2026 Tax Cuts on the Horizon

In our last newsletter, we touched on the sunsetting The Tax Cuts and Jobs Act (TCJA). On January 1, 2026, the tax cuts are scheduled to expire. Regardless of whether these cuts are extended, it’s important to stay informed and know your options.

Accelerate The Recognition Of Income
Not everyone can do this, but those who can should run an analysis to consider the pros and cons. For example:

• Employees with stock options may want to consider exercising, early exercising, and sale of their stock.
• Individuals could more aggressively diversify a concentrated stock position or advance the timeline on a planned sale of an asset.
• Business owners considering selling their company in the next few years may want to accelerate their timeline.
• Individuals with pre-tax money in an IRA may want to consider a Roth conversion, especially pre-RMD retirees.

Delay Harvesting Losses
If individuals have large unrealized losses, it may make sense to consider delaying harvesting those losses until 2026. Again, taxpayers must consider their current and future tax and income situation, the time value of money, and so forth.

Take Advantage Of The Estate And Gift Tax Limits
For affluent individuals and families expecting to have a federally taxable estate, it’s worth considering the merits of a pre-2026 gifting strategy. Generally, this approach is most advantageous for individuals looking to make a gift in excess of the 2026 limits. For example, suppose you gift $7 million in 2024 when the individual limit is $13.61 million. In 2026, the limit drops to $7 million. You have no exemption left. If you gifted the full $13.61 million this year, you’d still have no exemption left, but were able to nearly double your gift without federal gift tax implications.

Delay (And Bunch) Charitable Deductions
If the expiring tax code is likely to raise your tax liability, consider delaying planned charitable gifts until 2026. Given the changes to the tax brackets, tax deductions could be much more valuable in 2026 than they are today.

Maximize Employee Benefits
Working taxpayers should consider pre-tax versus Roth 401(k) contributions now and again in 2026. For some, it may make sense to max out after-tax Roth contributions now and revert in 2026. Workers can also consider flexible savings accounts, health savings accounts, and the pros and cons of deferred compensation. Business owners may be able to accelerate tax-deferred savings even more through different retirement plan structures.

Optimize Your Investments With Asset Location
If investors haven’t already been working to optimize their tax situation with asset location, now is the time. Asset location means utilizing the tax treatment of different investment accounts to your advantage when investing across your portfolio. Since investors pay tax annually on dividends, interest, and capital gains distributions in a taxable brokerage account, even if they don’t sell assets, it can be worthwhile to consider allocating more tax-efficient investments here.

Plan For Change
There have been many major changes to the tax code in the last 10 years. So, taxpayers shouldn’t get comfortable with the current tax code. At this time, the major tax changes in 2026 are widely expected, but nothing is set in stone. Taxpayers looking for multiyear planning should speak with their tax and financial professionals as soon as possible to avoid running out of time. Especially on the estate planning side, attorneys and tax professionals will likely be in high demand as 2026 nears and legislative clarity improves.

The looming tax changes may be unnerving, but know that it is our role to help you navigate these complexities. It is our goal to help you understand your tax opportunities from a holistic perspective.

Please refer to your tax professional for specific tax advice. For more information, click here.