2026 Year-End Tax Planning for San Diego Business Owners

What changed for 2026

The 2025 federal tax legislation, which the IRS has referred to as the One Big Beautiful Bill and the Working Families Tax Cuts, settled several questions that had made planning hard. In its January 14, 2026 guidance (IR-2026-06) the IRS confirmed that 100 percent bonus depreciation is permanent for qualified property acquired after January 19, 2025. Revenue Procedure 2025-32 set the 2026 Section 179 expensing limit at $2,560,000, with the limit reduced dollar for dollar once total qualifying purchases pass $4,090,000, and a $32,000 cap for certain heavy SUVs.

The 20 percent qualified business income (QBI) deduction for pass-through owners no longer expires. For 2026, the wage and property limits and the restrictions on specified service businesses begin above taxable income of $201,750 for single filers and $403,500 for joint filers, and are fully phased in at $276,750 and $553,500, according to Rev. Proc. 2025-32. Domestic research and experimental costs can again be deducted in the year paid under new Section 174A, and the small business gross receipts threshold that unlocks simpler accounting methods is $32 million for 2026.

Who in San Diego County this affects most

Almost every owner-run business benefits from at least one of these changes, but a few groups have the most at stake this year.

• Contractors, manufacturers and logistics companies in Otay Mesa, Kearny Mesa and North County buying equipment or vehicles
• Life science and tech companies in Sorrento Valley, Torrey Pines and Carlsbad with domestic R&D spending
• Professional firms and consultants near the QBI income thresholds, where owner pay and retirement contributions change the result
• S corporation and partnership owners with large K-1 income who also face California's top rates
• Owners planning a sale in 2027 or 2028, where depreciation taken now can be recaptured later

The California differences

California generally conforms to the Internal Revenue Code as of January 1, 2025, and the Franchise Tax Board's summary of federal changes lists the 2025 law's main business provisions as items the state does not follow. That means no bonus depreciation on the California return, a Section 179 limit of $25,000 for California purposes, no QBI deduction and no California version of the Section 174A change. In practice, a business that writes off a large equipment purchase federally in 2026 will deduct it over several years in California, so the state tax saving is much smaller than the federal one.

California also uses a different estimated payment schedule. According to the FTB's 2026 Form 540-ES instructions, individuals pay 30 percent of the year's estimate in April, 40 percent in June, nothing in September and 30 percent in January. Plan cash for the January 15, 2027 payment now, especially if 2026 was a strong year. See our guide to California conformity in 2026 for more detail.

Deadlines to put on the calendar

The IRS fourth-quarter tax calendar lists the corporate and payroll dates. Remember that an asset must be placed in service, not just ordered, by December 31 to be deducted for 2026.

What to do before December 31

1. Run a 2026 projection for the business and the owners, federal and California, using actual results through October or November.
2. Decide on equipment and vehicle purchases with both returns in view, and confirm delivery and placed-in-service dates.
3. Review owner salary for S corporations, which affects payroll tax, QBI and retirement contributions.
4. Max out retirement savings. For 2026 the 401(k) employee limit is $24,500, with an $8,000 catch-up at age 50 and $11,250 at ages 60 to 63, per the IRS.
5. Fund health savings accounts. The IRS has already set 2027 HSA limits of $4,500 for self-only and $9,000 for family coverage in Rev. Proc. 2026-24.
6. Decide whether your pass-through entity will make California's PTE elective tax election for 2026. See our PTE guide.
7. Prepare for new W-2 overtime and tips reporting. See our employer guide.
8. Set the January 15 federal and California estimated payments from the projection, not from last year's return.

What is still pending

As of mid-October 2026 the IRS had not yet published its 2027 inflation adjustments or 2027 retirement plan limits. Those numbers will affect 2027 estimated payments and payroll setup, and we will update this guide when they are released. One piece of good news is already final: under a FinCEN rule published August 14, 2026, domestic companies are permanently exempt from beneficial ownership (BOI) reporting.

Sources

• Treasury, IRS issue guidance on the additional first year depreciation deduction (IR-2026-06), Internal Revenue Service, January 14, 2026
• Revenue Procedure 2025-32 (2026 inflation adjustments), Internal Revenue Service, 2025
• Revenue Procedure 2026-24 (2027 HSA limits), Internal Revenue Service, May 29, 2026
• Fourth quarter tax calendar, Internal Revenue Service, 2026
• COLA increases for dollar limitations on benefits and contributions, Internal Revenue Service, 2026
• Summary of Federal Income Tax Changes, California Franchise Tax Board, 2026
• 2026 Form 540-ES Instructions, California Franchise Tax Board, 2026
• Beneficial Ownership Information Reporting final rule, Federal Register (FinCEN), August 14, 2026

This is general information, not tax or legal advice. Tax rules change and the right answer depends on your facts, so talk with a CPA before acting on it.