It’s not common that tax law changes all at once. That said, 2026 is shaping up to be a vital year for business owners. There are several federal changes scheduled to shake things up, and Minnesota has some changes right alongside them.
These business tax updates could directly affect your investment decisions, your cash flow, and even your long-term tax strategy. For mid-size businesses, waiting until tax season to react could mean missed deductions, lost credits, or suboptimal entity decisions. The most successful companies are already preparing for 2026.
The following is a practical overview that covers the most important business tax changes for 2026 as well as what business leaders should do to stay ahead.
Federal Business Tax Updates with the Biggest Impact
Qualified Business Income (QBI) Deduction Becomes Permanent
A major recent development includes the permanent extension of Section 199a Qualified Business Income (QBI) deduction. A permanent Section 199A would give pass-through business owners more long-term certainty.
With this update, business owners can make confident decisions going forward on their entity’s structure, compensation, and especially growth strategies. They need not worry that their tax benefit will suddenly disappear.
Research & Development (R&D) Expensing Restored for Domestic Costs
Thanks to this expansion, businesses can again deduct U.S.-based R&D costs right away, rather than across multiple years. That means improved cash flow for companies investing in things like research and process development.
Transition and election rules also allow for some companies to speed up R&D deductions from recent years. Note that the rule for foreign research will still apply.
Business Interest Deduction Rules Become More Favorable
Federal tax law limits how much interest on business loans a company can deduct each year. This rule affects businesses that borrow money to fund operations, buy equipment, or invest in growth.
Starting in 2026, the formula used to calculate that limit becomes more generous. Businesses will be able to count depreciation and amortization again, often allowing them to deduct more interest.
For businesses with significant debt or large asset purchases, this change can reduce taxable income and improve cash flow.
Expanded Employer-Provided Childcare Credit
For those who don’t know, this is a tax credit that allows businesses to recoup a portion of costs that they pay helping workers with child care. In 2026, the credit expands in favor of business owners.
That is, both the credit percentage and cap will expand up to $600,000 for a qualifying small business. This is huge for businesses hoping to retain employees (especially in an age of remote work and poaching), as it adds significant chances for improved benefits.
Minnesota-Specific Changes Business Owners Should Watch
Planning for 2026 on the federal level is one thing, but Minnesota has its own complex updates to consider.
Corporate Franchise Tax Rate Reduction
First, there’s the corporate franchise tax rate reduction. The 2026 rate reduction will be to 9.05%, with another reduction on the horizon for 2027, possibly to 8.88%.
If your business is a C-corporation, that means that the 2026 lower tax rate will allow you to keep more profits after taxes. The C-corp structure will suddenly look more appealing and practical to other businesses.
Corporate AMT Rate Reduction
Alongside the franchise tax cut, Minnesota is also reducing its corporate Alternative Minimum Tax (AMT) rate. While fewer businesses are subject to AMT than in the past, those that are may see meaningful relief, especially when paired with capital investments or timing strategies.
Possible Expansion of Sales Tax to Professional Services
This could be a major change if it goes through. Service-based businesses in Minnesota may face sales tax in the coming years. Lawmakers have proposed adding sales tax to certain professional services.
So while the proposed rate would decrease overall from 6.875% to 6.8%, it would suddenly apply to Minnesota businesses that previously did not have sales tax at all.
How to Prepare Now: 2025 Planning Steps That Matter
The biggest takeaway from these changes is timing. Many of the benefits available in 2026 may depend on decisions made in 2025, including:
- Entity structure and compensation strategy
- Capital investment timing
- R&D cost classification
- Debt and financing decisions
- State vs. federal conformity planning
This is not checklist planning, it requires coordinated modeling across multiple years. The best way you can prepare is to find a trusted CPA to come alongside you with seasoned guidance and personalized attention.
Don’t Wait for 2026 to Plan for 2026
The businesses that benefit most from upcoming tax changes are the ones that prepare early. If you want to understand how 2026 business tax changes affect your company specifically, now is the time to talk.
Our team delivers innovative strategies that help you act before opportunities close, rather than reacting after the fact. Contact BWK to start planning and get proactive guidance from a CPA for Minnesota business taxes who focuses on your needs.