2026 Tax Law Changes: Planning for the TCJA Sunset

Planning for the 2026 tax law changes is critical for CPAs, as major provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire after December 31, 2025. This article explores potential legislative outcomes through a hypothetical framework called the "One Big Beautiful Bill Act" (OBBBA) to model strategic responses. The OBBBA is a fictional law used here to illustrate how professionals can prepare for significant tax reform, whether it involves extending TCJA provisions, reverting to prior law, or enacting entirely new legislation. This exercise provides a practical framework for advising clients amid legislative uncertainty and ensuring your firm is prepared for a new tax landscape. For more analysis, visit our tax and bookkeeping insights blog.

What Individual Tax Provisions Could Change in 2026?

The most significant individual tax provisions scheduled to change are income tax rates, the standard deduction, and the Qualified Business Income (QBI) deduction. Under current law, the seven-bracket TCJA rate structure will revert to the higher pre-TCJA rates, the standard deduction will be cut nearly in half, and the 20% QBI deduction will be eliminated entirely. However, a new law could make these provisions permanent. For example, our hypothetical OBBBA would retain the 10%, 12%, 22%, 24%, 32%, 35%, and 37% brackets and the higher standard deduction. This would provide stability for long-term planning but require firms to update all client projections that were modeled on a TCJA sunset. The permanence of the QBI deduction would also solidify the value of pass-through entities, demanding a fresh review of entity choice decisions for many business clients.

How Could New Deductions Impact Tax Planning?

New or modified deductions would create immediate tax-saving opportunities but also increase the burden of documentation and compliance for accounting firms. A future law could introduce new itemized or above-the-line deductions, such as for seniors, qualified tip income, or overtime pay, while expanding benefits like the Dependent Care FSA contribution limit or qualifying 529 plan expenses. To substantiate these claims, clients would need to provide meticulous records, making efficient data management essential. Firms would need a streamlined process for tax preparation statement conversion to quickly identify and categorize these new deductible expenses from bank and credit card statements. Automating this data extraction is key to capturing all available benefits without sacrificing billable hours to manual data entry, a process detailed in our guide on AI and workflow automation.

What is the Future of the Federal Estate Tax Exemption?

The federal estate tax exemption is scheduled to be cut nearly in half, from $13.61 million per individual in 2024 to an inflation-adjusted level of around $7 million in 2026. This impending "tax cliff" has driven years of "use-it-or-lose-it" gifting strategies for high-net-worth individuals. However, a new law could dramatically alter this landscape. For instance, our hypothetical OBBBA permanently increases the exemption to $15 million per person ($30 million for a married couple). Such a change would require an immediate review of existing estate plans, especially those that utilized complex trusts or significant gifting to lock in the higher TCJA exemption. The planning conversation would shift from urgent, pre-sunset gifting to long-term, strategic wealth transfer under a new, more generous, and permanent exemption.

Could New Tax Laws Create Payroll Compliance Challenges?

Yes, new tax laws could introduce significant payroll compliance challenges by tying new individual deductions to mandatory employer reporting on Form W-2. For example, if a law created new deductions for qualified tips or overtime compensation, it would likely require employers to separately track and report these specific income types. This would necessitate immediate updates to payroll software and internal processes to isolate and quantify these amounts, potentially including new box codes on the W-2. Firms offering payroll services would need to audit their systems and advise clients on updating their procedures to ensure compliance and avoid penalties. Efficient accounting firm batch statement processing can help manage the data flow needed for such detailed reporting requirements.

Will the SALT Deduction Cap Change After 2025?

The $10,000 State and Local Tax (SALT) deduction cap is set to expire after 2025, but its future remains one of the most debated aspects of tax reform. Upon expiration, the cap would be eliminated for individuals, but the alternative minimum tax (AMT) would return for many, potentially limiting the benefit. A new law could take a different approach, such as our hypothetical OBBBA, which temporarily increases the cap to $40,000 for joint filers from 2026 through 2029 before reverting to $10,000. This would create a critical four-year planning window for clients in high-tax states. Professionals would need to model the temporary benefit and simultaneously plan for the significant tax increase upon its future expiration, exploring strategies like income shifting or entity-level tax elections. Handling such complex data requires a secure financial document conversion process to protect sensitive client information.

Frequently Asked Questions

What happens to tax rates in 2026?

Without new legislation, the individual income tax rates established by the TCJA will expire. The seven-bracket structure will revert to the pre-TCJA rates, which include higher top marginal rates, such as the top rate returning to 39.6% from the current 37%.

Will the standard deduction go down in 2026?

Yes. After December 31, 2025, the historically high standard deduction amounts from the TCJA are set to expire. The standard deduction will be cut by nearly 50%, returning to its lower, pre-2018 inflation-adjusted levels, making itemizing deductions more common again.

What is the future of the QBI deduction?

The Section 199A Qualified Business Income (QBI) deduction is scheduled to be fully repealed after 2025. Owners of pass-through businesses (S corporations, partnerships, sole proprietorships) will no longer be able to deduct up to 20% of their qualified business income.

How will the estate tax exemption change in 2026?

The federal gift and estate tax exemption is set to be reduced by approximately half. The 2024 amount of $13.61 million per individual will revert to its pre-TCJA baseline, which is estimated to be around $7 million per individual after adjusting for inflation.

Will the SALT cap expire in 2026?

The $10,000 cap on the state and local tax (SALT) deduction is scheduled to expire at the end of 2025. While this removes the cap, the simultaneous return of other expired provisions, like the Alternative Minimum Tax (AMT), may limit the benefit for many taxpayers.