2026 U.S. Business Deductions: What Nris, H-1B, Schedule C Filers Need

(UNITED STATES) — For tax year 2026, filed in 2027, two headline business deduction changes stand out: the standard business mileage rate increased to 72.5 cents per mile, effective January 1, 2026, and the small-business gross receipts threshold tied to the Section 163(j) interest limit rose to $32 million for tax years beginning in 2026. For many immigrants, NRIs, self-employed taxpayers, and H-1B founders, those updates matter. So do several older rules that still catch filers by surprise, including the $25 business gift cap and the broad disallowance of entertainment expenses.

This guide covers NRIs with U.S. business activity, H-1B workers with side businesses that are legally permitted, consultants, landlords with business income, and taxpayers filing Schedule C, partnership, or corporate returns. The baseline rule comes from Internal Revenue Code Section 162 and IRS guidance. A business expense must generally be ordinary and necessary in carrying on a trade or business. In plain English, it must be common for your line of work, helpful to the business, and backed by records that show the amount and business purpose.

That test is only the starting point. Many expenses that seem business-related are still partly limited, capitalized, or fully disallowed under separate rules.

What changed for 2026

The most practical 2026 changes involve mileage and interest limitation thresholds. The business standard mileage rate is now 72.5 cents per mile, up from 70 cents in 2025, and it applies beginning January 1, 2026.

For Section 163(j), the small-business gross receipts threshold increased from $31 million to $32 million for tax years beginning in 2026. That change affects whether some businesses must apply the business interest expense limitation.

The mileage increase was announced in Notice 2026-10.

Who is affected

You are more likely to feel these rules if you file Schedule C as a sole proprietor or single-member LLC owner, run a startup or consulting practice while on H-1B, own U.S. rental or operating business interests as an NRI, borrowed money for equipment, inventory, or real estate, use a personal car for business trips, or take clients to meals, send gifts, or combine travel with family visits abroad.

For immigration tax purposes, filing status also matters. Many H-1B workers are U.S. tax residents under the Substantial Presence Test and must report worldwide income. See Pub. 519 for residency rules. NRIs who remain nonresident aliens may face different filing rules, often on Form 1040-NR, but deduction limits still apply to U.S. business activity.

Ordinary and necessary is not enough

This is where many first-time filers make mistakes. An expense can be useful and still fail the tax test. Congress and the IRS apply separate rules to gifts, meals, entertainment, interest, car expenses, travel away from home, and bad debts.

That means you should review each expense category on its own. Do not rely only on the general rule.

Business gifts still face a narrow cap

The business gift deduction remains one of the oldest and strictest limits in the Code. For tax year 2026, the deductible amount is still capped at $25 per recipient per year. That cap applies to direct and indirect gifts. Spouses are generally treated as one taxpayer when giving to the same recipient. Incidental costs, such as packing or shipping, may fall outside the cap if they do not add substantial value to the gift itself.

A practical example: if your consulting firm sends a client a $150 holiday basket, you still cannot deduct the full amount as a business gift. Many low-cost promotional items are treated differently, but expensive client gifts are not.

Keep records by recipient, date, amount, and business purpose.

Rent can be deductible, but ownership changes the answer

Rent is generally deductible if the property is used in the business and you do not obtain title or equity. That covers office rent, equipment leases, and storefront leases in many cases.

But if the lease terms look like a purchase, part of the payment may not be deductible as rent. Also, leasehold improvements are usually not written off as rent. They are often recovered through depreciation over time.

This matters for restaurant tenants, clinics, salons, and startup founders building out leased space.

Interest deductions may now be easier for some smaller businesses

Section 163(j) can limit business interest deductions. If it applies, deductible interest is generally limited to business interest income, 30% of adjusted taxable income, and floor plan financing interest. Disallowed amounts are often carried forward, not lost forever.

The practical change for 2026 is the higher small-business exception threshold. A business with average annual gross receipts under $32 million may avoid the Section 163(j) limit for tax years beginning in 2026. For 2025, that threshold was $31 million.

Aggregation rules can combine related entities. That is a common issue for founder-owned groups and family businesses.

For official forms and instructions, review IRS forms and the international tax portal if foreign owners are involved.

Insurance premiums: many qualify, some do not

Common deductible business insurance includes liability coverage, malpractice insurance, workers’ compensation, business vehicle insurance, property insurance, and business interruption insurance.

Two common traps remain. First, self-insurance reserves are generally not deductible just because cash was set aside. Second, life insurance premiums are generally not deductible if the business is directly or indirectly the beneficiary.

Self-employed health insurance follows a separate rule set. For 2026, taxpayers should review Form 7206 and its instructions rather than treating those premiums as a standard business insurance line item.

Cross-border travel needs careful allocation

Travel deductions are allowed when the expense is ordinary, necessary, and tied to business away from your tax home. The trip must generally require sleep or rest, not just local same-day activity.

For NRIs and cross-border founders, mixed-purpose travel is a frequent problem. If you travel to India, the UAE, the UK, or Singapore for meetings and also visit family, you may need to allocate costs between business and personal days.

A trip that is mainly personal does not become deductible because one meeting was added. Keep a detailed itinerary, meeting calendar, and receipts.

Car expenses: 72.5 cents per mile in 2026

For tax year 2026, the business standard mileage rate is 72.5 cents per mile, up from 70 cents in 2025. That increase applies beginning January 1, 2026.

You still must choose between the standard mileage method and the actual expense method, subject to eligibility rules. Commuting from home to a regular work location remains generally nondeductible.

If you claimed certain depreciation methods or operate five or more cars at the same time, the standard mileage method may not be available.

Meals are usually 50% deductible; entertainment is usually not

Entertainment expenses remain generally nondeductible unless a narrow exception applies. Business meals are different. Many are still 50% deductible if the meal is not lavish, you or an employee is present, and the expense has a real business purpose.

The recordkeeping point is simple. Separate meal charges from entertainment charges. If they are bundled on one invoice, your deduction position gets weaker.

Bad debts depend on your accounting method

A bad debt deduction usually requires that the debt became worthless during the year. Accounting method matters.

• Accrual-method taxpayers may deduct an unpaid receivable that was already included in income.
• Cash-basis taxpayers usually cannot deduct unpaid receivables that were never reported as income.

That distinction matters for consultants, agencies, clinics, and service firms. Keep proof of collection efforts, basis, and when the debt became uncollectible.

Recommended actions for 2026 filers

Before preparing your 2026 return in 2027, review these items:

• Update mileage logs to the 72.5 cent rate for 2026
• Test business interest against the $32 million gross receipts threshold
• Cap business gifts at $25 per recipient
• Separate meals from entertainment on invoices
• Allocate mixed personal and business travel
• Check whether car expenses belong under mileage or actual costs
• Review unpaid receivables under your accounting method
• For H-1B filers, confirm that the business activity itself complies with immigration rules before reporting income and expenses

If you changed visa status during 2026, such as F-1 to H-1B, also confirm whether you are filing as a resident alien, nonresident alien, or dual-status taxpayer under Publication 519. That filing position can affect deductions, reporting, and treaty claims.