Who is covered is on the overview.
What the law requires
| Requirement | What it means in plain words | Section |
|---|---|---|
| Know your classification | Default treatment depends on the number of owners; Form 8832 can change it | 26 CFR 301.7701-3(c) |
| Elect S status | Form 2553 within 2 months and 15 days after the tax year begins, or any time in the prior year | IRC 1362(b) |
| Claim the QBI deduction | Non-corporate owners may deduct 20 percent of qualified business income, within income limits | IRC 199A |
| Use one accounting method | One regular method in your books; changes need IRS consent | IRC 446(a), (e) |
| Deduct or capitalize purchases | Section 179, bonus depreciation, domestic research costs | IRC 179, 168(k), 174A |
| File information returns | 1099-NEC and 1099-MISC at or above the threshold, W-2 for employees, 1099-K by card processors and payment apps | IRC 6041, 6041A, 6050W, 6051 |
| Keep records | Records that clearly show income and expenses | IRC 6001 |
Key numbers and dates
| Item | Amount or date | Year in force | Source label |
|---|---|---|---|
| C corporation tax rate | 21 percent flat | 2026 | IRC 11(b) |
| QBI income threshold (single / joint); phase-in range | $201,750 / $403,500; $75,000 / $150,000 | 2026 | Rev. Proc. 2025-32; P.L. 119-21 sec. 70105 |
| Section 179 limit; phase-out starts | $2,560,000; $4,090,000 | 2026 | Rev. Proc. 2025-32 |
| Bonus depreciation | 100 percent, qualifying property acquired after Jan. 19, 2025 | 2025 and later | P.L. 119-21 sec. 70301 |
| Form 1099-NEC and most 1099-MISC threshold | $2,000 or more, indexed after 2026 (royalties $10; attorney proceeds $600) | Payments after Dec. 31, 2025 | P.L. 119-21 sec. 70433; IRS instructions |
| Form 1099-K, third-party networks | Over $20,000 and over 200 transactions | 2026 | P.L. 119-21 sec. 70432 |
| Returns due, partnerships and S corporations / C corporations | Mar. 16 / Apr. 15, 2026 | 2025 returns | Pub. 509 (2026) |
| Time to assess tax | 3 years after filing; 6 years if over 25 percent of gross income is omitted; no limit with no return or fraud; other cases exist | Statute, 2026 | IRC 6501 |
| Refund claim | 3 years from filing or 2 years from payment, whichever is later | Statute, 2026 | IRC 6511(a) |
Source: IRS Rev. Procs.; P.L. 119-21 sec. 70306
Recent and pending changes
- July 4, 2025 (final): Public Law 119-21 made the 20 percent QBI deduction and 100 percent bonus depreciation permanent, raised the Section 179 limit to $2,500,000 for 2025, added Section 174A for domestic research costs, raised most 1099 reporting thresholds to $2,000 and restored the 1099-K threshold.
- October 2025 (final): Rev. Proc. 2025-32 set the 2026 inflation figures.
Penalties and enforcement
The IRS enforces the Code; see the penalty overview, and the FICA guide for payroll penalties.
| Penalty | What triggers it | Amount |
|---|---|---|
| Failure to file (IRC 6651) | A late return | 5 percent of unpaid tax per month or part, up to 25 percent |
| Failure to pay (IRC 6651) | Late payment | 0.5 percent per month or part, up to 25 percent; the filing penalty is reduced in months both apply |
| Late partnership or S corporation return (IRC 6698, 6699) | Per partner or shareholder, per month, up to 12 months | $255 (returns due in 2026) |
| Accuracy-related (IRC 6662) | Negligence, valuation misstatement, other listed causes or a substantial understatement (over the greater of 10 percent of correct tax or $5,000; 5 percent if a QBI deduction is claimed; C corporations differ) | 20 percent of the underpayment; 40 percent for gross valuation misstatements |
| Civil fraud (IRC 6663) | Fraud | 75 percent of the fraud-related underpayment |
| Information returns (IRC 6721, 6722) | A late or wrong 1099 or W-2 | $340 per return due in 2026; $60 if fixed within 30 days; $130 if fixed by Aug. 1 |
Official sources
- IRS: Revenue Procedure 2025-32 (2026 inflation adjustments)
- Public Law 119-21 (July 4, 2025), GovInfo
- IRS: Instructions for Forms 1099-MISC and 1099-NEC
- IRS: Failure to file penalty
- IRS: Revenue Procedure 2024-40 (penalty amounts for returns due in 2026)
This page is a plain-language summary. The official source controls if there is any difference.