2026 Small Business Tax Deduction Checklist
for Illinois Business Owners
Tax season has a way of sneaking up on business owners who spent the year focused on, well, running the business. This checklist covers the deductions and thresholds that changed or matter most for 2026, with a few notes specific to Illinois businesses along the way. Keep it nearby when you’re organizing records or talking with your accountant.
Vehicle And Mileage
The IRS standard mileage rate for business use of a vehicle is 72.5 cents per mile for 2026, up 2.5 cents from last year. If you drive for charitable purposes, the rate stays at 14 cents per mile (this one is set by statute and rarely changes), and medical or qualifying military moving mileage drops slightly to 20.5 cents per mile.
If you’re using the standard mileage rate for a vehicle you own, you have to choose that method in the first year the vehicle is used for business. After that, you can switch between standard mileage and actual expenses in later years. Leased vehicles are different: once you choose the standard mileage rate for a lease, you’re locked into that method for the entire lease term, including renewals. Keep a mileage log either way. “I drove a lot for work” doesn’t hold up under an IRS inquiry, but a dated log with business purpose does.
Equipment Purchases and Section 179
Section 179 lets you deduct the full cost of qualifying equipment and certain property in the year you buy it, rather than depreciating it over several years. For 2026, businesses can generally expense up to $1.29 million in qualifying purchases, subject to a phase-out once total equipment purchases for the year get large enough (a relevant threshold for larger operations, less so for most small businesses). This covers a wide range of business equipment, machinery, computers, certain software, and qualifying vehicles, though vehicle deductions have their own separate rules and lower caps depending on the type of vehicle.
If you were planning to buy equipment anyway, timing the purchase and placing it in service before year- end can make a real difference in your current-year tax bill.
Retirement Plan Contributions
Funding a retirement plan is one of the few remaining moves that reduces your tax bill while actually building your own net worth rather than just spending money to save on taxes. For 2026, the 401(k) employee deferral limit is $24,500, with an additional $8,000 catch-up contribution available if you’re 50 or older. If you’re between 60 and 63, you may be eligible for an even higher catch-up amount, up to $11,250, if your plan allows it.
If a full 401(k) is more structure than your business needs, a SEP-IRA allows employer contributions up to $72,000 or 25% of compensation, whichever is lower, with minimal administrative overhead. A SIMPLE IRA caps out at $17,000 for 2026 ($18,100 for employers with 25 or fewer employees electing the higher limit) and is a common fit for small businesses that want to offer employees a retirement benefit without the cost of a full 401(k) plan.
Home Office Deduction
If you use part of your home regularly and exclusively for business, you may qualify for a home office deduction, either using the simplified method (a flat rate per square foot, up to a cap) or the actual expense method, which requires tracking a percentage of your actual home costs, mortgage interest or rent, utilities, insurance, and depreciation. “Regularly and exclusively” is the part people trip on. A dining room table that doubles as a kids’ homework station most evenings generally doesn’t qualify, even if you also do your bookkeeping there.
Health Insurance Premiums
Self-employed business owners can often deduct health insurance premiums paid for themselves, a spouse, and dependents, directly reducing adjusted gross income rather than being itemized. The rules differ depending on your entity type, sole proprietor, partnership, or S-corp, so this is one worth confirming with your accountant based on how your business is structured.
The 20% Qualified Business Income Deduction
The Section 199A qualified business income deduction, which allows many pass-through business owners (sole proprietors, partnerships, S-corps) to deduct up to 20% of qualified business income, was made a permanent part of the tax code under recent federal legislation, removing the expiration date that used to create year-end uncertainty. For 2026, the income phase-out range for certain service businesses widened, giving more owners in professional service fields room to qualify for at least a partial deduction even at higher income levels. Whether you qualify, and how much you can deduct, depends heavily on your entity type, industry, and income level, so this is not a do-it-yourself calculation for most business owners.
Illinois-specific: The Pass-through Entity Tax Election
Illinois S-corporations and partnerships have the option to make a pass-through entity tax election, sometimes called the Illinois PTE tax, which lets the business pay Illinois income tax (4.95%) at the entity level instead of passing that liability through to the owners’ personal returns. Owners then receive a credit for their share of the tax paid. Because the federal deduction cap on state and local taxes applies to individuals, not businesses, this election can convert state tax that would otherwise be capped and non- deductible on your personal return into a fully deductible business expense. Illinois made this election permanent as of a late 2025 law change, removing what had been a scheduled expiration. Whether it makes sense for your business depends on your income level and how much state tax you’re already paying, so it’s worth running the numbers rather than assuming it applies to everyone.
Software, Subscriptions, and Professional Services
Business software subscriptions, accounting and bookkeeping fees, legal fees related to business operations, and professional membership dues are generally deductible as ordinary business expenses. These add up faster than most owners realize once you actually total the year’s subscriptions.
Employee Benefits and Education
Contributions to employee retirement plans, health insurance for employees, and certain employee education or training costs are generally deductible business expenses, and they do double duty as a retention tool in a tight labor market.
A Quick Year-End Checklist
Before year-end, it’s worth reviewing your mileage log and making sure it’s current, deciding whether any planned equipment purchases should happen before December 31 to capture the Section 179 deduction, confirming your retirement plan contributions are on track to hit your target for the year, and pulling together documentation for home office and health insurance deductions if they apply to you. None of this needs to be complicated, but it does need to happen before the calendar turns, since several of these opportunities disappear the moment the tax year closes.
Frequently Asked Questions
What is the 2026 standard mileage rate for business use?
72.5 cents per mile, effective January 1, 2026.
How much equipment can I deduct under Section 179 in 2026?
Up to $1.29 million in qualifying purchases, subject to a phase-out at higher total purchase amounts.
Is the 20% qualified business income deduction still available in 2026?
Yes. It was made permanent under recent federal legislation, and the income phase-out range increased for 2026, though eligibility still depends on your entity type, industry, and income.
Should my Illinois business make the pass-through entity tax election?
It depends on your income level and how much state tax you’re paying personally. It can be a meaningful deduction for many S-corp and partnership owners, but it isn’t automatically the right move for every business.
Sources
Internal Revenue Service, “IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile,” IR-2025-128
Internal Revenue Service, Notice 2026-10, standard mileage rates for 2026
Internal Revenue Service, 2026 retirement plan contribution limit announcements
RSM US, “Permanent QBI Deduction Provides Some Tax Planning Certainty”
Wipfli, “Illinois SALT Cap Workaround Now Permanent: Plan Your Tax Strategy”
This article is for general informational purposes and does not constitute tax advice. Deduction eligibility depends on your specific
business structure and facts.
Contact Wright & Associates before making year-end tax decisions.Tax season has a 2026 Small Business Tax Deduction Checklist