Higher Taxes in 2026?:
What is the TCJA and what does its sunset mean to you?
The Tax Cuts and Jobs Act (TCJA), passed in 2017, was one of the most significant pieces of tax legislation in our lifetimes that you probably never heard of. Why? Because tax law is boring, and the tax code is 1000s of pages long. But it probably had a sizable impact on your taxes and is about to do so again.
Now that you’re on the edge of your seat waiting to see what happens, let’s look at some of the details surrounding the TCJA.
The Background
The TCJA was hailed as a solution to all our problems. It promised lower taxes and higher GDP growth. And some of it worked. More than 65% of American families and business experienced lower taxes and beefed-up deductions, both perfect for paying down record student loan and consumer debt. We also got a doubling of the estate tax exemption, that piece of the tax code that people call the death tax. But, like most good things, the TCJA came with an expiration date…Dec 31, 2025. So, what’s in store for 2026?
What to Expect When You’re Expecting…Higher Taxes
Higher Tax Rates
The TCJA sunset will result in higher marginal tax brackets and compressed income thresholds for those brackets. This just means that, even if your income doesn’t change, you could find yourself in a higher marginal bracket for 2026. Ex: you’re a married couple making $250,000 of combined income. In 2024, you’d be in the 24% marginal bracket (equivalent of the pre-TCJA 28% bracket) Now, however, you find yourself in the 33% bracket, a jump of 9%!! I’m sure you can think of much better ways to spend 9% of your money than Uncle Sam can.
Lower Standard Deduction
The TCJA greatly increased the standard deduction (check out some of our other blog posts about deductions if you are unsure what this means). This meant that fewer people were itemizing deductions and just electing the higher standard number. That too is changing. So, dust off that old shoebox to start keeping your receipts as you prepare to start itemizing once again.
Lower Child Tax Credit
Under the TCJA, the Child Tax Credit got a major boost, like giving your kids a tax-sponsored allowance. But when the TCJA sunsets, that credit will shrink back down to its old size, and your kids will seem just a bit more expensive. On the bright side, you’ll still have plenty of photos to remember when they were worth a bigger tax break!
SALT Deduction
The TCJA capped the State and Local Tax (SALT) deduction at $10,000, leaving high-tax state residents feeling a little, well, salty (this can sometimes be mitigated with some advanced tax planning or by living in a state without a state income tax). The big question is: will that cap disappear after 2025, or will it stick around like a bad habit? Only Congress knows for sure, but it’s safe to say you might want to keep an eye on this one if you live in a state with hefty taxes, or any taxes, for that matter.
Bye Bye QBI
Many business owners have gotten used to a 20% deduction under Sec 199A for Qualified Business Income. That too, will sadly no longer be available.
Bonus Depreciation
I’m sure you’ve seen the unusually large number of brand-new Ford F-150s being driven around by business owners. This is partly due to Sec 168k bonus depreciation and sometimes due to bad advice from their accountant. This provision allowed business owners to take a 100% bonus depreciation deduction of qualified property, like brand new giant trucks. The percentage has scaled down from 100% since 2023 and will disappear altogether after Dec 31, 2026.
Estate Tax Exemption
The TCJA essentially doubled how much money you needed to have when you died before Uncle Sam deemed it excessive and taxed you. That, too, is going back to the way it was.This means that more families will owe the IRS when they find themselves dead.
So, What’s a Person to Do?
Assuming Congress does nothing and the TCJA expires, taxes will likely get a little more costly for most people and businesses, but some smart planning now can help you achieve better outcomes.Gifting strategies, Roth conversions, accelerating income, and other planning topics can ensure you’re not left holding your hat in your hand when your bill goes up in 2026. Reach out if you’d like to learn more.
