What the 2026 Tax Law Sunset Means for Your Construction Company

If you run a construction company that made more than $500K last year, the expiring Trump-era tax law changes in 2026 could cost you an extra $15,000 to $50,000+ per year in taxes — maybe more if you bought equipment or a truck recently. The Section 199A deduction (also called the Qualified Business Income deduction or 'pass-through deduction') is cut in half or eliminated for many contractors after 2025, the TCJA tax brackets revert to higher rates, and bonus depreciation drops to zero. That means less cash in your pocket unless you plan ahead. This is not a political statement — it is a math problem. And you have about nine months left to do something about it.

What Is Actually Changing in the 2026 Tax Law Sunset?

The Tax Cuts and Jobs Act (TCJA) passed in 2017 and most of the good stuff for small businesses expires December 31, 2025. Starting January 1, 2026, three big changes hit construction companies hardest:

• Section 199A (QBI Deduction) Goes Away: Right now, if you are a sole proprietor, LLC, S-corp, or partnership, you can deduct up to 20% of your qualified business income from your taxable income. That means if your company nets $300K and you are under the income limits, you only pay tax on $240K. After 2025, that deduction disappears. For a contractor netting $300K, that is an extra $12,000 to $18,000 in federal taxes depending on your bracket.
• Tax Brackets Go Back Up: The 22% bracket becomes 25%. The 24% bracket becomes 28%. If you are pulling $200K as an owner-operator, you just moved from paying 24% on a big chunk of that income to 28%. That is an extra $8,000 on every $200K.
• Bonus Depreciation Hits Zero: In 2023, you could write off 80% of a new work truck or excavator in year one. In 2024, it dropped to 60%. In 2025, it is 40%. In 2026, it is 0%. You go back to depreciating equipment over 5 to 7 years. If you bought a $60,000 truck in 2024, you wrote off $36,000 that year. In 2026, you will write off maybe $12,000. That difference could cost you $6,000+ in extra tax that year.

These changes are not hypothetical. They are law. Unless Congress acts — and as of April 2026, nothing has passed — these rules are now in effect. Your 2026 tax bill is going to look different, and not in a good way.

How Much Will This Actually Cost My Construction Company?

Let's talk real numbers. Assume you are a remodeling contractor doing $1.2 million in revenue, netting $280,000 after you pay your crew, subs, and material suppliers. You are married, filing jointly, and you run an S-corp. Here is what your tax picture looked like in 2024 versus what it looks like now in 2026:

2024 Tax Scenario:
Net income: $280,000
Section 199A deduction (20%): -$56,000
Taxable income: $224,000
Effective federal rate in the 22-24% brackets: roughly $38,000 in federal tax

2026 Tax Scenario (Post-Sunset):
Net income: $280,000
Section 199A deduction: $0
Taxable income: $280,000
Effective federal rate in the 25-28% brackets: roughly $52,000 in federal tax

That is a $14,000 difference. Same revenue, same profit, $14,000 more to the IRS. And this does not include state taxes or the loss of bonus depreciation if you bought equipment.

Now add in a $70,000 dump truck you bought in December 2024. You wrote off $42,000 (60% bonus depreciation). If you waited and bought that same truck in January 2026, you write off $14,000 in year one (straight-line over 5 years). That is a $28,000 difference in your deduction, which could mean another $7,000 in tax. Suddenly your total tax increase is $21,000.

For commercial contractors running $5M to $10M and netting $600K to $1M, we are talking about $40K to $80K in extra taxes annually. This is not small money. This is payroll. This is a crew member. This is the difference between a profitable year and a stressful one.

What Should I Have Done Before December 31, 2025?

Okay, real talk — if you are reading this in April 2026, that ship has sailed. But let's cover what contractors should have done, because it helps you understand what you missed and what you should be thinking about going forward. This is not about guilt — it is about knowing the game.

Accelerate Income into 2025: If you had a big receivable coming in January 2026, you could have pushed to collect it in December 2025 while the lower tax rates and QBI deduction were still in play. Yes, you pay tax sooner, but you pay less tax overall.

Defer Expenses into 2026: The opposite move — if you had discretionary expenses (new software, marketing, subcontractor payments you controlled), pushing them into 2026 means you get a deduction against the higher tax rates. A $10,000 deduction in 2025 saved you $2,400. In 2026, it saves you $2,800. Small, but it adds up.

Max Out Bonus Depreciation: Any equipment purchase you were planning for 2026 or 2027 should have been pulled forward into 2024 or 2025 to grab that 60% or 40% bonus depreciation. A $100,000 skid steer bought in December 2025 gave you a $40,000 first-year writeoff. Bought in 2026, you get $20,000. That is a $20,000 difference in your deduction, or roughly $5,000 to $7,000 in tax savings lost.

Revisit Your Entity Structure: If you were a sole prop or single-member LLC, moving to an S-corp before 2026 could have helped you save on self-employment tax, which partially offsets the QBI loss. This is not a magic bullet, but it is worth modeling with someone who knows construction finance strategy.

Again, if you did not do these things, do not beat yourself up. Most contractors did not even know this was coming. But now you know. And knowing is the first step to not getting caught flat-footed next time.

What Can I Still Do in 2026 to Reduce My Tax Bill?

Alright, so you are here now. The tax rates are higher. The QBI deduction is gone. Bonus depreciation is dead. What can you actually do?

Maximize Retirement Contributions: If you are not maxing out a SEP-IRA or Solo 401(k), now is the time. A SEP-IRA lets you contribute up to 25% of your net self-employment income (20% if you are an S-corp owner), up to $69,000 in 2026. That is a direct reduction in your taxable income. If you are netting $300K, a $60K SEP contribution drops your taxable income to $240K. At the 28% bracket, that is $16,800 in tax savings. And you are putting money away for yourself, not just handing it to the government.

Hire Your Kids (If You Have Them and They Actually Work): If your teenager can legitimately help with job site cleanup, office filing, social media, or equipment maintenance, pay them. Up to the standard deduction ($15,000 in 2026), they pay zero federal tax. You get a business deduction at your 28% rate. That is a $4,200 tax savings, plus they are learning the business and building a work ethic. Just make sure the work is real and the pay is reasonable — the IRS is not stupid.

Track Every Single Deductible Expense: This sounds obvious, but most contractors leave $10K to $30K on the table every year in missed deductions. Mileage to supply houses and job sites. Home office if you do paperwork there. Cell phone. Work boots. Tools under $2,500 (those are still deductible in full). Meals with subs and clients (50% deductible). If you are not tracking this stuff, you are paying tax on income you did not actually keep. We have a whole breakdown of these in our guide to contractor tax deductions.

Get Your Job Costing Dialed In: This is not a direct tax move, but here is the thing — if you do not know which jobs are profitable, you cannot make smart decisions about where to push revenue or cut costs. Paying tax on $300K when you only actually kept $180K because two jobs bled money is a nightmare. Accurate job costing helps you protect margin, which means you have more control over your taxable income and cash flow.

Should I Change My Business Entity Structure Now?

Maybe. If you are a sole proprietor or single-member LLC taxed as a sole prop, moving to an S-corp can save you self-employment tax. Here is the math: Self-employment tax is 15.3% on your net income up to $176,100 (2026 limit). If you net $150,000 as a sole prop, you are paying $22,950 in self-employment tax plus income tax. As an S-corp, you pay yourself a reasonable wage — say $80,000 — and take the rest as a distribution. You only pay the 15.3% on the $80,000 (that is $12,240), saving you about $10,710 a year. You still pay income tax on the full $150K, but you dodge some of the SE tax.

But S-corps come with overhead: payroll setup, payroll tax filings, a separate tax return, and the need to actually run payroll every month. If you are doing under $100K net, it is probably not worth it. If you are over $150K, it is worth modeling. And you need someone who understands construction — your buddy's CPA who does dentists and real estate agents is not going to get the nuances of retainage, progress billing, and job cost accounting.

Bottom line: Do not change your entity structure because you read a blog post (even this one). Run the numbers with someone who knows your books and your actual income pattern.

Will Congress Bring Back Any of These Tax Breaks?

Maybe. As of April 2026, there is talk in Washington about extending parts of the TCJA or passing something new, but nothing is law. The Section 199A deduction is popular with small business groups, and bonus depreciation has bipartisan support in theory. But 'in theory' does not lower your tax bill.

Do not build your 2026 financial plan around Congress doing anything. If they pass something retroactively or mid-year, great — you will adjust. But plan for the worst case, which is the current law. If you assume the QBI deduction is coming back and it does not, you are going to have a very unpleasant conversation with your CPA in January 2027.

How Do I Know If I Am Actually Making Money or Just Staying Busy?

This is the question every contractor should be asking, especially now that taxes are higher and margins are tighter. You can be busy as hell, running three jobs at once, and still be broke. Here is the reality check:

Look at your net profit margin per job. Not revenue. Not 'what you billed.' What you kept after all costs — labor, materials, subs, equipment, insurance, overhead. If you are under 10%, you are in trouble. If you are at 15% to 20%, you are doing okay. If you are over 25%, you are either really good at estimating or you are missing some costs in your tracking.

Most contractors do not actually know this number because they do not have job costing set up. They wait until tax time, see what is left, and hope it is enough. That is not a plan. That is a recipe for paying tax on money you did not keep and wondering why the bank account is empty even though you were busy all year.

If you are flying blind on this stuff, it is time to fix it. Not because someone is telling you to. Because your business deserves better than gut-feel accounting.

What Is the One Thing I Should Do This Week?

Here is your action item: Open your 2025 tax return (or call your CPA and get a copy). Look at your total taxable income. Multiply it by 1.04 to estimate your 2026 income if things stay roughly the same. Now multiply that number by 0.28 (the new top bracket for most contractors). That is a rough estimate of your 2026 federal tax bill, not counting self-employment tax or state tax.

Compare that to what you paid in 2025. The difference is what you need to plan for. If it is $10K more, you need to set aside an extra $833 a month. If it is $30K more, you need $2,500 a month. This is not optional. This is the cost of doing business under the new law.

And if you do not have a system for setting aside tax money every month — if you are just hoping there is enough in the account when the bill comes — fix that now. Open a separate savings account. Call it 'Tax Jail.' Every time you get paid on a job, move 25% to 30% of your net profit into that account. Do not touch it until you pay estimated taxes or your annual bill. It is not sexy, but it works.

You did not start your company to become a tax expert. You started it to build things and run a good crew. But the tax law does not care about that. It is going to take its cut either way. The only question is whether you are ready for it or whether it is going to blindside you in March 2027 when the bill comes due.

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