The Clock is Ticking: Navigating the 2026 Tax Landscape

Eight years ago, the Tax Cuts and Jobs Act (TCJA) of 2017 reshaped the American tax system. Fast forward to today, and we're on the cusp of 2026, a year marked by the expiration of numerous TCJA provisions. This looming deadline has significant implications for taxpayers, making it essential to start preparing now.

Brackets Will Reset One of the most noticeable changes will be the reset of income tax brackets. The current brackets range from 10% to 37% but are set to revert to pre-2018 levels, ranging from 10% to 39.6%. This shift might make now an opportune time to consider strategies like converting a traditional IRA to a Roth IRA. With Roth conversions, you pay taxes now (at a potentially lower rate) and enjoy tax-free withdrawals later.

Adjustments in Deductions The TCJA increased the standard deduction significantly while eliminating personal exemptions. Post-2025, these will revert to their pre-TCJA levels, potentially halving the current standard deduction. This change could make itemized deductions more attractive for many taxpayers. Also, with the reinstatement of certain itemized deductions, such as those for unreimbursed employee expenses, planning ahead becomes crucial.

Charitable Contributions and Estate Planning The deductible amount for charitable donations will also change, creating a strategic window for making larger charitable contributions before 2026. Estate planning requires special attention too, as the generous TCJA estate tax exemption is set to decrease significantly. Exploring estate planning tools, such as various trusts or gift strategies, can be beneficial.

Changes in Business and Personal Tax Credits For business owners, the 20% deduction for qualified business income under Section 199A will disappear, affecting many small businesses. On the personal side, the Child Tax Credit will revert to its pre-TCJA level, impacting family tax planning. Additionally, the Alternative Minimum Tax (AMT) exemptions will decrease, potentially affecting more taxpayers.

Real Estate and SALT Deductions Real estate owners should note the changes in mortgage interest and State and Local Taxes (SALT) deductions. The TCJA’s restrictions on these deductions will lift, possibly altering the tax landscape for homeowners.

The Importance of Timely Planning Given the complexity and breadth of these changes, effective tax planning requires a proactive approach. Consulting with financial professionals, like CPAs and estate attorneys, is more important than ever. Remember, these professionals will be in high demand as the 2026 deadline approaches, so starting early is key.

Conclusion: Don't Wait, Act Now The tax landscape is set for a significant shift in 2026. Understanding these changes and taking action now can help mitigate potential tax increases and leverage current benefits. Whether it’s adjusting retirement strategies, revisiting estate plans, or rethinking deduction strategies, the time to plan is now. By being proactive, you can navigate these changes effectively and secure your financial future.