7 Costly OBBBA Mistakes Small Business Owners Are Making in 2026 (And How to Fix Them)

The One Big Beautiful Bill Act (OBBBA) reshaped the tax landscape for small business owners, with most provisions taking effect for tax year 2025 (returns filed in 2026). If you're still operating under the old rules, you're either overpaying the IRS or setting yourself up for a compliance headache.

Tax season isn't a game of chance. Below are the seven most common OBBBA mistakes we're seeing — and exactly how to fix each one.

1. Missing Out on Permanent 100% Bonus Depreciation

The Mistake

Many business owners still believe bonus depreciation is phasing out. You may be delaying equipment purchases because you think the deduction is shrinking each year — which was true under the prior schedule, but is no longer the case.

The Fix

The OBBBA permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. This covers most machinery, equipment, computers, qualifying vehicles, and certain furniture with a recovery period of 20 years or less.

• Review your capital expenditure plan for the next 12 months.

• Place assets in service before year-end to claim the deduction in the current tax year.

• Confirm each asset meets the "qualified property" definition (generally MACRS property with a recovery period of 20 years or less).

• Document the in-service date — that's the date the asset is ready and available for use, not the purchase date.

2. Overlooking the New $400 Minimum QBI Deduction

The Mistake

You assume the 20% Qualified Business Income (QBI) deduction is unreliable — either because your income is too high, you're in a specified service trade or business (SSTB), or the calculation phases you out entirely.

The Fix

The OBBBA made the 20% QBI deduction permanent and added a $400 minimum deduction for taxpayers with at least $1,000 of QBI from an active qualified trade or business in which they materially participate.

Important: the $400 floor is a backstop for taxpayers whose calculated QBI deduction would otherwise be very small — it is not a workaround for the SSTB phase-out at high incomes. If you're a high-earning SSTB owner above the income thresholds, the existing limitations still apply.

• Confirm you have at least $1,000 of QBI from an active trade or business.

• Document material participation (generally 500+ hours, or one of the other IRS material participation tests).

• Have your preparer run the standard QBI calculation and confirm the $400 floor is applied when it produces a higher result.

• Note: both the $400 floor and the $1,000 QBI threshold are indexed for inflation going forward.

3. Using the Old $600 Reporting Threshold for 1099s

The Mistake

You're still issuing 1099-NEC and 1099-MISC forms at the old $600 threshold, generating paperwork for payments that no longer require reporting.

The Fix

The OBBBA raised the 1099-NEC and 1099-MISC reporting threshold from $600 to $2,000 for payments made after December 31, 2025. The threshold will be indexed for inflation in future years.

• Update your accounting software's 1099 tracking threshold to $2,000.

• Continue collecting W-9s from all contractors regardless of payment size — you won't always know in advance who will cross the threshold.

• Keep complete records of every contractor payment. The expense is still deductible whether or not a 1099 is required.

• Let your contractors know the rule changed so they're not surprised when they don't receive a form for smaller engagements.

4. Failing to Capture the New Tip and Overtime Deductions

The Mistake

You haven't updated your payroll reporting or communicated the new individual deductions available to tipped and hourly employees for tax years 2025 through 2028.

The Fix

The OBBBA created two temporary above-the-line deductions (2025–2028) that employees claim on their individual returns. These are employee-level deductions — they do not change employer payroll tax obligations. FICA, Medicare, and income tax withholding still apply to tips and overtime as they always have.

Tip deduction: Up to $25,000 of qualified tip income per return (same cap for single and joint filers), phasing out for modified AGI above $150,000 single / $300,000 joint. Applies only to occupations that customarily and regularly received tips on or before December 31, 2024.

Overtime deduction: Up to $12,500 single / $25,000 joint of qualified overtime premium pay (the "half" portion of time-and-a-half required under the FLSA), with the same income-based phase-outs.

• Continue full payroll tax withholding on tips and overtime — nothing changes on the employer side.

• Make sure your payroll system separately tracks and reports qualified tips and qualified overtime premium pay on W-2s.

• Educate eligible employees that they can claim these deductions on their personal returns.

• Confirm with your payroll provider that they've updated their reporting to support the new W-2 boxes or codes.

5. Missing the New OBBBA Reporting on Schedule 1

The Mistake

You assume your existing tax software or preparer will automatically handle the new OBBBA deductions correctly. The new tip, overtime, senior, and auto-loan-interest deductions all require specific reporting, and missing them means missing the deduction.

The Fix

The new OBBBA above-the-line deductions are reported on Schedule 1 (Form 1040), with IRS-updated line items and supporting worksheets for 2025 returns. Make sure your preparer is using the most current forms and instructions — the IRS has issued draft and final updates throughout the year.

• Confirm your software vendor has released the 2025 form updates before filing.

• For the tip and overtime deductions, gather W-2 figures showing qualified tip income and qualified overtime premium pay separately.

• Reconcile the amounts on Schedule 1 to the supporting W-2 boxes before submission.

• If you're unsure whether your return is capturing every OBBBA provision you qualify for, ask your preparer to walk through each new deduction line by line.

6. Overlooking the Expanded Employer-Provided Childcare Credit

The Mistake

You assume the employer-provided childcare credit is only for large companies. Small businesses routinely overlook it, even though OBBBA significantly expanded both the credit rate and the annual cap.

The Fix

The OBBBA expanded the Section 45F Employer-Provided Childcare Credit on a two-tier basis:

• Standard businesses: 40% of qualified childcare expenditures, capped at $500,000 per year.

• Eligible small businesses: 50% of qualified childcare expenditures, capped at $600,000 per year.

Both caps are indexed for inflation. "Qualified childcare expenditures" generally include amounts paid to operate a qualified childcare facility, contract with a licensed third-party provider, or fund resource and referral services for employees.

• Determine whether your business meets the "eligible small business" definition for the higher tier.

• Explore contracting with a licensed local childcare provider — you don't need to operate your own facility.

• Document all agreements, payments, and the business purpose of the expenditure.

• Coordinate with your tax advisor to confirm expenses are "qualified" before relying on them for the credit.

7. Using Outdated SALT Cap and Section 179 Limits

The Mistake

You're building 2025 and 2026 projections using the old $10,000 SALT cap and outdated Section 179 limits. Both changed materially under OBBBA.

The Fix

SALT cap: Increased to $40,000 for 2025, with roughly 1% annual increases through 2029, then reverting to $10,000 in 2030. A phase-down applies for taxpayers with modified AGI above $500,000 (also indexed), but the cap does not fall below $10,000 during the elevated period. This is a temporary provision — plan accordingly.

Section 179: Maximum expensing limit raised to $2.5 million, with the phase-out beginning at $4 million of qualifying property placed in service. Both figures are indexed for inflation starting in 2026, so confirm the exact 2026 numbers against the IRS's annual inflation adjustment release before finalizing projections.

• Update your tax projection models with the new SALT cap, and flag the 2030 reversion in any multi-year plan.

• For high-income owners, model the SALT phase-down at the $500K MAGI threshold.

• Coordinate Section 179 and bonus depreciation choices — they interact, and the optimal split depends on your taxable income, state conformity, and future-year projections.

• If you anticipate equipment spend above $4 million, run the phase-out math before committing to purchase timing.

Don't Wait for the Penalty

The IRS failure-to-file penalty is 5% of unpaid tax per month, capped at 25%. Most OBBBA provisions are effective for tax year 2025 (returns filed in 2026), so the time to align your books, payroll reporting, and capital plans is now — not next April.

• Confirm your filing deadlines and extension dates.

• Keep clean digital records of all OBBBA-related expenses, payroll detail, and asset in-service dates.

• Schedule a mid-year books review to make sure your 2025 return captures everything you're entitled to.

Ready to make sure your business is OBBBA-ready?

The team at Wolf Accounting Services helps small business owners translate new tax law into real cash-flow strategy. Contact us today to schedule a books and tax planning review.

This article is for general informational purposes only and does not constitute tax, legal, or accounting advice. Consult a qualified professional regarding your specific situation. Tax law and IRS guidance continue to evolve; figures and form references should be verified against the most current IRS releases before filing.