2026 Tax Increases

Three stacks of coins that start out small on the left and gradually increase in height. On top of them are wooden blocks that spell out the word TAX.

Unless Congress takes action, a number of temporary tax laws are going to expire at the end of 2025, resulting in 2026 tax increases. This means you have this year and next to take advantage of the current rules. It’s also wise to plan for these possible changes now in case Congress doesn’t act. Here are some of the larger changes to consider.

Tax rates will go up, with very different income brackets.

Result: Most taxpayers will be subject to higher tax rates with the top rate moving from 37% to 39.5%. The income subject to these rates will also change dramatically. Now is the time to effectively manage tax brackets to avoid higher rates to avoid these 2026 tax increases.

Many more taxpayers will itemize deductions and have them subject to phase outs.

Result: Standard deductions may go down and your deductions may be lowered if your income exceeds certain thresholds. There is good news as the $10,000 tax limitation will be removed, and currently-excluded deductions are planned to be reintroduced.

More will be impacted by the alternative minimum tax

Result: Many more families will be subjected to a potential second tax calculation with the higher of the two tax rates being used to tax your income.

The child tax credit will be reduced, as will the phaseout for qualifying for the credit

Result: Most families with children will see a higher tax bill.

There will be different capital gain tax rules

Result: Planning sales of assets will be more important than ever. If you’re considering selling any assets, it would be wise to sell before the capital gains tax goes up.

Exemptions will be re-introduced

Result: This tax reduction provision may take some of the sting out of the rollback of temporary tax laws.

Small businesses may lose their 20% QBI deduction

Result: While small businesses in flow through tax entities, such as S Corporations, partnerships and sole proprietorships, will lose a valued tax break, look for Congress to re-introduce other tax incentives to combat the perceived lack of tax fairness when compared with other countries.

As Benjamin Franklin once said, “By failing to prepare, you’re preparing to fail.” So if the Tax Cuts and Jobs Act (TCJA) of 2017 expires, now is a great time to see if you can take advantage of the current tax laws BEFORE they are scheduled to change.

 

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Gwen Harrison President

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