Key Shifts from the 2017 Tax Cuts and Jobs Act
Back in 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), a sweeping reform that cut rates, doubled standard deductions, and suspended personal exemptions. But many of those changes had built in expiration dates sunset clauses set to take effect in 2026. That moment is almost here.
So what does it mean in practice? For starters, the standard deduction is dropping. For single filers and married couples, this means less income shielded from taxes. People who benefited from the doubled deduction in recent years may now owe more or find that they need to itemize again.
Then there’s the return of personal exemptions. These were eliminated under TCJA but are now set to come back unless new legislation blocks it. That could actually help families, especially larger households, since each exemption reduces taxable income depending on size and inflation adjusted value. But it won’t necessarily outweigh the loss in the standard deduction. Middle income families will have to run the math.
Bottom line: the 2026 tax landscape is going to look more like 2016, but in a higher cost world. Taxpayers especially families need to pay attention and plan early.
Reverting to 2016 Levels: Higher Federal Tax Rates Ahead
With sunset provisions in the 2017 Tax Cuts and Jobs Act set to expire in 2026, federal income tax rates are heading back to pre reform levels. What does that mean in plain terms? For most taxpayers, especially high earners, expect a noticeable bump in what you owe the IRS.
Under current law, individual income tax brackets will shift upward. That 22% bracket you’re in now? It’s likely heading back to 25%. Top earners who’ve been enjoying a 37% marginal rate could face 39.6% again. This isn’t just a problem for the wealthy it creeps into the upper middle income space too. Filers with two decent salaries in one household might feel the pinch more than expected.
Middle income Americans won’t be unscathed, either. With the standard deduction shrinking and personal exemptions returning, taxable income could rise. The lower rates that once offered relief are on their way out. On paper, more people will land in higher brackets, even if their economic reality hasn’t changed much.
So what can you do? First, don’t panic plan. Use 2024 and 2025 to take strategic action. Think about accelerating income before rates increase. Consider Roth conversions while tax rates are still relatively favorable. Revisit charitable giving strategies and itemized deductions. Tax loss harvesting and retirement account optimization should be on your radar too.
Bottom line: With these shifts, staying passive hurts. Talk to a pro and use the next couple of tax years wisely.
Child Tax Credit & Family Benefits
The generous child tax credit expansions that helped many families during the pandemic and its aftermath are sunsetting. Beginning in 2026, the credit will revert to pre 2018 rules meaning lower maximum per child amounts, a higher threshold for income qualification, and tighter restrictions on refundability. For many parents, this will translate to smaller tax refunds and more complicated filing requirements.
Eligibility will also change. Kids must still meet age and dependency tests, but updates to income caps will shrink the number of households that qualify for the full credit. If your household income hovers near the thresholds, what counted as a windfall in previous years may shrink to a small deduction if any.
To soften the blow, planning ahead matters. Consider adjusting your withholdings to avoid a sudden tax bill next spring. If your income is inconsistent or near a phaseout range, a tax professional may help find timing strategies for deductions and income recognition that preserve credit eligibility. Either way, the era of easy, sizable child related credits is ending. Time to plan accordingly.
Estate and Gift Taxes: Big Shifts
One of the most significant changes coming in 2026 is the halving of the lifetime estate and gift tax exemptions. Right now, individuals can shield close to $13 million from federal estate tax double that for married couples. But unless Congress acts, those limits will drop back to pre 2018 levels, closer to $6 million per person.
That’s not far off, and estate planners are ringing the alarm. These aren’t end of life only concerns. This is about locking in current exemptions while you still can using tools like irrevocable trusts, family limited partnerships, and gifting strategies. Doing nothing could mean a multi million dollar tax bill later.
So who should care? Anyone with a thriving business, large real estate holdings, or generational wealth on the line. Small business owners especially should act before next gen succession gets tangled in tax liabilities. If you’re even close to the current exemption, talk to a pro now. The window to act is narrow, and it’s closing fast.
Capital Gains and Investment Taxes
Potential Rate Increases Ahead
For high income earners, capital gains taxes could rise significantly in 2026. With portions of the 2017 Tax Cuts and Jobs Act (TCJA) scheduled to expire, the top capital gains rate may revert to higher pre TCJA levels.
Top earners could face an increase in the long term capital gains rate from 20% to as high as 23.8% (including the Net Investment Income Tax)
Short term capital gains, already taxed as ordinary income, may be affected by the return of higher marginal tax brackets
What this means: Investors with substantial gains may need to reevaluate their holding strategies and sell decisions before these changes take effect.
Long Term vs. Short Term Gains: What’s Changing?
While short term gains (assets held less than one year) will continue to be taxed as ordinary income, changes to income brackets could affect the rate you pay. Meanwhile, long term gains (held more than a year) may lose their current tax advantages under new rate structures for top earners.
Breakdown:
Short term gains: Affected by overall income tax bracket increases
Long term gains: Potentially lose favorable treatment for high income individuals
Strategy tip: Consider timing asset sales to occur before any rate changes hit in 2026.
Smart Investor Planning Before 2026
In light of these expected changes, investors should begin planning now. Key tax planning strategies could help mitigate risks:
Harvest gains while current lower rates still apply
Reassess holding timelines to optimize for favorable tax treatment
Use tax advantaged accounts like Roth IRAs and HSAs to shelter future investment income
Offset gains with losses where possible using tax loss harvesting
Staying informed is critical as tax policy is subject to change. Monitor legislation updates and explore more economic news insights to stay ahead.
What This Means for Small Businesses
Small business owners are facing a rougher tax terrain ahead. One of the biggest changes? The potential reduction or full phase out of the 20% pass through deduction introduced by the 2017 Tax Cuts and Jobs Act. If you’re a sole proprietor, S corp owner, or part of a partnership, this could mean a noticeably higher tax bill. It won’t be business as usual this deduction helped millions lower their effective tax rate, and losing it could squeeze already tight margins.
Then there’s payroll. Expect rising payroll tax costs as wage thresholds shift and employers bear a larger share of contributions. It’s one of those line items in your budget that quietly balloons unless you’re watching closely. If you employ staff or independent contractors, now’s the time to revisit those numbers.
That said, it’s not all doom and drag. Smart timing still works in your favor consider accelerating deductible expenses before changes hit, or delaying income when it makes sense. Look into hiring based tax incentives, especially local or green economy credits. And above all, tighten your cash flow strategy. Predictability is power when the rules are in flux.
Adjust Your Financial Plan Now
The 2026 tax landscape isn’t just a policy update it’s a structural shift. If you’re waiting until filing season to think about it, you’re already behind. Work with a qualified tax advisor or financial planner now. Someone who understands both the system and your specific goals can help you anticipate the ripple effects before they hit your wallet.
Start by reexamining your filing status, deferments, and current withholding levels. These seemingly minor decisions could mean the difference between a surprise tax bill and a smoother transition to the new rates. Married filing jointly vs. separately? Still deferring student loan interest? Time to run the scenarios.
Lastly, take a hard look at where your money’s parked. Tax advantaged accounts Roth IRAs, HSAs, 529s are worth a fresh evaluation. Your tax exposure in retirement could shift with these new laws, so plan with that in mind. Smart investing means thinking several steps ahead, especially when the rules are changing.
Keep tabs on the evolving updates with trusted sources like economic news insights. Staying informed now beats scrambling later.
