This is the government's most generous tax break for business owners — and most people aren't maxing it out.

The federal government created powerful tax incentives to encourage business owners to help employees save for retirement. The result is a category of retirement plans that allow you to fully deduct contributions from your business income. For business owners, these deductions can be enormous — and the 2026 limits are the highest they have ever been.

A business owner contributing $30,000 to a SEP IRA in a 32% federal bracket saves $9,600 in federal income tax alone — before factoring in New York State taxes.

Your 2026 Options at a Glance

Solo 401(k): Employee deferral up to $24,500, total limit up to $72,000. Best for self-employed owners with no full-time employees.

SEP IRA: No employee deferral component, total limit up to $72,000 (capped at 25% of compensation). Best for simple setup and flexible contribution amounts.

SIMPLE IRA: Employee deferral up to $17,000, total limit of $17,000 plus employer match. Best for businesses with up to 100 employees.

Catch-up contributions (age 50+): Additional $8,000 deferral allowed, bringing the total potential limit to $80,000.

Super catch-up contributions (age 60–63): Additional $11,250 deferral allowed, bringing the total potential limit to $83,250. Best for maximum pre-retirement tax sheltering.

The Mandatory Roth Catch-Up Shift

A critical compliance update for 2026: if your prior-year FICA wages exceeded $150,000, any catch-up contributions must be made on a Roth basis (after-tax dollars, no current-year deduction). This removes the immediate tax shield high earners have historically used to stay below key income thresholds like the QBI phase-out. If this applies to you, the planning calculus changes — and needs to be worked through with a CPA before year-end.

How Arman CPA Helps With This

• We identify which plan type fits your income, staff situation, and retirement timeline
• We calculate the maximum deductible contribution specific to your business structure
• We flag the mandatory Roth catch-up requirement before it affects your year-end planning
• We coordinate retirement plan decisions with your overall tax strategy

The IRS allows this. It's completely legal. Almost nobody uses it.

If you have a spouse, children, or parents, the IRS allows you to employ them in your business and deduct their wages as a legitimate business expense. Done correctly, this shifts income from a higher tax bracket to a lower one, and in the case of children under 18, it can eliminate self-employment taxes entirely on those wages.

What the IRS Allows in 2026

The federal standard deduction for a single filer in 2026 is $16,100. By employing a child in a legitimate business capacity — social media management, office cleaning, delivery assistance, bookkeeping support — and paying them up to $16,100, the business owner shifts that income to a 0% federal bracket.

• Children under 18 employed in a parent's sole proprietorship or qualifying partnership are not subject to Social Security or Medicare taxes
• Children under 21 are exempt from Federal Unemployment Tax (FUTA)
• A spouse's wages are subject to income tax withholding but exempt from FUTA in a sole proprietorship
• For a business owner in the 37% federal bracket plus 8.82% New York State, employing a child at $16,100 saves approximately $7,400 in combined taxes on that income

This Only Works If:

• The family member actually performs legitimate, documented work for the business
• The wages paid are reasonable for the role and hours worked
• Proper payroll records, time logs, and W-2s are issued
• The business entity structure qualifies — some corporate structures have different rules

How Arman CPA Helps With This

• We structure the employment arrangement correctly for your entity type
• We run payroll for family employees through TaxDome, keeping records clean
• We ensure the wages and job descriptions can withstand IRS scrutiny
• We document everything so you can defend it confidently if you are ever audited

People either skip this one out of fear or claim it wrong. Both are expensive mistakes.

If you regularly and exclusively use part of your home for business, you can deduct a portion of your housing costs. In New York City, where monthly housing costs frequently exceed $4,000, the potential deduction is significant. The "exclusively" requirement is also where most deductions fall apart.

Two Methods

The simplified method gives you $5 per square foot, capped at 300 square feet ($1,500 maximum). Low documentation burden, no depreciation recapture risk. Preferred for its audit resistance.

The regular method lets you deduct the business-use percentage of rent or mortgage interest, utilities, insurance, and home depreciation. For a New York business owner paying $3,500 per month using 15% of the space exclusively for business, the regular method yields approximately $6,300 per year — far exceeding the simplified cap.

However, the regular method requires meticulous documentation and triggers depreciation recapture when the property is sold. For homeowners planning to sell, this downstream cost must be factored into the decision.

The NYC Exclusivity Trap

In New York City, where space is at a premium, the IRS "exclusive use" standard is a frequent audit trigger. A desk in a corner of a guest room that doubles as personal storage does not qualify. The space must be used for business purposes only — nothing else. For S-Corp owners, the home office deduction works through a different mechanism (accountable plan reimbursement) than for sole proprietors, and the structure must be set up correctly to capture the deduction.

How Arman CPA Helps With This

• We evaluate which method produces the larger deduction for your specific housing costs
• We make sure S-Corp owners capture this through the correct reimbursement structure
• We maintain the documentation trail that makes this deduction defensible

If you're driving for your business and not tracking miles, you're leaving real money on the table.

If you use a vehicle for business, those miles are deductible. The 2026 standard mileage rate is 72.5 cents per business mile — a 2.5-cent increase over 2025. For a business owner driving 20,000 business miles per year, that is $14,500 in deductions before you consider any equipment purchases.

Standard Mileage vs. Actual Expense

Standard mileage: 72.5 cents per business mile. Simple, low documentation burden. Best for high-mileage drivers.

Actual expense method: Deduct the business-use percentage of gas, insurance, maintenance, registration, lease payments, and depreciation. Best for low-mileage drivers with expensive vehicles.

Important: If you use the standard mileage rate in the first year a vehicle is placed in service, you can switch to actual expense later using straight-line depreciation. If you use Section 179 or bonus depreciation in year one, you are locked into the actual expense method for the life of that vehicle.

Section 179 on Heavy Vehicles in 2026

For vehicles over 6,000 lbs GVWR used for business, Section 179 provides preferential treatment:

• Heavy SUVs: Section 179 deduction capped at $32,000 in 2026
• Trucks and vans (no passenger seating limit): May qualify for the full Section 179 expensing up to $2.56 million

What you need to document: A mileage log with date, destination, business purpose, and miles for every trip. Without this, the deduction does not survive an audit.

How Arman CPA Helps With This

• We evaluate which method produces the larger deduction based on your vehicle use and type
• We flag the year-one election decision before it locks you into the wrong method
• We maintain the documentation standard that makes vehicle deductions audit-proof

This is where New York business owners get hurt — and most don't see it coming until it's too late.

The OBBBA permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. Section 179 limits have been raised to approximately $2.56 million for 2026, with a phase-out threshold starting at $4.08 million. For most small businesses in Queens, these limits are more than sufficient to cover any equipment purchase.

What Qualifies

• Computers, servers, and business technology
• Office furniture and equipment
• Business vehicles (with the weight-class limitations noted above)
• Qualifying off-the-shelf software
• Certain building improvements (HVAC, security, fire protection)

The New York Decoupling Problem

This is where New York business owners get hurt. New York State and New York City have retroactively decoupled from the OBBBA's bonus depreciation and expanded Section 179 provisions, effective January 1, 2025. This means:

• A piece of equipment fully deducted on your federal return may only be partially deductible on your New York State return
• You may report a net operating loss federally while still showing taxable income in New York
• You must maintain separate depreciation schedules for federal and state purposes

Failure to track these separately is one of the most common causes of New York State audit reclassifications. This is not a technicality — it directly affects your state tax bill.

How Arman CPA Helps With This

• We evaluate your planned purchases and time them strategically around your tax year
• We maintain parallel federal and New York depreciation schedules from day one
• We calculate whether Section 179, bonus depreciation, or standard depreciation produces the best combined federal and state outcome

These are three deductions most business owners aren't even set up to capture yet.

Health Insurance Deductions for Business Owners

If you are self-employed and pay for your own health insurance, you may be able to deduct 100% of those premiums from your income — covering yourself, your spouse, and dependents. This is an above-the-line deduction, meaning it reduces your adjusted gross income directly.

For S-Corp owners, the premium must be included in your W-2 wages and then deducted on your personal return. If this is not set up correctly before year-end, you lose the deduction. It cannot be fixed retroactively.

The 2026 Tip Deduction — New Under OBBBA

Business owners and employees in customarily tipped occupations — restaurants, salons, personal services — can now deduct up to $25,000 in qualified tips from their federal taxable income for tax years 2025 through 2028.

Both the federal rule and the proposed New York State rule allow a maximum annual deduction of $25,000 in qualified tips. The deduction phases out for single filers with a MAGI above $150,000 and for joint filers above $300,000. Importantly, tips remain subject to FICA payroll taxes under both rules — the deduction applies to income tax only, not payroll taxes.

Critical note: Governor Hochul has proposed a matching state deduction for New York, but this has not been enacted at the time of publication.

The 2026 Overtime Deduction — New Under OBBBA

The OBBBA also provides a federal deduction for the premium portion of overtime pay — the extra half in time-and-a-half — up to $12,500 annually ($25,000 for joint filers).

Employers must report these amounts on updated W-2 forms using new Box 12 codes (Code TP for qualified tips, Code TT for qualified overtime). If your payroll system does not capture these separately, your employees cannot claim the deduction on their personal returns. This is a payroll compliance issue that needs to be resolved before the first 2026 W-2 is issued.

How Arman CPA Helps With This

• We ensure your W-2 is set up correctly at the start of each year
• We verify your payroll system captures the new tip and overtime codes
• We coordinate health insurance premiums into your overall compensation strategy

This is the strategy that makes all the others actually work.

Most of what is covered in this playbook cannot happen after December 31. S-Corp elections, retirement plan contributions, equipment purchases, salary decisions, and income timing strategies all have deadlines. An accountant who only talks to you at tax time is not a tax planner. They are a historian.

The New York PTET: A Must-Know for Higher-Income Owners

The OBBBA raised the federal SALT deduction cap from $10,000 to $40,000 for 2025–2029 ($40,400 for 2026). However, the phase-out begins at a MAGI of $505,000 — meaning high earners face a reduced benefit regardless.

The New York Pass-Through Entity Tax (PTET) remains essential because it allows state tax to be paid at the entity level, where it is fully deductible as a business expense on the federal return — bypassing the individual SALT cap entirely.

Key requirements:

• The PTET election deadline is March 15, 2026 — this is a hard deadline; if missed, the entity cannot participate for the year
• The election is irrevocable once made
• Estimated payments must meet 90% of current-year or 100% of prior-year liability to avoid penalties

For owners whose state and local taxes already exceed $40,400, or whose income exceeds $505,000 and faces the federal phase-out, the PTET is not optional — it is one of the highest-leverage moves available.

The NYC Unincorporated Business Tax (UBT)

For partnerships, LLCs, and sole proprietorships doing business in New York City, the UBT is a 4% tax on NYC-allocated income. In 2026, a declaration is required if estimated tax exceeds $3,400. Liabilities at or below $3,400 receive a full credit — effectively exempting micro-businesses. Partial credits apply for liabilities between $3,401 and $5,400.

One of the most overlooked UBT strategies: income allocation based on actual work location. If a partner or owner works from a location outside New York City for a significant portion of the year, only the income allocated to NYC workdays is subject to the tax. Proper workday tracking can generate substantial savings.

What Year-Round Planning Actually Looks Like

A reactive accountant calls you in March to file, tells you what you owe, misses S-Corp elections and retirement plan windows, misses the PTET deadline, and is hard to reach during busy season.

A proactive CPA reviews your numbers quarterly, tells you what you can do about it before deadlines close, catches every strategy in time, files the PTET election in March, and responds within one business day.

How Arman CPA Helps With This

• We monitor your income mid-year to ensure PTET estimated payments are sufficient
• We track all relevant deadlines — PTET election, retirement plan setup, S-Corp election — before they close
• We maintain parallel federal and New York depreciation schedules so audits stay clean
• We verify your payroll system is capturing the new 2026 tip and overtime W-2 codes
• We run quarterly reviews so no strategy gets left on the table