meet the needs of both the business and its owners.

For 2026, employees may defer up to $24,500 into a 401(k) plan, with an additional $8,000 catch-up contribution available for individuals age 50 and older and an $11,250 catch-up contribution for those ages 60 through 63. IRA contributions are limited to $7,500, with an additional $1,100 catch-up contribution for eligible individuals.

One important change takes effect in 2026. Employees who are eligible to make catch-up contributions and whose 2025 Social Security (FICA) wages from the employer sponsoring the plan exceeded $150,000 must generally make those catch-up contributions on a Roth basis. Employers that sponsor retirement plans should confirm that their plans and payroll systems are prepared for the new requirement, particularly if they have employees who may be affected.

As part of your mid-year review, consider whether you should:

• Adjust payroll deferrals. Increasing contributions over the remaining pay periods can make it easier to reach annual contribution limits before year-end.
• Evaluate available tax credits. Businesses establishing a new retirement plan may qualify for SECURE 2.0 startup tax credits, including a credit of up to 100% of eligible startup costs (up to $5,000 annually for three years) for employers with 50 or fewer employees.
• Review employer contribution opportunities. Employer matching or profit-sharing contributions may increase retirement savings while reducing taxable business income. Additional tax credits may also be available for eligible employers.
• Confirm contribution limits. For owner-only and solo 401(k) plans, employer contribution limits depend on factors such as compensation and business structure. Reviewing those calculations before making contributions can help prevent excess contributions and required corrections later.

Retirement planning is most effective when it is done before year-end. A mid-year review provides time to adjust contribution levels, evaluate available tax incentives, and ensure your retirement strategy aligns with your overall tax planning goals.

7. Review Your Qualified Business Income (QBI) Deduction

The Qualified Business Income (QBI) deduction allows eligible owners of pass-through businesses to deduct up to 20% of their qualified business income on their individual tax returns. The One OBBBA permanently extended the deduction, eliminating the scheduled expiration after 2025. The law also expanded the income ranges over which the wage and qualified property limitations phase in, allowing more taxpayers to benefit from the deduction before those limitations apply. In addition, a new minimum deduction of $400 is available for taxpayers with at least $1,000 of qualified business income.

Making the deduction permanent shifts the focus from short-term tax planning to long-term optimization. Because the deduction depends on both business and personal tax information, a mid-year review is an opportunity to identify strategies that may increase or preserve the deduction before year-end.

Planning considerations include:

• Review projected taxable income. If projected taxable income is near one of the applicable phaseout thresholds, strategies such as retirement plan contributions, depreciation elections, or charitable giving may help preserve or increase the deduction.
• Evaluate owner compensation and W-2 wages. For higher-income taxpayers, the QBI deduction may be limited based on W-2 wages paid by the business and the unadjusted basis of certain business property. Reviewing owner compensation before year-end may improve the available deduction in some situations.
• Review multiple business interests. Owners of more than one business or rental real estate activity should evaluate whether aggregation elections or entity structure changes could affect the QBI calculation.

Because the QBI deduction is claimed on the owner’s individual return but is driven largely by business decisions, coordinating business and personal tax planning remains essential to maximizing the available benefit.

8. Review Payroll Reporting for New Tips and Overtime Requirements

The OBBBA introduced new individual tax deductions for qualified tips and qualified overtime compensation. Although employees claim these deductions on their individual tax returns, employers remain responsible for withholding taxes under the existing rules and for reporting the information needed to support those deductions.

For businesses with tipped employees or employees who regularly earn overtime, a mid-year review provides an opportunity to confirm that payroll systems and internal processes are prepared for the new reporting requirements before year-end.

Planning considerations include:

• Continue withholding under the current rules. The OBBBA did not eliminate payroll tax withholding on qualified tips or overtime compensation. Continue withholding federal income tax, FICA taxes, and any applicable state taxes as required.
• Confirm payroll system readiness. Verify that your payroll and timekeeping systems can separately identify and track qualified tips and qualified overtime compensation. Also review employee classifications and payroll records to ensure the information needed for year-end reporting is being captured accurately.
• Coordinate with your payroll provider. If payroll is outsourced, confirm that your provider is prepared to implement the new reporting requirements and that any necessary software updates or payroll settings will be in place before Forms W-2 are issued.

Because these reporting requirements are new, reviewing your payroll processes now provides time to implement any necessary changes before year-end reporting begins.

9. Key Tax Deadlines to Keep on Your Calendar

A successful mid-year tax review should conclude with a look at the calendar. Many planning opportunities depend on meeting filing, payment, and year-end deadlines, and missing them can limit or eliminate valuable tax benefits.

Key dates to keep in mind include:

• September 15, 2026. Third-quarter estimated tax payments are due for individuals. This is also the extended filing deadline for 2025 partnership and S corporation tax returns.
• October 15, 2026. Extended filing deadline for 2025 individual income tax returns, C corporation returns, and sole proprietor returns filed with Form 1040.
• December 15, 2026. Fourth-quarter estimated tax payments are due for calendar-year C corporations.
• December 31, 2026. Qualifying assets generally must be placed in service by this date to be eligible for 2026 bonus depreciation and Section 179 expensing. It is also the deadline for employee salary deferrals to solo 401(k) plans and many other year-end tax planning strategies.
• January 15, 2027. Fourth-quarter estimated tax payments for the 2026 tax year are due for most individuals who make estimated tax payments.

Marking these dates on your calendar can help ensure important filing, payment, and year-end planning deadlines are not overlooked.

Putting Your Mid-Year Review Into Action

A mid-year tax review provides an opportunity to step back and evaluate how your business is performing from both a financial and tax perspective. Comparing year-to-date results with your original expectations can help identify areas where adjustments may be beneficial during the second half of the year.

OBBBA introduced several permanent and temporary tax changes that affect planning for many small businesses. A mid-year review allows you to evaluate how those changes apply to your business and incorporate them into your planning as the year progresses.

The planning areas discussed in this article represent many of the more common mid-year tax considerations for small businesses. Depending on your business’s circumstances, additional tax provisions, elections, deductions, credits, industry-specific rules, or state tax issues may also warrant review. A mid-year planning discussion can help identify the issues most relevant to your business and develop a coordinated tax strategy that aligns with your business goals.