Small Business Tax Planning in 2026
Gerri Detweiler
Education Consultant, Nav
Robin Saks Frankel
Senior Content Editor
Summary
- When most people think of taxes, filing season, which runs from January to April 15th comes to mind.
- Tax planning, however, is a year-round process that can reduce your tax burden, improve cash flow, and prevent unwanted financial surprises.
- In this guide, we’ll dive deep into how to determine the ideal tax setup for your business, the most significant tax-saving levers, and a practical checklist that is sure to come in handy throughout the year.
Editorial note: Our top priority is to give you the best financial information for your business. Nav may receive compensation from our partners, but that doesn’t affect our editors’ opinions or recommendations. Our partners cannot pay for favorable reviews. All content is accurate to the best of our knowledge when posted.
Start with the right tax setup
Choosing an appropriate tax setup for your business is the first step to smart tax planning. Here’s a breakdown of the various options available and when each one makes sense:
How it’s taxed | Self-employment tax impact | Complexity | Best for | |
Sole proprietorship | Taxed at your personal income tax rate | You pay self-employment taxes on your business profits | Very easy to form with minimal paperwork | Freelancers, solopreneurs, and low-risk business owners |
Partnership | Income passes through to partners and is taxed at their personal tax rates | Each partner pays self-employment taxes on their portion of the business profits | More complex than a sole proprietorship but easier than an LLC, S-Corp, and C-Corp | Businesses with multiple owners |
Limited liability corporation (LLC) | Single-member LLCs are taxed like sole proprietorships and multi-member LLCs are taxed like partnerships by default; an LLC can choose to be taxed like an S-Corp or C-Corp | Single-member and multi-member LLCs taxed as a sole proprietorship or partnership only pay self-employment taxes on their profits; those who choose to be taxed as an S-Corp may avoid self-employment taxes on a portion of their income | Fairly easy to form as it offers flexibility but is subject to state-specific requirements | Startups, entrepreneurs, and small business owners who want to limit personal liability |
S-Corp | Since it’s a pass-through entity, it doesn’t pay federal income taxes; instead you pay taxes on your share of business income, not whether you actually take it out | An S-corp election can reduce self-employment tax exposure on some earnings in certain cases, but it requires payroll, reasonable compensation, and added admin cost — talk to a tax professional | More complex with significant paperwork | Small business owners who want to save on self-employment taxes |
C-Corp | The company itself pays income taxes on its profits; shareholders also pay taxes when dividends are distributed to them | No self-employment taxes as employees are not considered self-employed | Most complex and formal setup that comes with extensive regulatory requirements | Larger businesses or those looking to scale significantly |
Choose the right business structure
No matter your situation, business structure is important as it can impact your finances, opportunities, and long-term plans. It’s even more meaningful if:
- You hope to save on taxes. While you may owe self-employment taxes as a sole proprietorship, you might be able to reduce your tax burden by becoming an S-Corp, for example.
- You want to protect your personal assets. LLCs and corporations safeguard your home, vehicles, and other personal belongings from business liabilities and are particularly beneficial if you’re in a high-risk industry.
- Your business has multiple partners. Unless you’re flying solo, choosing an LLC, S-Corp, or partnership can establish clear rules on ownership, profit sharing, and more.
- Your goal is to scale and attract investors: A C-Corp is likely the way to go if you want to raise capital and/or eventually go public.
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When should you consider an S-corp election
For many entrepreneurs and small business owners, an S-Corp is a smart choice. These questions can help you determine whether this business structure is worth considering:
- Do you have the additional funds?: As an S-Corp owner, you’ll need to cover formation expenses, an owner salary, payroll processing, payroll taxes, state annual fees, and other costs.
- What is your taxable income? Some advisors suggest that an S-corp election may make sense once net profits reach a certain level, but the right threshold depends on payroll requirements, state taxes, and administrative costs.
- Is your cash flow consistent? With an S-Corp, you’ll need to maintain reliable cash flow to put towards payroll expenses.
- Do you plan to bring on investors or partners? S-Corp structures come with limitations, such as no more than 100 U.S. shareholders and only one stock structure.
How to build a tax deadline calendar
It’s all too easy to miss important tax deadlines, especially if you’re a busy business owner with a lot on your plate. That’s why a calendar that clearly outlines every tax deadline and what you need to do to meet each one can be a real lifesaver.
Here’s an example of a small business tax calendar you could use as a starting point:
Deadline | What it’s for | Who it applies to | What to prepare |
March 15 | Business income tax returns | Partnerships, LLCs taxed as partnerships, S-Corps, LLCs taxed as S-Corps | Financial records, IRS Form 1065 if you’re a partnership or taxed as one or IRS Form 1120-S if you’re an S-Corp |
April 15 | First quarter estimated tax payment | Business owners who owe self-employment taxes or need to make estimated tax payments | Projected first quarter income; IRS Form 1040-ES |
April 15 | Business income tax returns | C-Corps, LLCs taxed as C-Corps, sole proprietors | Financial records, IRS Form 1120 if you’re a C-Corp or an LLC taxed as a C-Corp or IRS Form 1040 (Schedule C) if you’re a sole proprietor |
June 15 | Second quarter estimated tax payment | Business owners who owe self-employment taxes or need to make estimated tax payments | Projected second quarter income; IRS Form 1040-ES |
September 15 | Third quarter estimated tax payment | Business owners who owe self-employment taxes or need to make estimated tax payments | Projected third quarter income; IRS Form 1040-ES |
January 15 | Fourth quarter estimated tax payment | Business owners who owe self-employment taxes or need to make estimated tax payments | Final projections for the year; IRS Form 1040-ES |
Deductions that reduce taxable income
A deduction is an expense you subtract from your business income before you calculate taxes.
If your business earns $100,000 per year, for example, and you claim $30,000 in deductions, you’ll only be taxed on $70,000.
By claiming all the deductions that apply to you, you can minimize your tax burden and keep more of your hard-earned money. This table outlines common small business deductions that are worth exploring:
Deduction | How it works |
Startup expenses | If you started a new business in 2025, you may be able to deduct up to $5,000 in startup costs for marketing, training, travel, and more. |
Section 179 | You can deduct up to $2.56 million in qualified equipment, technology, and infrastructure purchases up from $1.25 million in 2025. See IRS guidance on Section 179 limits and phase-outs. |
Home office | You deduct $5 per square foot of your home that’s used for a home office, up to 300 square feet as long as your office is a defined space that’s solely used for business purposes and where your clients meet or perform admin work. |
Qualified business income (QBI) | If you own a sole proprietorship, partnership, S corporation, or a specific type of trust or estate, you may be able to deduct 20% of your business income. |
Travel expenses | You can deduct travel-related business expenses like airfare, hotel accommodations, and meals as long as the trip is necessary for your business and it takes you away from where your company operates for longer than a typical workday. |
Business mileage and vehicle use | If you use a vehicle(s) for your business, you may write off ownership and maintenance costs plus claim mileage by deducting the actual miles traveled for business purposes or by using the 2026 standard mileage deduction of $0.725 cents per mile driven (mileage updates every year). |
Business insurance | You may deduct the premiums for a number of business insurance policies, such as commercial auto insurance, general liability insurance, and even self-employed health insurance. |
Depreciation for long-term business investments | If you buy big ticket items for your business, such as vehicles, equipment, buildings, and furniture, you may deduct depreciation, which is the total cost of the asset divided by its useful lifetime. |
Business meals | You can deduct 50% of your food and drink purchases that are related to your business as long as you have the date and location of every meal, business relationship of the person or people you dined with, and the total cost of the meal. |
Phone and internet expenses | If you use the phone and internet for your business and personal reasons, you may be able to deduct the percentage of that cost that goes towards your business use, such as 50%, for example. |
To claim any deductions when you submit your business tax return, you’ll need to keep records of your expenses. These may be in the form of receipts, invoices, bank and credit card statements that show proof of payment, and mileage logs. Be sure to keep these records for a few years as you might need them in the event of an audit.
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Tax credits to explore
While a tax deduction reduces the amount of income your business is taxed on, a tax credit is a dollar amount that’s subtracted from the taxes you owe. For example, if your tax bill is $100,000, a $20,000 credit would decrease it to $80,000.
Refundable tax credits allow you to receive money back if the credit exceeds the taxes you owe, while nonrefundable credits do not. Here’s a look at some of the most common tax credits you might want to look into:
Tax credit | How it works | Form required to claim it |
Employer health insurance premiums | If you provide health insurance for your employees, have fewer than 25 full-time equivalent (FTE) employees for the tax year, and pay annual wages of less than $66 per FTE, you may collect a credit of up to 50% of the premiums you paid. | IRS Form 8941 |
Paid family and medical leave | You may qualify for this tax credit of 12.5% to 25% of wages paid if you provide employees with at least two weeks of paid family and medical leave at a minimum of 50% of their normal wages. | IRS Form 8994 |
Employer-provided childcare services | If you help cover childcare costs for your employees, you might be eligible for a credit worth 25% of employee childcare expenses plus 10% for childcare referral and resource fees. | IRS Form 8882 |
Work opportunity | You might qualify for credits of up to $9,600 if you hire employees who have faced challenges, such as unemployed veterans and ex-felons. | IRS Form 5884 |
Commercial clean vehicles | If your business invests in commercial clean vehicles with a battery capacity of at least 15 kilowatt hours and external charging capabilities, you can claim a tax credit of up to $40,000. | |
Pension plan startup costs | You may claim a credit of $500 or 50% of your startup costs if you start a pension, as long as you have fewer than 100 employees who earn at least $5,000 and have not had a 401(k) or other retirement plan for the past three years. | IRS Form 8881 |
New markets | If you invest in community development entities (CDEs) to support low-income communities and your project is in an area with a 20% poverty rate or median family income that doesn’t exceed 80% of the median area income, you may be eligible for a tax credit. | IRS Form 8874 |
Renewal Community Employment Credit (RCEC) | RCEC offers a tax credit of up to $1,500 per qualified employee per year if your business is located in a Renewal Community area, and you hire local employees that work full-time or part-time. | IRS Form 8844 |
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Types of Taxes Filed
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Retirement plans and benefits planning
As a small business owner, it’s particularly important to plan for retirement since you don’t have an employer taking out regular contributions to a retirement account.
Use this retirement plan comparison to compare your options and zero in on the best option for your unique situation.
Plan type | How it works | Contribution limits | Contribution deadline | Best for |
Traditional or Roth IRA | You contribute after-tax (Roth IRA) or tax-deductible (Traditional IRA) funds to a retirement account that grows tax-deferred or tax-free. | $7,500 per year | April 15 | Those looking for a simple, straightforward retirement plan |
Solo 401(k) | As a self-employed individual or business owner with no employees, you can contribute as both the employer and employee. | $72,000 per year (or $80,000 with catch-up contributions or $83,250 for those ages 60 to 63 | Employee contributions by Dec. 31; employer contributions by April 15 or the tax filing deadline | High-earning self-employed individuals or small business owners who want to maximize retirement savings |
SEP IRA | You can contribute to your own SEP IRA and to accounts you set up for your employees. | $72,000 (or up to 25% of compensation) | April 15 | Self-employed individuals or small business owners who prefer a low-administrative retirement plan |
Simple IRA | Employees contribute through salary deferrals and you make matching or non-elective contributions. | $17,000 with catch-up contributions remaining at $4,000. | Employee contributions by Dec. 31; employer contributions by April 15 or the tax filing deadline | Small business owners with fewer than 100 employees who want an alternative to a 401(k) |
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Estimated taxes and avoiding penalties
If you’re a sole proprietor, partner, S-Corp shareholder, or self-employed individual, the IRS requires you to make quarterly estimated tax payments as long as you meet this criterion:
- You expect to owe at least $1,000 for the tax year, after you subtract federal tax withholding and any refundable tax credits that apply to you.
Additionally, if you’re a corporation that expects to owe at least $500, you may also need to pay quarterly payments.
How to estimate what you owe
There are two ways to estimate your quarterly taxes. You can base them on your previous year earnings or what you expect to earn this year.
To estimate your quarterly tax payments based on projected annual income, follow these steps:
- Project your income: Determine your total annual income, including revenue, investments, and other taxable sources of income.
- Subtract deductions: Deduct the deductions you qualify for to come up with your adjusted gross income.
- Calculate your income tax: Apply the federal income tax to your adjusted income.
- Add self-employment tax: Multiply your net earnings by 92.35% (Social Security and Medicare) and then by 15.3% (self-employment tax rate). This is an illustrative example and may not apply to everyone. For federal estimated tax guidance and to calculate your quarterly payments using Form 1040-ES, see the IRS’s Estimated Taxes page and the About Form 1040-ES resources
- Subtract credits: Reduce the total by the amount you might qualify for in credits.
- Divide by 4: Split the total estimated amount by four to get your quarterly tax amount.
Underpayment pitfalls to avoid
By being mindful of these common mistakes, you can save a lot of time, money, and hassle on your taxes.
- Ignoring seasonal swings: If your business income varies by season, plan for it accordingly through detailed forecasting. You might want to allocate some of your profits during peak season to help cover taxes and other expenses during slower times.
- Not setting aside funds: It’s your responsibility to ensure you have the funds you need to cover your tax bills. That’s why it’s a good idea to put about 30% of your net income in a dedicated savings account.
- Missing state and local tax obligations: In addition to federal taxes, you may owe income and employment taxes on a state and local level. Check your state and local government websites for more details so you can plan accordingly.
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Year-end tax planning checklist
The last quarter of the year is the ideal time to implement year-end strategies, such as the ones listed below, to potentially reduce your tax burden and improve your finances in the long-run.
Time income and expenses
If possible, pay your bills and buy the equipment you need before December 31. This way you can deduct these expenses from your taxable income and save on taxes for the year.
On the other hand, if you expect payments from your customers, you may want to wait until January to invoice them. The income will count for next year and can help lower your tax bill for the current year. This strategy only makes sense if you feel confident you’ll remain in the same tax bracket.
Plan major purchases
If you invest in large purchases, such as property, equipment, or vehicles, you may be entitled to valuable tax deductions and credits. For example, the One Big Beautiful Bill Act (OBBBA) states that qualifying businesses can deduct the entire cost of eligible new and used assets the year they use them. This can lead to significant tax savings.
Make charitable contributions
Through charitable contributions, you can support causes or organizations you believe in, improve your reputation, and even save on taxes as many donations are tax-deductible. If you do decide to give back and itemize, however, keep in mind that starting in 2026, itemizers generally can deduct only the portion of charitable gifts that exceeds 0.5% of adjusted gross income (AGI). Rules and thresholds may change; confirm with IRS guidance.
Depending on your situation, it may make sense to put a few years worth of donations in a Donor-Advised Fund (DAF). This way you may be able to claim a larger deduction under the current tax rules.
Maximize retirement contributions
Contributions you make to certain retirement accounts, such as Traditional IRAs or Solo 401(k)s reduce your taxable income and build your nest egg simultaneously. If possible, contribute up to the maximum allowed for your unique situation so you can take full advantage of the tax savings.
Recordkeeping and documentation best practices
Proper documentation is one of the key aspects of tax planning for small business owners. In many cases, it’s what separates what you “claim” on your return from what the IRS actually “allows.”
These tips can help you improve your documentation efforts:
- Separate personal and business finances: Open dedicated business bank and credit card accounts so you can easily track expenses and avoid confusion.
- Keep everything: Make sure you have easy access to all your invoices, receipts, credit card statements, and any other records that prove your expenses. The IRS recommends you retain them for at least three years.
- Leverage digital tools: Take advantage of accounting software and digital receipt platforms to simplify recordkeeping.
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What does tax planning mean?
The main purpose of tax planning is to reduce the taxable income your business owes and avoid penalties down the road. It can also help manage cash flow and improve overall financial stability.
By planning ahead instead of just “winging it”, you’ll actually be able to reconcile accounts, categorize expenses, and gather the necessary documentation you need to file taxes accurately and on time.
Plus, some tax-saving strategies and deductions may have specific deadlines or requirements that you’ll need to meet before the end of the tax year.
Additionally, being proactive prevents the rush and stress associated with last-minute tax preparations, reducing the risk of errors and ensuring compliance with tax regulations.
Tax changes to watch in 2026
Tax laws change annually and 2026 is no exception. Here’s a breakdown of several noteworthy updates that will likely affect your small business:
- New tax brackets and standard deductions: No matter how you structure your business, you’ll need to file a personal tax return. If you take the standard deduction instead of itemize, note that it has increased to $16,100 for single filers and $32,200 for married couples filing jointly. For the most up-to-date information on tax brackets, visit the IRS website.
- 100% bonus depreciation: Thanks to the OBBBA, you can deduct 100% of the cost of qualifying machinery, equipment, and technology as long as you acquired it after Jan. 19, 2025. This can do wonders for your cash flow and eliminate the need to track depreciation for several years. Confirm with your tax professional before making this deduction.
- Increased retirement contribution limits: The maximum contribution caps for all retirement accounts you might choose as a self-employed individual or small business owner have expanded, meaning you may be able to save more on taxes while stashing away more cash for the future.
When to hire a tax professional
Working with a professional helps you stay up to date on the ever-evolving tax landscape that can significantly impact you as a small business owner.
Whether you have a sole proprietorship, a limited liability company (LLC), an S corporation, or a C corporation, using a tax advisor, CPA, or tax software can help make sure your business taxes are accurate.
It’s a particularly good idea in these situations:
- You have plans to scale rapidly.
- Your business operates in multiple states.
- Your payroll is complex.
- You’ve made a major purchase.
- You’ve changed the way your business is set up.
- You’ve received an audit notice.
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Gerri Detweiler
Education Consultant, Nav
Gerri Detweiler has spent more than 30 years helping people make sense of credit and financing, with a special focus on helping small business owners. As an Education Consultant for Nav, she guides entrepreneurs in building strong business credit and understanding how it can open doors for growth.
Gerri has answered thousands of credit questions online, written or coauthored six books — including Finance Your Own Business: Get on the Financing Fast Track — and has been interviewed in thousands of media stories as a trusted credit expert. Through her widely syndicated articles, webinars for organizations like SCORE and Small Business Development Centers, as well as educational videos, she makes complex financial topics clear and practical, empowering business owners to take control of their credit and grow healthier companies.
Robin Saks Frankel
Senior Content Editor
Robin has worked as a personal finance writer, editor, and spokesperson for over a decade. Her work has appeared in national publications including Forbes Advisor, USA TODAY, NerdWallet, Bankrate, the Associated Press, and more. She has appeared on or contributed to The New York Times, Fox News, CBS Radio, ABC Radio, NPR, International Business Times and NBC, ABC, and CBS TV affiliates nationwide.
Robin holds an M.S. in Business and Economic Journalism from Boston University and dual B.A. degrees in Economics and International Relations from Boston University. In addition, she is an accredited CEPF® and holds an ACES certificate in Editing from the Poynter Institute.