February marks a critical time for small business tax planning. With the 2025 tax year behind us and filing season in full swing, business owners face important decisions that will affect both their current tax obligations and their financial health throughout 2026. Recent tax law changes under the One Big Beautiful Bill Act have created both new opportunities and fresh complexities that demand attention now, not when April 15 approaches.
Whether you’re preparing your 2025 return or strategizing for the year ahead, understanding the latest tax developments can save thousands of dollars while positioning your business for sustainable growth. This comprehensive guide explores the key tax strategies, deductions, and planning opportunities every small business owner should consider this February.
Major Tax Changes Affecting 2026
The One Big Beautiful Bill Act Impact
Recent tax reforms have created welcome relief for small businesses through the One Big Beautiful Bill of 2025, which averted a major tax hike and introduced long-term incentives that can help small businesses invest and grow. Understanding these changes is essential for effective tax planning.
Qualified Business Income (QBI) Deduction Now Permanent: The QBI deduction, which allows pass-through entities to deduct 20% of their business income, becomes permanent, with a minimum deduction of $400 established for taxpayers with at least $1,000 in QBI. This permanence fundamentally changes the comparison between being taxed as a C corporation versus a pass through entity.
Expanded SALT Deduction: The deduction limit for state and local taxes increases from $10,000 to $40,000 in 2026 and will continue to rise by 1% annually through 2029. This change particularly benefits businesses in high tax states like New York, California, New Jersey, and Connecticut.
Enhanced Depreciation Benefits: The OBBBA revives and makes permanent the 100% bonus depreciation deduction for many categories of equipment and restores immediate expensing for domestic Research and Experimentation costs with some retroactive relief. This makes equipment purchases and capital investments significantly more attractive from a tax perspective.
New Employee Tax Benefits
Two significant new deductions affect how employers must track and report compensation:
Tips Deduction: Qualified tip income deduction allows up to $25,000, phased out at $150,000 modified adjusted gross income for single filers and $300,000 for joint filers. This requires employers to separately report qualified tips on Form W-2.
Overtime Deduction: Qualified overtime compensation deduction provides up to $12,500 for single filers and $25,000 for joint filers, phased out at $150,000 MAGI for single filers and $300,000 for joint filers. Employers must separately report qualified overtime compensation to workers on Form W-2 or 1099-NEC.
The new deductions for tips and overtime mean that accurate employer timekeeping and payroll reporting will be more important than ever before. Businesses should verify their payroll systems can properly track and report these categories.
Critical Tax Strategies for February 2026
Review Your Business Entity Structure
Entity structures should evolve as the client’s income, ownership roles, and business activities change, and a 2026 review ensures that each entity still provides the right mix of liability protection, tax efficiency, and state level advantages under OBBBA era rules.
Consider whether your current structure (sole proprietorship, partnership, S corporation, or C corporation) still aligns with your facts, including W-2 compensation versus distributions for S corporation reasonableness, whether you should retain or restructure to allow the more liberalized Section 1202 for C corporation structures, and how state level tax treatment affects your overall burden.
For many growing businesses, 74% of small business owners are optimistic about their company’s outlook for 2026, making this an ideal time to ensure your entity structure supports your growth plans rather than hindering them.
Maximize Equipment and Technology Investments
With 100% bonus depreciation restored, February presents an excellent opportunity to plan capital investments for the year ahead. Through 2026, businesses can deduct 100% of qualifying equipment purchases in the year of purchase rather than spreading the deduction over several years.
This applies to computers, software, machinery, vehicles used for business, furniture and fixtures, and certain building improvements. Section 179 expensing limits are also significantly higher for smaller businesses beginning in 2026, making the timing of capital expenditures a powerful tax lever again.
Consider front loading equipment purchases that you’ll need during 2026 to maximize current year deductions and improve cash flow. The professional tax advice team at Pro Tax Return can help you model the tax impact of different purchase timing scenarios.
Optimize Pass Through Entity Elections
For businesses in high tax states, Pass Through Entity (PTE) elections offer significant planning opportunities. Making a PTE election can allow you to absorb more of the $40,000 annual SALT cap through other taxes while paying the remainder through the PTE strategy.
The mechanics work by having your business entity pay state income tax at the entity level, which creates a federal business deduction while also generating a state tax credit for owners. This effectively circumvents the $40,000 SALT cap limitation on individual returns.
Consider asking your tax professional to model the entity level tax deduction, owner credits, resident and nonresident treatment, estimated tax timing, and interaction with apportionment and composite filings.
Update Withholding and Estimated Payments
Because many OBBBA changes began in 2025 and carry into 2026, many taxpayers will have mismatches between what their payroll department withheld and what the law now allows. This creates both opportunities and risks that demand immediate attention.
For business owners taking W-2 compensation, update your Form W-4 to reflect new OBBBA deductions, SALT treatment changes, and investment income changes. For pass through owners making estimated tax payments, align safe harbor estimated tax planning with pass through income volatility to avoid both overpayment throughout the year and underpayment penalties.
Industry Specific Considerations
Technology and AI Adoption Benefits
Small businesses are shifting from testing artificial intelligence to embedding it into daily operations, with AI now supporting smarter, data driven decisions across core business functions from payroll analytics and recruiting automation to workforce planning and performance management.
Technology investments qualify for bonus depreciation, and there’s a huge opportunity in 2026 for small businesses to boost productivity through AI adoption, which ultimately supports a faster growing economy. Software development costs, cloud computing infrastructure, and AI tool subscriptions can all be properly categorized for maximum tax benefit.
Healthcare and Employee Benefits
For taxable years beginning after December 31, 2025, the percentage of qualified childcare expenditures eligible for the employer provided childcare credit will increase from 25% to 40% (50% for eligible small businesses) and the annual maximum credit amount from $150,000 to $500,000 ($600,000 for eligible small businesses).
This makes employer provided childcare significantly more attractive as both an employee benefit and tax strategy. Contribution limits in 2026 rise to $4,400 for individual HSAs and $8,750 for family coverage, while the health FSA limit increases to $3,400 and the dependent care FSA is $7,500 per household.
Businesses offering qualified health coverage may also be eligible for the Small Business Health Care Tax Credit, which helps offset the cost of premiums. The more you contribute to employees’ healthcare, the bigger the deduction you receive.
Verify Payroll Compliance
Major vendors expect a 10% to 15% increase in the complexity of returns for the 2026 tax season because of the OBBBA’s layered provisions and the need to prove eligibility for new deductions and credits.
Confirm your payroll systems are properly tracking qualified tips and overtime if applicable, correctly classifying workers as employees versus independent contractors, calculating and withholding payroll taxes accurately, and ready to generate required year end forms with new reporting requirements.
Payroll errors can be costly, and the new tip and overtime deductions add complexity that requires verified system capability.
Common Tax Planning Mistakes to Avoid
Waiting Until Tax Season
The biggest mistake business owners make is treating tax planning as an annual event that happens during tax season. Quarterly tax planning serves as your business’s financial health check up, and instead of scrambling during tax season, regular monitoring helps you make proactive decisions that can significantly impact your bottom line.
Tax planning should be a year round activity with quarterly reviews and strategic adjustments based on actual performance versus projections.
Ignoring Entity Structure Implications
Many business owners establish their entity structure when starting their business and never revisit it, even as circumstances change dramatically. Entity structures should evolve as your income, ownership roles, and business activities change.
A structure that worked when you were a solo freelancer making $50,000 might be completely wrong when you’re running a $500,000 business with employees. Review your structure annually to ensure it still serves your needs.
Missing Documentation Requirements
The IRS increasingly requires substantial documentation for deductions and credits. The need for the IRS to interpret and implement an act as comprehensive as the OBBBA will cause delays at the agency, lead to an increase in notices, and likely result in a higher rate of clarifying regulations and definitions than in an average tax year.
This means documentation standards will be more stringent. Maintain detailed records for vehicle mileage, business meals and entertainment, home office usage, equipment purchases and their business use percentage, travel expenses, and contractor payments.
Missing documentation can turn legitimate deductions into rejected claims during an audit.
Looking Ahead: Strategic Considerations for 2026
Economic Environment
Analysts expect U.S. growth to slow to about 1.6 percent in 2026, with inflation easing toward 3 percent and unemployment rising slightly to 4.5 percent, while elevated interest rates continue to limit borrowing.
This economic environment requires careful cash flow management and strategic timing of income and expenses. Interest rates will likely hold stable for at least the first half of the year before declining in Federal Reserve interest rate targets, affecting borrowing decisions for expansion and equipment purchases.
Tariff Considerations
Current tariff levels remain significantly elevated (eight to 10 times higher than at the start of 2025) and are contributing to ongoing inflation and supply chain pressure. Businesses relying on imported goods or materials should model different tariff scenarios and consider alternative sourcing strategies.
If the Supreme Court strikes down the President’s authority under the International Emergency Economic Powers Act, businesses that paid tariffs may be eligible for refunds, although the process remains unclear. Some businesses are already filing challenges to tariffs paid in anticipation of potential refunds.
Workforce and Labor Trends
Talent competition remains intense, with businesses continuing to compete fiercely for skilled employees, especially in healthcare, technology, and logistics, while candidates continue to value flexibility, career growth, and positive culture over salary alone.
This affects tax planning through employee benefit design, retirement plan structures, and compensation strategies. Using tax advantaged benefits like HSAs, retirement contributions, and childcare assistance can attract talent while reducing overall tax burden.
Professional Partnership: The Pro Tax Return Advantage
Navigating these complex tax changes while running your business can be overwhelming. That’s where professional support makes the difference between missing opportunities and maximizing your tax position.
Pro Tax Return provides small businesses with expert tax preparation and planning services through accredited accountants who specialize in business taxation. Rather than navigating DIY software or paying premium prices for traditional CPA firms, Pro Tax Return offers the perfect balance of professional expertise, convenience, and value.
Comprehensive Service Tiers
Pro Tax Return structures services in three clear tiers to match your business complexity:
Standard: For straightforward business situations with basic W-2 income and simple deductions under $250,000 in taxable income.
Premier (Best Value): For growing businesses with employees, investments, property ownership, and moderate complexity. Includes Schedule C support for small business and self employment income.
Gold: For established businesses with self employment income over $100,000, rental properties, partnership distributions, farming income, and sophisticated tax situations requiring comprehensive expertise.
Every tier includes professional preparation by accredited accountants, e-filing with tax authorities, error guarantees covering any fines or interest from preparation mistakes, and maximum refund guarantees ensuring you get every dollar you deserve.
Expert Guidance When You Need It
Beyond standard preparation, Pro Tax Return offers professional one on one tax advice consultations for strategic planning. These confidential sessions by phone or video call provide expert guidance on entity structure decisions, equipment purchase timing, employee benefit design, multi state tax obligations, and any other complex tax situations your business faces.
You receive written follow up summaries creating reference documents for implementation and future review.
Fast, Secure, Convenient Process
Pro Tax Return’s completely online process means you can handle everything on your schedule without office visits or time away from your business. Returns can be filed in as little as 48 hours, ensuring fast refunds and meeting tight deadlines.
The secure document portal protects your sensitive financial information while providing convenient access from anywhere. Your dedicated accountant remains available for questions throughout the year, not just during tax season.
Conclusion
February 2026 presents both challenges and opportunities for small business tax planning. The One Big Beautiful Bill Act has created significant new benefits through enhanced QBI deductions, expanded SALT limits, restored bonus depreciation, and valuable new credits for childcare and other employee benefits. However, these opportunities come with increased complexity and documentation requirements.
This is one tax year where taxpayers should strongly consider discussing their tax situation with a tax practitioner or certified public accountant, particularly if expecting to be impacted by one of the OBBBA provisions. When there are new tax provisions or uncertainty about IRS interpretation, careful planning and implementation of tax strategy will pay dividends when filing your 2026 return next year.
The businesses that thrive in 2026 will be those that approach tax planning strategically and proactively rather than reactively. By understanding the new rules, implementing smart strategies, maintaining excellent records, and partnering with qualified professionals, you can minimize your tax burden while positioning your business for sustainable growth.
Don’t wait until tax season to think about taxes. Start your February 2026 tax planning today by reviewing your entity structure, updating your payroll systems, scheduling equipment investments, and most importantly, consulting with tax professionals who understand small business needs.
Visit Pro Tax Return to learn more about professional tax services designed specifically for small businesses, or schedule a consultation to discuss your unique tax situation. With expert guidance, transparent pricing, and comprehensive support, Pro Tax Return helps small business owners achieve tax freedom and focus on what matters most growing their business and serving their customers.
