Mid-Year Business Tax Planning: 5 Changes to Know

Halfway through 2026, most business owners have heard that a major new tax law passed last year. Fewer have had someone walk them through what it actually changes for their business, and even fewer have adjusted their planning to take advantage of it before year-end.

The law, officially the One Big Beautiful Bill Act and rebranded by the IRS as the "Working Families Tax Cuts," rewrote several rules that directly affect how business owners plan for equipment purchases, R&D spending, payroll reporting, and payment processing. The IRS has spent the first half of 2026 issuing guidance on how these provisions actually work in practice. Here's what matters most, and what to do about it before the September 15 estimated tax deadline and year-end close.

1. 100% bonus depreciation is back

The additional first-year depreciation deduction under Section 168(k) has been restored, and the IRS issued interim guidance (Notice 2026-11) on how it applies. If you've been holding off on equipment, vehicles, or other qualifying capital purchases, the math on buying before year-end versus waiting has changed. Talk to us before you finalize any large capital expenditure plans for 2026; the timing of the purchase and the placed-in-service date both matter.

2. R&D and software development costs are fully deductible again

For tax years beginning after December 31, 2024, businesses can once again deduct domestic research and experimental expenditures in the year they're incurred, instead of amortizing them over five years as required under the prior rules. This is a significant change for any business investing in product development, engineering, or internal software and there are transition rules (Revenue Procedure 2025-28) that may allow you to accelerate deductions on costs from recent years. If your business capitalized R&D costs in 2022–2024, it's worth revisiting whether an accounting method change makes sense.

3. The $600 1099-K threshold is gone (for now)

The lower $600 reporting threshold for third-party payment platforms (Venmo, Square, Stripe, and similar) never fully took effect and has been rolled back. Under the current rule, backup withholding and reporting generally only apply once a payee crosses both $20,000 in payments and 200 transactions in a calendar year. If your business processes payments through these platforms, or you have vendors and contractors who do, this significantly reduces the volume of 1099-Ks you'll need to issue or reconcile this filing season.

4. Penalty relief just got automatic

As of July 2026, the IRS replaced the old "First Time Abate" process with a new Automatic Exemption from Penalty (AEP). If your business has a clean three-year filing and payment history, failure-to-file, failure-to-pay, and failure-to-deposit penalties are now waived automatically no request required. This applies to original returns for tax year 2025 and 2026, and quarterly returns (like Form 941) going forward. It's a good moment to check your compliance history, since AEP fully replaces First Time Abate for returns due on or after January 1, 2027.

5. No Tax on Tips and No Tax on Overtime change what you owe your employees and what you report

If you employ tipped or hourly staff who work overtime, these two new deductions affect your employees directly, but they create new reporting obligations for you as the employer. Payroll systems and W-2 reporting need to correctly capture qualifying tip and overtime income so your employees can claim these deductions accurately. If you haven't confirmed your payroll provider has this set up correctly, now is the time before it becomes a scramble at year-end.

If you are looking for a team of tax professionals to help you navigate the complexities of the tax world, visit our website or contact Abell & Advisors today.