July 2026 tax updates - Small Business - Individuals

ATS Tax Pros · July 2026

July 2026 Tax Updates for Small Businesses and Individuals

Trump Accounts opened, new deductions clarified, and a California interest rate hike — here's what actually applies to you.

July 2026 brought a notable federal change live: the Trump Accounts contribution window opened on July 4. Add in a permanent 20% pass-through deduction, restored 100% bonus depreciation, a settled 1099-K threshold, an S-corp compliance reminder, and a rate hike from California's FTB, and this July 2026 tax update for small businesses and individuals covers a lot of ground. Here's what applies to you, and what to do about it.

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Federal · New Savings Vehicle

Trump Accounts Are Open for Contributions

Beginning July 4, 2026, anyone — parents, grandparents, employers, even the child's own earnings — can contribute to a Trump Account, the new tax-advantaged savings vehicle created under the One Big Beautiful Bill. Children born between January 1, 2025 and December 31, 2028 who are U.S. citizens with a Social Security number also received a one-time $1,000 pilot contribution from the federal government.

The annual contribution limit is $5,000 per child, with employer contributions capped separately at $2,500 of that total, and the account must be opened through Form 4547 or the online portal before the child turns 18. Funds grow tax-deferred, similar to an IRA, but the account carries its own distribution and investment rules — this isn't a 529 plan under a different name.

What this means for you

• →If you have a child under 18 with a Social Security number, check whether a Trump Account has been opened for them and whether the $1,000 pilot deposit posted.
• →Before contributing the full $5,000, compare this account to a 529 plan or custodial Roth IRA for your family's goals — the tax treatment and access rules differ.
• →If you run a business, employer contributions to employees' Trump Accounts are capped separately and may carry payroll implications.

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Small Business · Payment Apps

1099-K Reporting for Gig Workers: The July 2026 Rules

After a few years of back-and-forth, the rule is settled: for 2026, payment apps like Venmo, PayPal, and Cash App only issue a Form 1099-K if you received more than $20,000 and had more than 200 transactions for goods or services. The lower $600 threshold that was scheduled to take effect was permanently repealed.

That said, a handful of states set their own, lower reporting thresholds, so you can still receive a 1099-K even if you're under the federal limit. And regardless of whether a form arrives, business income is reportable — the 1099-K is a paper trail, not the trigger for your filing obligation.

What this means for you

• →If you sell goods or accept payment through apps as a side business, track your gross receipts yourself rather than waiting to see if a 1099-K shows up.
• →Check whether your state is one of the handful that still requires reporting below $20,000.
• →Personal transactions — splitting a bill, gifts, reimbursements — aren't affected; this only applies to payments for goods and services.

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Small Business · Deductions

Bonus Depreciation and R&D Expensing Are Back to Stay

Two provisions that had been phasing out are now permanent under OBBBA. 100% bonus depreciation applies to qualifying property placed in service in 2026 and beyond, meaning you can generally deduct the full cost of eligible equipment, vehicles, and other assets in the year you buy them rather than depreciating over several years.

Domestic research and development costs incurred after December 30, 2024 can also be immediately expensed again, reversing the multi-year amortization requirement that had been in place. For sole proprietors, partnerships, and S-corps making capital purchases or investing in product development, this materially changes the timing of your deductions.

What this means for you

• →Planning equipment or vehicle purchases this year? Talk to us about the cash-flow impact of expensing the full cost upfront versus depreciating it.
• →If your business has R&D costs, revisit prior treatment — you may be able to amend returns to recover previously amortized amounts.
• →Don't assume state conformity matches federal rules; California and other states can differ on bonus depreciation.

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Small Business · S-Corp Compliance

Setting a Defensible S-Corp Reasonable Salary

One of the most common audit triggers for S-corps is a shareholder-employee salary that's too low relative to the work performed. The IRS requires owners who actively work in the business to pay themselves "reasonable compensation" via W-2 before taking additional profit as distributions, and reasonable compensation is judged against what an unrelated third party would be paid for comparable work — not against whatever minimizes payroll tax.

There's no single IRS formula for this, but common approaches include benchmarking your role against salary data for comparable positions, documenting the split between your personal labor and the business's return on capital or equipment, and adjusting salary as your duties or the business's profitability change year to year. Underpaying yourself to shift income into lower-taxed distributions remains one of the most frequently challenged issues in S-corp exams.

What this means for you

• →If you haven't revisited your S-corp salary in the past couple of years, benchmark it against current comparable-role compensation data.
• →Document your reasoning — job duties, hours, comparable pay data — in case the IRS ever asks; the burden of proof is on you, not the agency.
• →Pair this with the QBI update below — salary and the QBI deduction interact, so a change to one affects the other.

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Planning · Pass-Through Deduction

The 20% Pass-Through Deduction Is Now Permanent

The Section 199A Qualified Business Income deduction — which lets eligible sole proprietors, partners, and S-corp shareholders deduct up to 20% of their qualified business income — was made permanent under OBBBA rather than expiring as originally scheduled.

The underlying rules haven't changed: the deduction is still subject to income thresholds and wage/property limitations for specified service trades, along with the usual QBI calculation quirks. But permanence means it's now safe to build into multi-year tax and entity-structure planning rather than treating it as a use-it-or-lose-it benefit.

What this means for you

• →If you've delayed an S-corp election or entity restructuring because of QBI's old expiration date, that pressure is gone — revisit the decision on its own merits.
• →High-income specified service business owners (consultants, healthcare, law, etc.) should still model the wage/property limitations carefully.
• →Use permanence as a reason to plan reasonable S-corp salary and QBI together, not in isolation.

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California · FTB Reminder

California's Interest Rate on Back Taxes Just Went Up

The FTB's interest rate on underpayments rises to 7%, compounded daily, for the period July 1 through December 31, 2026. This rate applies to unpaid balances on personal income tax, corporate tax, and other state tax liabilities.

If you're carrying a balance with the FTB or expect to owe when you file, this increase makes it more expensive to wait. It's a good prompt to double-check that your California withholding and estimated payments are on track for the rest of the year.

What this means for you

• →If you have an existing FTB balance or payment plan, confirm how the new rate affects your payoff amount.
• →Review your California withholding or estimated payments now rather than waiting until year-end.
• →If cash flow is tight, talk to us about payment plan options before the balance compounds further.

Questions about any of these topics? Reach out — we're happy to walk through what applies to your specific situation. This post is for general informational purposes only and is not a substitute for personalized tax advice.

Sources

• IRS — Trump Accounts
• IRS — Proposed Regulations on Opening Initial Trump Accounts
• IRS — Working Families Tax Cuts (OBBBA Provisions)
• IRS — S Corporation Compensation and Medical Insurance Issues
• California FTB — Tax News