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Software development costs
For tax years beginning after 2024, domestic software development costs are generally treated as research or experimental expenditures that may be deducted when paid under Section 174A, or capitalized over at least 60 months by election. Foreign development is treated differently. Some small businesses may be able to apply this to earlier years. Rules for purchased or internal-use software differ.
One useful actionSeparate payroll and contractor costs for development work from other expenses, and note where the work was done.
IRS Form 6765 instructions on section 174A ↗02
Accountable plan and home office
If you run your business through an S or C corporation, a written accountable plan lets the company repay you for business expenses, including a qualifying home office, without it being taxable pay to you. Sole proprietors deduct a qualifying home office directly. The space must be used regularly and exclusively for business, with limited exceptions.
One useful actionWrite a one-page reimbursement policy, then submit expense reports with receipts, dates and business purpose. Measure the office space and keep a photo.
IRS business use of home guidance ↗ IRS car and travel guidance ↗03
Solo 401(k) or 401(k) profit-sharing plan
A 401(k) can let an owner defer up to $24,500 of pay for 2026, plus employer contributions within the overall limit. A solo 401(k) is for an owner with no employees other than a spouse. Timing for starting the plan depends on how the business is taxed.
One useful actionAsk a tax professional how the owner's pay and entity type affect the plan before year-end.
IRS one-participant 401(k) plans ↗ IRS 2026 retirement plan limits ↗Also worth planning with a tax professionalAugusta rule. Under Section 280A(g), if you rent out a home you also use as a residence for fewer than 15 days in a year, the rent is not taxable income to you. For a business renting your home for meetings, that means up to 14 days. The rent must be a fair market rate, the use must be a real business use, and it needs a written agreement, minutes or an agenda, and proof of the rate. It does not work for a sole proprietor renting to themselves.
Paying family members. Wages paid to a family member can be deductible when the work is real and the pay is reasonable for the job. Keep time records and job duties. Payroll tax treatment depends on the entity and the family member's age. A child under 18 working for a parent's sole proprietorship is exempt from Social Security and Medicare tax, but not from income tax withholding rules. Corporations do not get that exemption.
IRS residential rental property guidance ↗ IRS family employee rules ↗
Business expenses must be ordinary and necessary. Keep receipts and the business purpose; separate personal use and reimbursements. Dollar limits shown are for 2026 and can change; eligibility and entity type matter. General education, not individual tax advice.
