Understanding the Sunset of Tax Provisions in 2026

As we approach the year 2026, certain tax provisions introduced by the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire, marking what’s commonly referred to as the “great tax sunset.” This legislation brought significant changes to the tax landscape, affecting everything from tax brackets to deductions and credits. However, many of these changes were temporary, with expiration dates built into the legislation. Unless new laws are passed to extend or modify these provisions, they will revert to their pre-TCJA conditions, potentially impacting individuals and businesses alike.

Which Tax Provisions are Set to ‘Sunset?’

One impactful provision set to expire is the estate and gift tax exemption, which temporarily increased to nearly $13 million per individual. However, in 2026, this exemption is expected to decrease to approximately $6 million, raising concerns for clients with substantial estates. Other provisions on the brink of reversion include individual tax rates, the standard deduction, the Child Tax Credit, and various business tax provisions such as bonus depreciation.

What Clients Need to Know

Understanding the potential impact of these changes is crucial for clients and their financial planning strategies. With a proactive approach, financial advisors can help clients navigate these impending changes and effectively reduce their tax liabilities both now and in the future.

How to Prepare for the Great Tax Sunset

For the prudent investor, it’s essential to prepare for the great tax sunset of 2026. You can take proactive steps to adjust your financial plan, including:

  • Tax Projection: Work with your advisor or tax professional to project your future tax liabilities under various scenarios, helping you anticipate potential changes and plan accordingly.
  • Tax-Efficient Diversification: Explore strategies for tax-efficient investing and asset allocation to minimize the impact of rising tax rates.
  • Retirement Account Optimization: Review your retirement account contributions and conversions, considering both traditional and Roth accounts, to optimize tax outcomes in retirement.
  • Estate Planning: Discuss the effect of estate tax laws with your advisor and explore planning tactics to protect your wealth and minimize tax consequences.
  • Financial Goals: Adjust your financial goals and saving methods to account for potential changes in disposable income due to higher taxes.

Holistic Financial Planning to Stay a Step Ahead

A truly holistic financial advisor can help you navigate updates in tax provisions as part of your overall tax-efficient financial plan. By staying informed and proactive, you can prepare yourself for the changes ahead and make informed decisions to secure your financial future. Click here to find a holistic advisor near you.