Tax Law: What Individuals and Businesses Should Know

Tax law changes more often than people expect, and it rarely announces itself loudly. A new deduction gets introduced, a threshold shifts, a credit gets bigger or smaller. Unless you’re paying close attention, or working with someone who is, you usually find out when a return doesn’t look the way you expected.

This guide covers what individuals and small business owners in the Buffalo area need to understand about current tax rules, without the jargon.

Federal vs. State Tax Law

Tax law operates on two separate but connected levels. Federal tax law is administered by the IRS and applies the same way across the country. It covers income tax, self-employment tax, payroll tax, and business entity taxation. New York’s rules are administered by the Department of Taxation and Finance. They sit on top of the federal rules, with their own brackets, deductions, and filing requirements.

This matters more than people realize, because New York doesn’t automatically conform to every federal change. Your New York return starts from your federal adjusted gross income (AGI). Federal deductions taken after AGI, including the new deductions for overtime, car loan interest, and seniors, don’t carry over to your New York return. Tips are the exception: New York’s 2026–27 state budget added a separate state exemption for up to $25,000 of qualified tips, starting with the 2026 tax year.

The same pattern shows up elsewhere:

• Standard deduction. New York’s is far smaller than the federal one: $8,000 for single filers and $16,050 for married couples filing jointly.
• Depreciation. For most businesses, New York doesn’t follow federal bonus depreciation, so the state deduction is often calculated differently.
• Extensions. New York has its own extension form, IT-370, separate from the federal Form 4868.

Anyone planning only around federal headlines is missing half the picture.

Individual Income Tax Basics

At the individual level, tax law determines what counts as taxable income, what can be deducted or excluded, and which bracket applies to what’s left. Wages, self-employment income, investment gains, rental income, and retirement distributions are each treated differently, with their own reporting requirements and, in some cases, their own tax rates.

For the 2026 tax year, the federal standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household. Most people with straightforward finances take the standard deduction because it’s larger than what they’d get by itemizing. Itemizing becomes worthwhile once mortgage interest, state and local taxes, charitable giving, and qualifying medical costs add up to more than that amount.

One recent change worth understanding is the cap on the state and local tax (SALT) deduction. It rose from $10,000 to $40,000 for 2025 and is $40,400 for 2026. Above $505,000 of modified AGI, the cap is gradually reduced, but it never drops below $10,000. Western New York homeowners with property tax bills that stopped them from itemizing under the old cap should run the numbers again.

Business Structure and Tax Law

How a business is structured has lasting tax consequences, which is why the decision deserves more thought than it usually gets.

Sole proprietorship. This is the simplest structure. Business income flows directly to the owner’s personal return on Schedule C. The owner pays self-employment tax of 15.3% on 92.35% of net earnings, covering Social Security and Medicare, on top of regular income tax. The Social Security portion stops at the annual wage base.

LLC. An LLC doesn’t change federal tax treatment by itself. A single-member LLC is taxed like a sole proprietorship by default, and a multi-member LLC is taxed like a partnership, unless the business elects otherwise.

S-corporation election. Electing S-corp treatment lets an owner split income between a reasonable salary, which is subject to payroll tax, and the remaining profit taken as distributions, which isn’t subject to self-employment tax. For a profitable small business, that split can meaningfully reduce total tax. It also adds payroll administration and stricter compliance requirements, and New York has its own S-corp election, so it isn’t the right fit for every business.

C-corporation. A C-corp is taxed separately from its owners at a flat 21% federal rate. Profits paid out to shareholders as dividends are taxed again on the owners’ personal returns, which is why this is called double taxation. This structure makes sense for some businesses, especially those reinvesting most of their profits or seeking outside investors. It isn’t the default choice for a typical local small business.

Because the right answer depends on profit levels, payroll, and long-term plans, entity decisions are one of the clearest reasons to bring in a CPA before you file.

Tax Credits and Deductions Under Current Law

The difference between a credit and a deduction changes how you should value any tax break. A deduction reduces taxable income, so its real value depends on your tax bracket. A credit reduces the tax you owe dollar for dollar, which generally makes it worth more than a deduction of the same size.

Credits. The Child Tax Credit provides up to $2,200 per qualifying child under 17, with up to $1,700 refundable, subject to income phase-outs. The Earned Income Tax Credit supports lower- and moderate-income working individuals and families. It’s refundable, meaning it can produce a refund larger than what was withheld.

New deductions. The One Big Beautiful Bill Act, signed July 4, 2025, created four new deductions. You can take them whether or not you itemize, but they come off after AGI, which is why most of them don’t reduce New York tax. New York passed its own exemption for tips starting in 2026. The IRS has published guidance on the tips and overtime deductions.

• Qualified tips: up to $25,000 a year, for workers in occupations that customarily receive tips.
• Qualified overtime pay: the premium portion only, up to $12,500 ($25,000 for joint filers).
• Car loan interest: up to $10,000 a year, on loans for new, U.S.-assembled personal vehicles taken out after 2024.
• Taxpayers 65 and older: an additional $6,000 per eligible person.

Each has its own income phase-out, and all four are scheduled to expire after the 2028 tax year unless Congress extends them.

Business deductions. Business owners have several tools of their own:

• Section 179 expensing lets you deduct qualifying equipment immediately instead of depreciating it over several years.
• Bonus depreciation was restored to 100% permanently for qualifying property acquired after January 19, 2025. New York generally doesn’t follow it.
• The qualified business income (QBI) deduction lets many owners of sole proprietorships, partnerships, and S-corporations deduct up to 20% of qualified business income, subject to limits. The same law made it permanent and added a minimum $400 deduction for owners with at least $1,000 of QBI from businesses they actively work in.

Retirement Contributions and Tax Law

Tax law encourages retirement saving through several account types, each with its own limits and tax treatment. For 2026, per the IRS’s 2026 contribution limits:

• 401(k): the elective deferral limit is $24,500. Workers 50 and older can add an $8,000 catch-up contribution, and those aged 60 through 63 can add $11,250 instead.
• IRA: the limit is $7,500, with a $1,100 catch-up for those 50 and older.

Self-employed people have additional options, including SEP-IRAs and Solo 401(k)s, which allow much higher contributions than a standard IRA. Employer-side contributions to these plans can generally be made up to the tax filing deadline, including extensions. For a Solo 401(k), the election to make employee deferrals generally has to be in place by December 31 of the tax year, even if the deposit itself comes later. Our year-end tax planning checklist for small businesses covers the retirement moves worth making before December 31.

Estimated Taxes and Compliance Obligations

Self-employed people and business owners have no employer withholding tax from a paycheck, so they’re generally required to pay estimated tax quarterly. For the 2026 tax year, the federal due dates are April 15, June 15, and September 15, 2026, with the final payment on January 15, 2027. That January payment covers the year that just ended, which catches a lot of people off guard. New York estimated payments follow the same schedule.

Underpaying an installment can trigger a penalty calculated from that installment’s due date. Safe-harbor rules protect many taxpayers who pay enough on schedule, based on either the current year’s tax or the prior year’s.

Any business with employees also has a payroll layer to manage:

• Federal: income tax withholding, Social Security, Medicare, and federal unemployment tax.
• New York: state withholding and unemployment insurance, reported each quarter on Form NYS-45.

Missing payroll deposit deadlines creates penalties that build quickly. It’s one of the more common, and more avoidable, compliance mistakes small business owners make, and it’s much easier to stay on top of when your bookkeeping and payroll records are kept current.

Staying Current With Changing Tax Law

Tax law isn’t something you learn once. The 2025 federal law raised the SALT cap, enlarged the Child Tax Credit, and created the new deductions for tips, overtime, car loan interest, and seniors. It also ended other benefits: the federal credits for residential energy improvements and solar ended for property placed in service after 2025, and the clean vehicle credit ended for vehicles acquired after September 30, 2025. Starting with 2026 payments, the 1099-NEC and 1099-MISC reporting threshold rose from $600 to $2,000.

New York changes its own rules too. Beyond the new tip exemption, a state middle-class tax rate cut took effect on January 1, 2026, alongside an expanded state child tax credit.

Some provisions are permanent and some expire in a few years. Planning around them means tracking when they change, not just what they allow today. A missed deduction or a misapplied credit doesn’t just cost money once; the same mistake can repeat on return after return.

Questions to Ask About Your Tax Situation

A short conversation with a knowledgeable professional can clear up a lot. Questions worth asking:

• Does my current business structure still make sense now that the business has grown?
• Am I claiming the deductions and credits I currently qualify for, on both my federal and New York returns?
• Are my estimated payments based on this year’s actual income?
• Has a recent change in the law created an opportunity, or a new requirement, that applies to me?

KD Accounting & Tax works with individuals, small business owners, and self-employed professionals across Buffalo and Erie County on tax preparation, filing, and planning. The focus is on how current federal and New York rules apply to each person’s specific situation. Getting informed guidance before decisions are made tends to matter more than fixing things afterward.

Frequently Asked Questions