Key Takeaways
- Many high-impact business deductions remain available in 2026, but documentation standards continue to tighten.
- Mileage, equipment, payroll, retirement, and professional fees are still powerful—if tracked correctly.
- Timing matters more than ever when it comes to depreciation and expensing.
- The IRS is placing greater emphasis on consistency, substantiation, and recordkeeping.
- The most effective tax strategies are built throughout the year, not at filing time.
Business owners often look for what’s new each tax year, assuming meaningful savings come from new rules or newly introduced deductions. In reality, 2026 is far less about what’s been added and far more about how existing deductions are reviewed, documented, and supported.
Mileage rate changes may grab headlines, but the real opportunity lies in understanding which deductions continue to deliver value, how enforcement expectations have evolved, and how to organize records so those deductions stand up to scrutiny when it matters.
Business Mileage: Higher Rate, Same Expectations
For 2026, the IRS increased the standard business mileage rate to 72.5 cents per mile (up from 70 cents in 2025), per IRS Notice 2026-10. The rate applies to gas-powered, hybrid, and electric vehicles.
What hasn’t changed is more important than the increase itself. Mileage must be business-related (not commuting), logs must be contemporaneous, and once you choose between standard mileage and actual expenses for a vehicle, the ability to switch later is limited.
One detail many business owners overlook is that a portion of the mileage rate is treated as depreciation. For 2026, that embedded depreciation amount increased to 35 cents per mile, which affects basis calculations down the road.
Planning insight:
If your business involves multiple locations, client visits, site inspections, or off-site meetings, mileage can add up quickly, but only if tracked in real time. The IRS is clear on substantiation requirements (see IRS Publication 463).
Equipment, Technology, and Fixed Assets: Timing Is Everything
Equipment purchases continue to be a major planning lever in 2026. Under current law, 100% bonus depreciation applies to qualifying assets placed in service after January 19, 2025, and Section 179 expensing limits remain elevated (see IRS Publication 946).
The key issue is not whether you bought something, it’s whether it was placed in service. Equipment must be installed, tested, and ready for use to qualify in that tax year. Delays in delivery, installation, or training can push deductions into the following year.
This applies broadly to:
- Machinery and tools
- Technology and hardware
- Certain software and systems
- Leasehold and facility improvements
Planning insight:
If you’re making a significant purchase late in the year, coordinate timing with us. A December invoice does not guarantee a December deduction.
Payroll and Owner Compensation: Still Deductible, Increasingly Scrutinized
Payroll remains fully deductible, but for business owners, especially those in S corporations, how payroll is structured matters.
The IRS continues to emphasize reasonable compensation for owner-employees, and enforcement in this area has increased. Underpaid wages paired with large distributions remain a red flag.
At the same time, payroll affects:
- Employment tax exposure
- Retirement plan contributions
- Cash flow timing
- Compliance with state and federal rules
Planning insight:
An annual compensation review helps ensure wages align with profitability, role, and industry norms. The IRS’s position on reasonable compensation is outlined in Fact Sheet FS-2008-25.
Retirement Contributions: Still One of the Most Flexible Deductions
Retirement plans remain one of the most effective tools for reducing taxable income while building long-term wealth.
For 2026, common options include:
- Traditional and Safe Harbor 401(k) plans
- SEP IRAs
- Defined benefit or cash balance plans (for higher-income owners)
Contribution limits have increased gradually over time, but compliance expectations have tightened. Plan design, eligibility rules, and documentation matter more as businesses grow.
Planning insight:
If your income increased in 2025, your retirement strategy may no longer be optimized. Reviewing plan design early in 2026 can unlock additional deductions (see IRS Publication 560).
Professional Fees: Deductible, But Classification Matters
Fees paid for accounting, legal, consulting, and advisory services remain deductible when they relate to business operations. However, the IRS increasingly distinguishes between business services and personal services.
Poor categorization, such as lumping everything into “miscellaneous,” can weaken deductions and complicate audits.
Planning insight:
Use clear, consistent categories in your books. “Professional fees” tied to business activity are defensible; vague descriptions are not (see IRS Publication 334).
The Real Shift in 2026: How Deductions Are Reviewed
The most important change in 2026 isn’t a new deduction, but it’s how deductions are evaluated.
The IRS increasingly expects:
- Digital records
- Consistent expense categorization
- Documentation created at or near the time of the expense
Reconstructing records months later is far less effective.
Planning insight:
Strong bookkeeping isn’t just administrative, it’s protective. Good records defend deductions you’re already entitled to claim.
Why This Matters for Small and Mid-Sized Businesses
Growing businesses often juggle:
- Increasing payroll
- Larger equipment investments
- More complex ownership and tax structures
That makes deduction planning a year-round exercise. Businesses that plan early retain more control over cash flow, reduce surprises, and make better decisions with confidence.
What to Focus on in 2026
As the year progresses:
- Track mileage and expenses consistently
- Coordinate equipment purchases with tax planning
- Review payroll and owner compensation annually
- Revisit retirement strategies as income changes
- Schedule a mid-year tax check-in
For small and mid-sized business owners, deductions aren’t about finding loopholes; they’re about using the rules correctly and intentionally. If you want to turn deductions into strategy rather than stress in 2026, proactive planning is the difference. We are here to help!