One of the timely subjects we financial advisors at Altfest Personal Wealth Management are discussing with our clients right now is preparing for the expected “sunsetting” of the Tax Cuts and Jobs Act (TCJA), scheduled for the start of 2026 unless Congress acts to keep it in place.  But with the chance that it could be discontinued or altered in the not-too-distant future, it’s important to look now at your financial and tax situation and plan to optimize it.

Let’s review why these tax provisions are changing, when they may change and how the changes will affect you. Then we can discuss some tax-planning strategies that could help you mitigate some of the expected revisions.

How Did the Tax Cuts and Jobs Act Affect Your Tax Rate?

What exactly was in the Tax Cuts and Jobs Act put forth early in the Trump administration that went into effect in 2018? One of the biggest changes delivered by the TCJA was reduced tax rates and broadened tax brackets. Importantly, the act included a sunset provision that said, come Jan. 1, 2026, unless Congress acts otherwise, many of the rules will revert to what they were before 2018.

Pre-2018, the top tax rate was 39.6%. The TCJA lowered that to 37%. For 2026, what we’re potentially seeing is that highest tax rate jumping to 39.6% again. But beyond that, the tax brackets also will change if this set of laws is removed.

For example, the 10% current tax bracket ends at annual income of about $11,600 for 2024. However, come 2026, if the act sunsets, that 10% is going to end at $9,325. Then, many people who currently are in the 10% tax bracket are going to find themselves in the 15% tax bracket in 2026. More notably for clients we serve and possibly you, the top tax rate for single individuals of 37% today starts at income of $731,000 approximately. Come 2026, that’s going to be much lower, at around $418,000, which is a very significant shift. When the TCJA was enacted, some people found that their marginal tax bracket decreased. But with discontinuation, many people are going to find that their marginal tax rate increasing, across all filing statuses.

What does that mean for people who are married filing jointly? It’s the same story. Currently, the top tax bracket of 37% is at $731,000 combined annual income, versus an inflation-adjusted estimate of about $470,000 in 2026 — also a significant drop that will hit large numbers of taxpayers.

Standard Deduction Would Be Halved

Some other changes that we’ll see with the likely end of the TCJA include the size of the standard deduction and who itemizes their tax filings. Currently for single taxpayers, the standard deduction is $14,600. However, in 2026 it is expected to return to just $8,300. And for those married filing jointly, at present the standard deduction is $29,200. In 2026, it is expected to be $16,600. As you can see, the standard deduction is almost being cut in half.

It’s worth noting that with this changeover, we are expecting the personal exemption to be returned. But even with that, the reduced standard deduction means that a lot of people may go back to filing itemized deductions.

The TCJA altered itemized deductions in several ways, beyond just putting in place a higher standard deduction. One of the most notable changes that came along with this was a lower state and local income tax, or SALT, deduction limit. This is the deduction you get on your federal return for paying state and local income tax. With the TCJA, it was reduced to a limit of $10,000, which was a blow for many, especially people who live in high-income-tax states such as New York and New Jersey. We also saw miscellaneous deductions, such as unreimbursed employment-related expenses, erased.

With the sunset of the TCJA on the horizon, that SALT limitation would go away and we’ll receive miscellaneous deductions once again.

There were other several changes brought about by the TCJA. A notable one was alterations to the child tax credit. Pre-2018, each qualifying child led to a tax credit of $1,000 for parents — that was doubled with the TCJA. If the rules are ended, this credit will be cut in half, dropping back to $1,000 per child.

Reversion Could Raise Estate Taxes

In addition to all the changes we saw to income taxes, there came from the TCJA a very notable impact on estate tax, namely a greatly raised bar before estate amounts were taxable. Before it, the lifetime exclusion, or amount you were able to gift or pass through to your heirs upon death, was about $5.5 million.

That significantly increased with the TCJA: Currently, the lifetime exclusion sits at about $13.6 million per person, which means that many people are finding they are subject to zero federal estate tax. With the sunset, though, we’re going back to pre-2018 figures, of course adjusted for inflation. Many are projecting the level for estate taxation is going to be around $7 million come 2026, which means people who didn’t in recent years are going to have to start thinking about what federal tax their estate may be subject to and what moves they need to make to reduce what they pass on to their heirs, a major estate planning shift.

Further, if you’re a business owner, be aware that the Qualified Business Income, or QBI, deduction will be eliminated. With the TCJA, we saw this deduction rise to 20% of qualified business income being allowed. This was a great benefit to business owners and who had pass-through income.

What Can You Do to Prepare?

With all these changes possibly looming, what are you supposed to do?

For one, if you find that your tax rate is expected to be higher in 2026 than it is in 2024 and what you project it to be in 2025, it may be appropriate for you to accelerate income and defer deductions.

Usually, tax preparers want to help you defer your taxes. But we’re seeing that if you have the chance to pay taxes now at a lower rate, you may be better off doing so. Take advantage of the present lower rates so come 2026, you’re paying on less income because then you may be taxed at a higher rate.

How do we do this? A common example is through capital gain harvesting. In this strategy, we sell investment positions at a loss, or we sell at a lower price than what you first paid, and that loss offsets gains or possibly ordinary income up to $3,000 annually, and whatever you don’t use, you can carry forward.  With capital gain harvesting, we sell long-term, appreciated holdings in your taxable accounts because that type of capital gain is taxed at lower rates. This doesn’t mean selling holdings from your pretax IRAs — you’re not paying capital gains tax on those, as they are taxed as ordinary income when withdrawn.

In addition to accelerating income, you can consider deferring deductions, which might affect your charitable giving. As I mentioned, the TCJA doubled the standard deduction, which meant that many people were no longer itemizing their deductions and failing to receive the tax benefit of charitable giving at certain levels.

In this area, one suggestion we offer is lumping gifts together in a shorter period, while also donating appreciated securities. We recommend these moves for our clients who have had investment positions for a very long time and their gains are substantial, meaning that selling will result in heavy capital gains tax. But if they donate those securities instead of selling them, they avoid capital gains tax and they also would get a tax deduction of the fair market value of those securities at the date of the gift, assuming they are itemizing deductions.

One other way in which you can accelerate your income to recognize the likely changes to tax rates and brackets is through a Roth IRA conversion. This takes funds out of your pretax, or traditional IRA, and puts them into a Roth IRA. It requires immediately paying taxes on the funds you are converting, but this choice offers many advantages. Primarily, because you paid taxes when the funds went in, you’re not paying taxes on any of that appreciation over time once the savings are withdrawn, which is a great benefit.

A few other strategies to help get ahead of the potential sunsetting of the TCJA include:

• Consider taking more out of your IRAs now and in 2025 if you are at the stage of life where required minimum distributions (RMDs) are necessary and your 2026 and later tax bracket may be higher than it is now.
• If you’re someone who pays estimated taxes, you may want to consider delaying your fourth-quarter 2025 payment until January 2026, when you’ll once again be able to benefit from the deduction from paying state and local income tax that’s expected to return.
• Take the advantages of charitable giving to another level by combining donating appreciated securities with donor-advised funds, or DAFs. These are funds that clients create, then put mutual funds or stock into, getting a tax deduction at the date they place the assets in the fund. Later, the fund can, in the same year or future years, distribute donations to various charities.

These are just a few of the tax-planning opportunities we have found that frequently can be very impactful for our clients. There are many others that potentially could be relevant for you.

Find Out More

At Altfest, we strive to understand who you are and what matters to you from the first consultation. We want to learn about your concerns or work through external circumstances — like major federal tax policy changes — that will affect your retirement and estate planning. Then we’ll put together a road map to help you get to where you want to go.

If you’re not yet an Altfest client, please book some time for a complimentary consultation.

Investment advisory services provided by Altfest Personal Wealth Management (“APWM”). All written content on this site is for information purposes only. Opinions expressed herein are solely those of APWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.