Change is on the horizon for taxpayers as 2026 comes over the horizon. The Tax Cuts and Jobs Act (TCJA), a major reform passed in 2017, brought a host of benefits to higher-income earners. However, these provisions were never meant to last forever. Known as the “sunset,” many of these changes are set to expire unless Congress acts to renew them.

What does this mean for you and your financial plan? Higher taxes, altered deductions, and shifting tax strategies could all be part of the picture. Whether you’re planning for retirement or simply trying to maximize your yearly tax refund, understanding the potential impacts of the TCJA sunset is critical.

What Is the TCJA Sunset?

The TCJA brought sweeping reforms to the tax code. While some changes, like the reduction in corporate tax rates, are permanent, many individual tax provisions were designed to expire after 2025. Without legislative intervention, the tax code will revert to pre-2018 rules.

Here are a few key changes that could take effect starting in 2026:

Higher Tax Rates: The current seven tax brackets with reduced rates (ranging from 10% to 37%) are scheduled to revert to higher pre-TCJA levels. For instance, the top individual income tax rate could increase from 37% back to 39.6%.

Lower Estate and Gift Tax Exemptions: The estate and gift tax exemption amount is set to decrease significantly. Currently, the exemption is approximately $13.9 million per individual in 2025, but it is expected to drop to around $6 million in 2026, impacting estate planning strategies.

Smaller Standard Deduction: The doubled standard deduction ($15,000 for 2025) will revert to lower levels, reducing the benefit for many taxpayers. This change may lead more individuals to itemize deductions again.

Return of Personal Exemptions: Personal exemptions, eliminated under the TCJA, may return, allowing taxpayers to deduct a set amount for themselves and their dependents.

Changes to SALT Deduction Limits: If Congress lifts the $10,000 cap on state and local tax (SALT) deductions, the full deduction will be restored. Though controversial, this could benefit taxpayers in high-tax states.

Adjustments to the Child Tax Credit: The expanded child tax credit could be reduced back to pre-TCJA levels, with the per-child credit amount reversed to $1,000 and income thresholds lowered.

How Will the New Administration Impact the Sunset?

The Trump administration has indicated an interest in extending and potentially expanding the TCJA. Key proposals include preserving individual tax cuts, reducing corporate tax rates further to 20%, and exploring targeted reductions for specific sectors like manufacturing. There are also plans to exempt certain income types, such as tips, overtime pay, and Social Security benefits.

However, it’s important to note that relying on legislative changes is inherently uncertain. While these proposals aim to provide relief and stimulate the economy, their implementation depends on addressing fiscal priorities and managing the growing national debt. The Congressional Budget Office (CBO) reports that extending the TCJA could add nearly $5 trillion over the next decade. This means individuals should be prepared for multiple scenarios, including the possibility that the TCJA provisions may not be extended as proposed.

How Should You Prepare?

Navigating the complexities of tax planning during times of legislative uncertainty can be challenging, but proactive strategies can help you stay ahead. Here are some steps to consider.

Assess Your Current Situation: Understanding your current tax liability, any applicable tax laws, and how these align with your financial goals is a crucial first step.

Explore Timing Strategies: For example, accelerating income into 2025 while rates are potentially lower could reduce your overall tax burden. Additionally, considering Roth conversions during this period may be advantageous.

Reevaluate Estate Plans: WIth the potential for a lower estate tax exemption, reviewing your estate planning strategies now can help you preserve your wealth for future generations. Utilizing the current higher exemption before it decreases can minimize tax exposure for your heirs.

Optimize Retirement Contributions: Maximize contributions to tax-advantaged accounts like IRAs and 401(k)s to minimize taxable income.

Seek Professional Guidance: A knowledgeable financial advisor can help you develop a tailored strategy that accounts for potential tax changes and aligns with your broader financial goals.

To get started, download our free Financial Advisor Comparison Checklist to find the right professional for you and your needs.

How We Can Help

At Ironwood Wealth Management, we specialize in creating customized tax strategies that adapt to your unique situation. Whether you’re concerned about income tax planning or managing your estate, our team of experienced professionals is here to help you navigate the road ahead. View how our tax strategy planning can help you minimize your tax liability and maximize your financial success.

Plan Ahead for a Smooth Transition

The potential TCJA sunset is a powerful reminder that tax laws are ever-changing. By staying informed and proactive, you can position yourself to weather these changes with confidence. Schedule a consultation today, and let’s develop personalized tax strategies that help secure your financial future.