Upcoming Tax Law Changes in 2026: What Individuals and Businesses Need to Know Now
The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant tax reductions for individuals and businesses. However, many of its provisions are set to expire on December 31, 2025, leading to potentially higher tax burdens. Congress is currently debating potential extensions or modifications to certain provisions, so taxpayers should stay informed and be prepared to adjust their tax strategies accordingly. Below, we outline key changes and strategies to help you prepare.
Changes for Individuals
1. Individual Income Tax Rates Will Increase
Current tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) will revert to higher pre-2018 rates (10%, 15%, 25%, 28%, 33%, 35%, 39.6%).
This change affects all taxpayers, increasing tax liabilities across income levels.
2. Standard Deduction Reduction
The nearly doubled standard deduction will revert to pre-2018 levels:
Current (2024): $14,600 for single filers, $29,200 for married joint filers.
Post-2025: Approximately $8,300 for singles and $14,600 for married couples (adjusted for inflation).
3. Personal Exemptions Return
The TCJA eliminated personal exemptions, but their return would allow taxpayers to claim exemptions for themselves and dependents, reducing taxable income. Personal exemptions would be valued at approximately $5,300.
4. Child Tax Credit Reduction
The current $2,000 per child credit (with a $1,600 refundable portion) will drop to $1,000 per child, impacting families significantly.
5. State and Local Tax (SALT) Deduction Cap Repeal
The $10,000 cap on SALT deductions is set to expire, allowing unlimited deductions for state and local taxes paid. This will primarily benefit high earners and those in high tax states.
6. Mortgage Interest Deduction Expansion
The current mortgage interest deduction cap of $750,000 in loan principal will revert to the pre-TCJA limit of $1 million.
7. Alternative Minimum Tax (AMT) Exemptions Decrease
Higher AMT exemption thresholds will revert to pre-2018 levels, subjecting more high-income earners to AMT.
8. Estate and Gift Tax Exemption Reduction
The current exemption of $13.99 million per person ($27.98 million for married couples) will revert to approximately $7 million per person, increasing estate tax liabilities.
Changes for Businesses
1. Corporate Tax Rate Remains 21%
The TCJA’s permanent reduction of the corporate tax rate from 35% to 21% will remain unless new legislation changes it.
2. Qualified Business Income (QBI) Deduction Expires
The 20% deduction for pass-through businesses (LLCs, S-corps, partnerships, and sole proprietors) will be eliminated, increasing tax burdens on small businesses.
3. 100% Bonus Depreciation Phases Out
Businesses can deduct an accelerated amount of qualified capital expenditures immediately. However, this phases out as follows:
80% in 2023
60% in 2024
40% in 2025
20% in 2026
Full expiration in 2027, reverting to pre-2018 depreciation rules.
4. Interest Deduction Remains the Same
The interest expense deduction remains limited to 30% of adjusted taxable income (approximately EBIT).
5. Research & Development (R&D) Expense Deduction Restriction Continues
Businesses must continue to capitalize and amortize R&D expenses over five years instead of deducting them immediately.
6. Business Loss Deduction Limits Return
The excess business loss limitation for non-corporate taxpayers, set to expire in 2026, may impact businesses claiming large losses.
International Tax Changes
1. GILTI Deduction Decreases
The TCJA enacted Global Intangible Low-Taxed Income (“GILTI”), which is a tax on current earnings of foreign subsidiaries. Corporations receive a deduction of 50% but that amount will drop to 37.5%, increasing the effective tax rate on GILTI from 10.5% to 13.125%.
2. FDII Deduction Decreases
The Foreign-Derived Intangible Income (FDII) deduction provides a deduction for taxpayers that make qualifying sales and services to foreign customers. The FDII deduction will decrease from 37.5% to 21.875%, impacting businesses with foreign sales and services.
3. BEAT Tax Rate Increase
The Base Erosion and Anti-Abuse Tax (BEAT) applies to large multinational corporations making significant payments to foreign-related parties. The BEAT rate will increase from 10% to 12.5% in 2026.
Key Takeaways & Planning Strategies
For Individuals:
Consider accelerating income into 2025 to take advantage of lower rates.
Maximize the current standard deduction and tax credits before reductions take effect.
Evaluate estate planning strategies before exemption limits decrease.
Stay informed on legislative developments, as Congress may extend or expand certain provisions.
For Businesses:
Take advantage of bonus depreciation before phase-out.
Reassess pass-through entity status in light of the QBI deduction expiration.
Plan for changes in R&D and business loss deductions.
Monitor Congressional actions that may impact tax planning strategies.
For Estates:
High-net-worth individuals should consult with estate planners to minimize estate tax liabilities before the exemption reverts to lower thresholds.
Pay attention to potential legislative changes that could affect estate tax planning.
Final Thoughts
These impending changes underscore the importance of proactive tax planning. Congress continues to discuss potential extensions or modifications to expiring provisions, making it crucial for taxpayers to stay informed and be flexible with their planning strategies. By understanding the impact of the TCJA’s expiration, individuals and businesses can take strategic steps to minimize tax burdens.
We encourage you to consult with your tax advisor to ensure you’re prepared for these adjustments before they take effect. For personalized guidance, reach out to our team—we're here to help you navigate the evolving tax landscape.