2026 Tax Rates
The One Big Beautiful Bill Act (OBBBA) makes individual income tax rates permanent. Retain current brackets for 2026 filings. Prevents reversion to pre-2018 levels. Rates remain: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Apply these rates to pass-through business income reported on personal returns. Monitor income thresholds for each bracket. Adjust quarterly estimated payments accordingly. Maintain compliance with current withholding standards. Consult the MCG Service tax advisor level 1 for specific bracket placement.
QBI Extension
Section 199A remains permanent. Claim the 20% Qualified Business Income (QBI) deduction. Available for sole proprietorships, partnerships, and S-corporations. Deduction applies to the lesser of 20% of QBI or 20% of taxable income minus net capital gains. Subject to income limitations. Verify eligibility for Specified Service Trades or Businesses (SSTB). Use Form 8995 or 8995-A. Reference maxing out your deductions for QBI optimization.
Standard Deduction
Standard deduction amounts increase for inflation in 2026.
- Single filers: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
Compare total itemized deductions against these figures. Select the higher value. Keep records for medical expenses, mortgage interest, and state/local taxes. Personal exemptions remain at $0. Utilize these figures for small business tax planning.
Bonus Depreciation
Bonus depreciation phases down in 2026. Rate decreases to 40% for qualified property. Affects equipment, machinery, and furniture. Purchase and place assets in service before year-end. Track the phase-down: 100% (pre-2023), 80% (2023), 60% (2024), 40% (2025/2026), 20% (2027). Use Form 4562. Plan capital expenditures around these percentages. Coordinate with payroll set up for asset tracking.
Tip Exemption
New relief for tipped employees. Federal income tax exemption applies to a portion of tip income. Limited to taxpayers in lower brackets. Review IRS Publication 1244. Update point-of-sale systems. Ensure accurate tip reporting. Differentiate between taxable and exempt tips on Form 941. Adjust payroll withholding.
Overtime Relief
OBBBA introduces tax relief for overtime pay. Applicable to hourly workers. Reduces federal income tax liability on earnings exceeding 40 hours per week. Verify eligibility based on income caps. Update payroll software. Provide documentation to employees. Manage through MCG Service payroll services.
Estate Tax
Exemption limits increase. $15 million per person. $30 million for married couples. Indexed for inflation. Critical for family business succession. Review trust documents. Update gift strategies. Avoid future estate tax liability. Consult with a life insurance agent for liquidity planning.
Mileage Rates
2026 standard mileage rates apply.
- Business use: Monitor IRS December announcement for final cents per mile.
- Charitable: 14 cents per mile.
- Medical/Moving: Track current rates.
Keep a contemporaneous log. Document date, miles, destination, and purpose. Use digital tracking apps. Choose between standard rate and actual expenses. Refer to the mobile mechanics guide for vehicle write-offs.
Retirement Limits
Contribution limits increase for 2026.
- 401(k) / 403(b): Confirm current deferral caps.
- IRA: Update annual contributions.
- SEP IRA / SIMPLE IRA: Adjust based on 2026 ceilings.
Maximize employer matching. Reduce taxable income. Implement retirement plans via business consulting services.
Section 179
Expense limits for 2026 increase. Deduction limit: Approx. $1.25 million. Investment limit: Approx. $3.1 million. Apply to new and used equipment. Includes software and certain property improvements. Use to offset 100% of purchase price in year one. Ensure business use exceeds 50%.
Payroll Compliance
Mandatory electronic filing for Form 941. Submit quarterly. File Form 940 annually. Update state unemployment insurance (SUI) rates. Verify employee vs. contractor status. Use MCG Service payroll set up for accuracy.
1099 E-filing
Threshold for paper filing remains low. Electronic filing required for 10 or more information returns. Includes 1099-NEC, 1099-MISC, and 1099-INT. Use the IRS Information Returns Intake System (IRIS). Deadline: January 31 for 1099-NEC. Avoid penalties. Utilize notary and registered agent services for formal documentation.
Health Insurance
Self-employed health insurance deduction remains. Deduct 100% of premiums for yourself, spouse, and dependents. Apply as an adjustment to income. Does not require itemization. Must have net profit from business. Coordinate with life and health insurance providers.
Home Office
Safe harbor rate remains $5 per square foot. Maximum 300 square feet ($1,500). Use simplified method for ease. Alternatively, track actual expenses (utilities, insurance, repairs). Area must be used exclusively for business. Maintain photos of workspace. See the guide to starting your own business.
Business Travel
Per diem rates updated for 2026. Check GSA.gov for specific city rates. Deduct lodging, meals, and incidentals. Keep receipts for expenses over $75. Document business purpose for each trip.
Meals Limits
Business meals deduction set at 50%. Entertainment expenses remain non-deductible. Separate meal costs from entertainment on invoices. Meals provided during employee meetings may be 100% deductible in specific contexts. Review tax advisor level 2 guidelines.
Self-Employment Tax
Social Security wage base increases. 2026 estimate: Check IRS updates for final figure. Tax rate: 15.3% (12.4% SS + 2.9% Medicare). Deduct 50% of self-employment tax on Form 1040. File Schedule SE.
Estimated Tax
Deadlines for 2026:
- Q1: April 15
- Q2: June 15
- Q3: September 15
- Q4: January 15 (2027)
Pay 100% of prior year tax or 90% of current year tax. Avoid underpayment penalties. Use MCG Service tax preparation.
R&D Credit
Amortization rules continue. Research and development expenses must be amortized over 5 years (domestic) or 15 years (foreign). Section 174 compliance required. Review eligibility for the payroll tax credit. File Form 6765.
Audit Red Flags
Maintain strict documentation. Common triggers: excessive losses, high meals/entertainment, home office misuse. Keep digital copies of all receipts. Reconcile bank statements monthly. Use a registered agent service for official IRS correspondence.
