Prepare for the 2026 Tax Changes
Understanding the Impact of Upcoming Tax Increases
The end of 2026 is shaping up to be a pivotal moment for taxpayers. Over $4 trillion in tax increases are scheduled to take effect, marking the most significant shift since the 2017 Tax Cuts and Jobs Act (TCJA). This means that the decisions you make now can have a substantial impact on your tax bill in the coming years. Planning ahead is not just smart—it’s essential.
Whether it’s accelerating deductions or deferring income, the right moves before year-end can help soften the blow of higher taxes. You can explore options like contributing to retirement accounts, which not only reduces taxable income but also secures their financial future.
Why Early Action Matters
Waiting until next year to react means missing out on opportunities to reduce taxable income or maximize credits. Early planning can help you:
- Lock in current tax rates and benefits before increases take effect.
- Utilize available deductions and credits fully.
- Adjust investment and business strategies to optimize tax outcomes.
The importance of early action cannot be overstated when it comes to charitable contributions. By making donations before the end of the year, you can take advantage of current deduction limits, which may change with the new tax laws. This not only benefits the charities but also allows donors to maximize their tax benefits.
Additionally, understanding the nuances of tax-loss harvesting can be crucial for investors looking to offset gains with losses, thereby reducing their overall tax liability. Engaging with a tax professional early in the process can provide tailored strategies that align with your financial goals, ensuring that you are well-prepared for the changes ahead.
Consider State Tax Competitiveness and Relief Options
Evaluate Your State’s Tax Environment
State taxes can significantly impact your overall tax burden. The 2025 State Tax Competitiveness Index ranks states based on various tax categories, including individual income, corporate, sales, property, and unemployment insurance taxes. Understanding where your state stands can help you plan better and explore potential relief options.
For example, some states are proposing changes that could ease tax burdens for residents. One notable development is the proposed increase in the SALT (State and Local Tax) deduction cap from $10,000 to $40,000 for households earning under $500,000, potentially providing meaningful relief in high-tax states starting in 2025.
Practical Tips for State Tax Planning
- Review your state’s tax rates and deductions before year-end.
- Consider timing income and deductions to maximize state tax benefits.
- Explore state-specific credits or relief programs that may be available.
Boost Savings with Strategic Income and Expense Timing
Timing Is Everything
Shifting income or expenses between tax years can have a big impact on your tax liability. For instance, deferring income to 2027 might reduce your 2026 tax bracket, especially with the anticipated tax increases. Conversely, accelerating deductible expenses into 2026 can lower this year’s taxable income.
Year-End Moves to Consider
- Prepay deductible expenses such as property taxes or charitable contributions.
- Defer income where possible, especially if you expect to be in a higher tax bracket next year.
- Maximize contributions to retirement accounts before the deadline.
- Review capital gains and losses to balance your investment tax picture.
Frequently Asked Questions
The most significant change is the scheduled $4 trillion in tax increases affecting various income levels and business sectors. These changes will impact individual and corporate tax rates, deductions, and credits, making 2025 a critical year for tax planning.
The proposed increase from $10,000 to $40,000 for households earning under $500,000 could provide significant relief for taxpayers in high-tax states by allowing them to deduct more state and local taxes on their federal returns, reducing overall tax liability.
