Big Changes Are Coming in 2026 as Tax Provisions Sunset

Taxes often sit at the forefront of concerns for high-income earners and entrepreneurs. With potential tax law changes looming on the horizon, it's crucial to stay abreast of developments for optimal financial planning. Here's a breakdown of what's on the horizon:

The Importance of Proactive Financial Planning:

In the realm of finance, flexibility is key. Rather than relying solely on a static financial plan, proactive financial planning allows individuals to adapt to evolving tax laws and regulations.

Anticipated Changes in 2026:

The Bad:

1. Standard Deduction Reduction:

• The standard deduction is poised to decrease significantly, potentially doubling the tax burden for many who rely on it.

2. Expansion of Alternative Minimum Tax (AMT):

• More individuals may fall under the scope of the AMT due to lower exemption and phase-out thresholds.

3. Sunset of Qualified Business Income Deduction (QBI):

• The QBI deduction, a boon for self-employed and small-business owners, may be discontinued.

4. Decrease in Child Tax Credit:

• The child tax credit is slated to diminish, potentially impacting families' tax liabilities.

5. Halving of Estate Tax Limit:

• The estate tax exclusion amount is set to be halved, necessitating strategic estate planning for high-income earners.

6. Upward Adjustment of Individual Tax Rates:

• Marginal tax rates are expected to rise across the board, leading to increased tax liabilities for individuals.

7. Favorable Corporate Tax Rates:

• Corporate tax rates, reduced under the TCJA, are anticipated to remain low beyond 2026.

The Good:

1. Removal of SALT Deduction Cap:

• The cap on state and local tax deductions may be lifted, although phaseouts at higher income levels will apply.

2. Expansion of Mortgage Interest Deduction:

• The allowable deduction for mortgage interest is set to increase, providing relief for homeowners.

3. Return of Miscellaneous Deductions:

• Miscellaneous deductions, including certain investment and work-related expenses, are slated to make a comeback.

4. Reintroduction of Personal Exemptions:

• Taxpayers may once again deduct personal exemptions for themselves, spouses, and dependents from their adjusted gross income.

Preparing for the Future:

With a potential landscape of higher and more extensive taxes on the horizon, proactive planning is paramount. Strategies such as maximizing tax-advantaged accounts, optimizing deductions, and exploring investment opportunities can help mitigate tax burdens over time.

Conclusion:

As tax laws evolve, staying informed and proactive is essential for minimizing tax liabilities and maximizing financial well-being. By understanding potential changes and implementing strategic planning measures, high-income earners can navigate the shifting tax landscape with confidence. If you have any questions about how you can learn more about this topic or any other, please feel free to call or email me at (615) 844-3398 or Jim.Maddux@raymondjames.com. 

Disclosure: 

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.