OBBBA and your 2026 taxes: What every small business should prepare for now
When it comes to tax deduction news, you've probably heard about OBBBA by now. Maybe from your accountant, maybe from headlines, or maybe from another business owner trying to figure out what it all means.
The One Big Beautiful Bill Act (OBBBA) promises to change how small businesses handle taxes in 2026, and if you're like most owners, you're wondering: what does this actually mean for my business?
The short answer: some of the biggest tax changes since 2017 are coming, and most take effect January 1, 2026. In this blog, we’ll break down the OBBBA changes that matter most to small business expense tracking and compliance, and show you how to get financially organized before the new rules kick in.
Key takeaways
- OBBBA introduces major tax changes for individuals and small businesses starting in 2026.
- Top updates include tax-free overtime, tax-free tips, and updated rules for deductions and business credits.
- Small businesses must adjust recordkeeping, payroll, and expense tracking to stay compliant.
- New rules mean clean documentation matters more than ever for accurate deductions and audit protection.
- Expensify helps businesses stay organized and audit-ready with realtime receipt tracking and automated categorization.
What is OBBBA?
So, what is the One Big Beautiful Bill Act (OBBBA)? It is a sweeping tax reform bill signed into law on July 4, 2025. It updates several parts of the 2017 Tax Cuts and Jobs Act (TCJA), adjusts deduction rules, modifies payroll tax treatment, and expands or clarifies certain business incentives.
Think of OBBBA as a major refresh of TCJA, keeping some provisions, tweaking others, and introducing entirely new tax breaks.
Most OBBBA provisions take effect on January 1, 2026, making 2025 a critical transition year for businesses to prepare their recordkeeping, payroll systems, and expense tracking. The IRS has published detailed guidance on what's changing, which you can review in their official OBBBA provisions overview.
OBBBA isn't just another tax tweak, but a comprehensive restructuring that affects deductions, payroll taxes, credits, and compliance requirements for businesses of all sizes. It represents a legislative effort to simplify and modernize business tax treatment while providing targeted relief for workers and employers, which is great news among all the struggles with small business tariffs.
Who OBBBA affects
OBBBA touches nearly every type of small business structure. If you operate in any of these categories, the new tax changes will impact your 2026 filings:
Sole proprietors: Independent business owners filing Schedule C with their personal returns
Independent contractors and freelancers: Self-employed individuals tracking business expenses and income
LLCs (single- or multi-member): Whether you're taxed as a sole proprietor, partnership, or corporation
S corporations and partnerships: Pass-through entities claiming QBI deductions and business credits
Employers with tipped or hourly workers: Restaurants, salons, hospitality, delivery services, and any business with service workers
Any business claiming deductions or operating expenses: If you write off business costs, OBBBA's updated rules apply to you
The OBBBA bill affects everyone from freelance designers to family-owned restaurants to growing startups with hourly teams.
How OBBBA affects your business taxes in 2026
OBBBA tax changes reach into multiple areas of small business operations. Here's what's shifting and why it matters for your 2026 tax strategy.
Changes to deductions
Several deduction rules get modified or clarified under OBBBA:
Updated QBI deduction rules: The 20% qualified business income deduction for pass-through entities continues but with adjusted phase-out thresholds and documentation requirements
Modified depreciation timelines: Bonus depreciation phase-downs get adjusted, and Section 179 expensing limits remain high for qualifying equipment and property
New or expanded clean-energy incentives: Enhanced credits for electric vehicles, energy-efficient building upgrades, and renewable energy investments
Adjusted interest expense rules: Updated limits on business interest deductions for larger businesses, with clarifications for small firms
These changes mean you'll need to review your depreciation strategies and equipment purchase timing to maximize deductions.
Payroll, withholding, and reporting changes
If you have employees, payroll gets more complex under OBBBA:
Employers must adjust payroll systems to reflect the no tax on overtime and no tax on tips provisions before January 2026
Additional documentation required for certain expense categories to prove deduction eligibility
More rigorous IRS scrutiny expected during the 2026 transition as the agency monitors compliance with new rules
Payroll software, accounting systems, and internal processes all need updates to handle the new tax-free categories correctly.
Increased need for accurate expense tracking
Here's where documentation becomes critical. According to the National Association of Manufacturers, small firms with fewer than 50 employees face regulatory compliance costs of roughly $14,700 per employee per year, significantly higher than larger firms.
OBBBA's new documentation rules make this compliance burden even more impactful for small businesses already stretched thin.
Clean expense tracking isn't optional anymore. It's essential for maximizing deductions and avoiding audit flags under the updated OBBBA requirements.
OBBBA key tax changes small businesses need to know
Let's break down the specific provisions that will affect how you manage payroll, claim deductions, and plan business investments in 2026.
New "no tax on overtime" rule
OBBBA’s meaning for many hourly workers: take-home pay just increased. Overtime wages up to a certain threshold become federally tax-free for employees under this provision. For employers, this creates new responsibilities:
Track overtime hours with precision and maintain detailed documentation for IRS reporting
Separate regular hours from OT hours in payroll systems to apply the correct tax treatment
Update payroll software before January 2026 to handle the new calculations automatically
This change primarily benefits businesses with hourly workers like construction companies, retail stores, healthcare facilities, and manufacturing operations.
"No tax on tips" for service workers
If you operate a restaurant, salon, delivery service, or any business where employees receive tips, the no tax on tips provision matters. Tips below a specified threshold are no longer subject to federal income tax, though employers must still:
Maintain accurate tip reporting for compliance purposes
Document tip income properly even though it's not federally taxed
Update payroll processes to distinguish taxed wages from tax-free tip income
This provision affects the hospitality industry most directly but also impacts any service business where tipping is customary.
Updated TCJA provisions for small businesses
OBBBA keeps many TCJA benefits alive while adjusting the details:
Section 179 expensing limits stay high: Small businesses can still immediately expense significant equipment purchases rather than depreciating them over years
Bonus depreciation phase-down adjusted: The scheduled reduction in bonus depreciation rates gets modified, affecting when and how you time major purchases
QBI deduction updated: The OBBBA QBI deduction maintains the 20% pass-through benefit but with refined rules for 2026 and beyond
These provisions directly impact small business tax deductions and equipment purchase strategies.
Corporate and pass-through business adjustments
The OBBBA corporate tax rate and pass-through rules include:
Modified C-corp tax treatment with clarified rates and thresholds
Updated thresholds for small business expensing affecting what qualifies for immediate deduction
Clarifications for partnership and S-corp reporting to reduce confusion around basis, distributions, and deductions
If you're structured as an S-corp or partnership, these changes affect how you calculate and report income.
R&E expense treatment changes
Research and experimental expenses got complicated under TCJA. OBBBA modifies the amortization rules that frustrated many tech startups and product-focused businesses:
Faster deduction options for qualifying R&E expenses
Simplified treatment that reduces the administrative burden for small businesses investing in innovation
Clearer definitions of what qualifies as R&E spending
If your business invests in product development, software creation, or process improvements, the R&E expenses changes could save significant tax dollars.
Clean energy tax credit enhancements
OBBBA expands and clarifies clean energy tax credits for businesses investing in sustainability. These credits work alongside other investment incentives like qualified opportunity zone programs to encourage strategic business investments:
Electric vehicle credits for companies upgrading delivery fleets or company vehicles
Energy-efficient building upgrades like improved HVAC systems, insulation, or solar installations
Equipment and facility improvements that reduce energy consumption
These credits make green investments more financially attractive for small businesses looking to reduce operating costs and environmental impact.
How OBBBA differs from TCJA
The Tax Cuts and Jobs Act was passed in 2017 with many provisions set to expire in 2025. OBBBA essentially renews, replaces, or modifies several of those expiring provisions while introducing new elements. Understanding what is TCJA versus OBBBA helps clarify what's actually changing.
Key differences between TCJA and OBBBA:
New payroll tax exclusions: TCJA didn't include the no-tax-on-tips or no-tax-on-overtime provisions; these are entirely new under OBBBA
Updated business deductions: While TCJA created the QBI deduction, OBBBA refines its rules and thresholds for 2026 forward
New credit structures: OBBBA expands and clarifies energy credits beyond what TCJA offered
Modified compliance and reporting requirements: Documentation standards get stricter under OBBBA, particularly for new tax-free categories
TCJA focused heavily on lowering rates and simplifying structures. OBBBA maintains those benefits while adding targeted breaks for specific worker categories and business investments. The IRS provides additional context in their OBBBA deductions overview.
Preparing now for 2026 tax filings
According to the Tax Foundation, small businesses spend an average of 48 hours each year on federal tax compliance alone. The OBBBA tax changes for 2026 will likely increase that burden unless you prepare now. Here's your OBBA preparation checklist:
Update your chart of accounts:
Create separate categories for overtime wages, tip income, and other newly tax-free items
Align categories with OBBBA's new deduction structures
Make sure your accounting software can handle the new classifications
Separate OT and non-OT wage categories:
Modify payroll systems to distinguish regular hours from overtime
Ensure time-tracking tools capture the data you'll need for compliance
Test new payroll calculations before January 2026
Review your 2025 purchase strategy:
Consider timing major equipment purchases to maximize Section 179 benefits
Evaluate whether accelerating or delaying certain investments makes sense under OBBBA business tax changes
Consult with your CPA about depreciation strategies
Digitize receipts and ensure clean documentation:
Move to digital receipt capture if you're still using paper systems
Implement consistent categorization for all business expenses
Create audit trails that satisfy OBBBA's stricter documentation requirements
Clean up vendor, expense, and payroll systems before January 2026:
Verify all vendor information is current and accurate
Review expense policies to ensure they align with new deduction rules
Update employee classifications and compensation structures as needed
Getting organized now prevents a scrambled rush when 2026 filings approach. Improving cash flow through better expense management also becomes easier when your systems are OBBBA-ready.
How Expensify helps small businesses stay OBBBA-compliant
OBBBA signed into law means new compliance requirements are coming fast. Expensify helps small businesses adapt to the changing rules without adding administrative burden.
Realtime documentation
Clean records start with capturing expenses as they happen:
Auto-scanned receipts: Snap photos of receipts with your phone, and Expensify's SmartScan technology extracts vendor, date, amount, and category details automatically
Digital audit trails: Every expense gets timestamped and stored with full documentation
Category mapping to your chart of accounts: Connect Expensify categories directly to your accounting system so expenses flow to the right places
Supports accurate deduction claims under OBBBA: Clean categorization means you can confidently claim every eligible deduction when the new rules take effect
Track reimbursable expenses cleanly
Whether you're a sole proprietor tracking personal business expenses or managing a team, Expensify handles:
Meals, travel, supplies, mileage, and more: All common business expenses in one platform
Useful for sole proprietors and SMB teams: Scales from individual self-employed expense tracking to team-wide small business expense management
Policies and automation to reduce risk
Manual expense management creates compliance gaps. Automation closes them:
Realtime alerts for missing receipts: Employees get notified immediately when documentation is incomplete
Automated categorization: Expenses get sorted based on merchant, amount, and policy rules
Approval workflows: Route expenses through proper channels before reimbursement or payment
Export-ready reports for your CPA or tax software: Generate clean reports that integrate directly with QuickBooks, NetSuite, Xero, and Sage Intacct
Never miss a deduction
As OBBBA’s key changes roll out in 2026, Expensify ensures nothing slips through the cracks by keeping all business expenses organized in realtime. Every receipt captured, every mile logged, and every business purchase tracked becomes a potential deduction, properly documented and audit-ready.
FAQs about OBBBA and how it affects small businesses
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OBBBA stands for the One Big Beautiful Bill Act (OBBBA), a comprehensive tax reform bill signed into law on July 4, 2025. It updates the 2017 Tax Cuts and Jobs Act (TCJA) with new deduction rules, payroll tax changes, and business incentives that take effect in 2026.
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When does the One Big Big Beautiful Bill Act go into effect? Most OBBBA provisions take effect on January 1, 2026, making them applicable to your 2026 tax year and filings submitted in 2027. Some provisions may have delayed implementation timelines, so check IRS guidance for specific dates.
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All small businesses will feel OBBBA's effects, but the biggest impacts fall on businesses with hourly or tipped employees (due to the new tax-free overtime and tips rules), pass-through entities claiming QBI deductions, and companies making significant equipment or energy investments.
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OBBBA creates new tax-free categories for overtime wages and tip income up to specified thresholds. Employers must track these categories separately, adjust withholding calculations, and maintain detailed documentation for IRS reporting. Payroll systems need updates before January 2026.
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Yes, but with limits. Overtime wages and tip income below certain thresholds become federally tax-free for employees under OBBBA. However, employers still must track and report these amounts, and state tax treatment may differ. Check with your tax advisor about specific thresholds and state rules.
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OBBBA modifies QBI deduction thresholds, adjusts bonus depreciation phase-down schedules, updates R&E expense treatment, and expands clean energy credits. Section 179 expensing limits remain high, but documentation requirements get stricter across most deduction categories.
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Start by updating your chart of accounts to accommodate new categories, reviewing your payroll system's capabilities, digitizing receipt capture, and consulting with your CPA about timing major purchases. The sooner you adapt your systems, the smoother your 2026 transition will be.
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Both entity types benefit from OBBBA provisions, but the specific impacts depend on how your LLC is taxed. Single-member LLCs taxed as sole proprietors follow individual rules, while multi-member LLCs taxed as partnerships have different reporting requirements. The OBBBA QBI deduction applies to both but with entity-specific calculations.
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Yes. OBBBA adjusts bonus depreciation phase-down schedules, maintains high Section 179 limits, and expands clean energy tax credits. These changes affect when and how you claim deductions for equipment purchases, building improvements, and energy investments.
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Maintain clean, organized records for all business expenses. Use digital receipt capture to create audit trails, categorize expenses consistently according to OBBBA rules, and ensure your payroll system correctly handles new tax-free categories. The IRS will scrutinize compliance during the 2026 transition, so documentation quality matters more than ever.
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TCJA stands for the Tax Cuts and Jobs Act, a major tax reform bill passed in 2017. It lowered corporate and individual tax rates, created the QBI deduction for pass-through entities, modified depreciation rules, and changed numerous other tax provisions. Many TCJA provisions were set to expire in 2025.
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Many TCJA provisions were scheduled to expire at the end of 2025. OBBBA extends, modifies, or replaces many of these expiring provisions, effectively preventing a return to pre-2017 tax rules for most small businesses. Some TCJA elements continue unchanged under OBBBA, while others get updated with new thresholds and requirements.
Stay organized and audit-ready with Expensify
OBBBA brings some of the biggest tax changes in almost a decade. Clean records will be essential for maximizing deductions and staying compliant in 2026. Expensify helps small businesses track receipts, categorize expenses, and prepare accurate financial records, all in realtime.
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