2026 Tax Landscape
“Change is the law of life. And those who look only to the past or present are certain to miss the future.” – John F. Kennedy
As we move through tax season and 2025 tax returns are filed, it’s important to look beyond the numbers on last year’s return.
Over the past decade, there have been numerous tax law changes, beginning with the Tax Cuts and Jobs Act (TCJA) in 2017 and continuing through the One Big Beautiful Bill Act (OBBBA) in 2025. Each wave of legislation has reshaped planning strategies in different ways.
2026 introduces new federal provisions that will influence planning decisions moving forward. Understanding how these changes may impact your individual tax situation, and how best to navigate them within the context of your financial plan, is essential. In this article, we will focus on some of the most significant changes we believe could impact our clients in 2026. While not a comprehensive summary of every change, this overview is designed to help frame the planning considerations for the year ahead. As always, we would recommend you consult with your tax professional about your individual tax situation.
First: A Change to Avoid a Change
The OBBBA, signed into law on July 4, 2025, permanently extended many of the provisions of the TCJA that would have expired after 2025.
As a result, higher standard deductions, lower individual tax rates, and the elimination of personal, spouse, and dependent exemptions remain in place. For many taxpayers, this avoids what would have otherwise been a meaningful increase in federal tax liability beginning in 2026. Higher amounts for the annual gift tax exclusion, federal estate tax exclusion, and generation skipping tax exclusion were also made permanent and set to be indexed for inflation in the future.
Additional Tax Relief for Some
The OBBBA expanded or introduced several targeted deductions. Some of these changes first applied to 2025 income (returns currently being filed). This includes:
- State and Local Tax (SALT) Deduction: The cap on itemized state and local tax deductions increased from $10,000 to $40,000, subject to income-based phaseouts. For clients in higher-tax states like Maine, this expansion may restore meaningful value to itemizing deductions, particularly for those with significant income or property taxes. For residents of states where overall state and property taxes are generally lower, the impact may be more limited. Individual circumstances will vary.
- Enhanced Senior Deduction: Eligible taxpayers age 65 and older may receive an additional deduction of up to $6,000 per person through 2028, subject to income phaseouts. This is in addition to the existing standard deduction. For many retirees, particularly those managing income carefully to stay within certain tax brackets or Medicare premium thresholds, this added deduction may create additional planning flexibility.
- Earned Income Deductions (Tips and Overtime): The legislation also introduced temporary deductions for certain earned income. Eligible taxpayers may deduct a portion of qualified tip income (up to $25,000 for single filers) and qualified overtime compensation (up to $12,500 for single filers), subject to income-based phaseouts. Limits are higher for married couples filing jointly.
While these provisions may not apply directly to many higher-income households, they could be meaningful for younger workers, service-industry professionals, or family members whose income includes tips or overtime pay. As with many targeted deductions, eligibility and overall benefit depend on income levels and filing status.
- Inflation Adjustments to Rates and Credits: There were also increases to the upper limits for marginal tax rates, standard deduction limits, and child tax credits. While these changes may appear incremental, higher thresholds can modestly reduce tax liability for some households and may create additional room for strategies such as Roth conversions, capital gain realization, or income planning within a desired tax bracket.
Mandatory Roth Catch-Up Contributions
Starting in 2026, certain higher-income individuals will be required to make catch-up retirement contributions on a Roth (after-tax) basis.
Specifically, individuals age 50 and older whose prior-year FICA wages exceed $150,000 must make any catch-up contributions to their 401(k), 403(b), or 457 retirement plan as Roth contributions. For 2026, the standard catch-up limit for age 50+ is $8,000, with an enhanced catch-up limit of $11,250 for individuals ages 60 to 63. These amounts are in addition to the standard contribution limit of $24,500 for 2026, which may be made on either a pre-tax or Roth basis.
This rule effectively accelerates taxation for higher earners who previously preferred pre-tax catch-up contributions as a current-year tax planning tool. While Roth contributions provide tax-free growth and tax-free withdrawals in retirement (if qualified), they reduce flexibility in managing taxable income today.
Employers must also ensure their retirement plans permit Roth contributions. If a plan does not allow Roth contributions, eligible participants will not be able to make catch-up contributions.
Charitable Giving: Give and Take
Beginning in 2026, taxpayers who itemize must exceed a new charitable giving floor equal to 0.5% of adjusted gross income (AGI) before charitable contributions become deductible. Similar to the threshold that applies to medical expenses, this means smaller annual gifts may no longer generate a tax benefit unless total giving surpasses the required minimum.
At the same time, taxpayers who claim the standard deduction may deduct up to $1,000 (single) or $2,000 (married filing jointly) of charitable contributions. While this provision has no income phaseout, all other charitable rules continue to apply.
For many households, these changes increase the importance of intentional giving strategies. Coordinating the timing and structure of charitable gifts through strategies such as multi-year “bunching,” donor-advised funds, or qualified charitable distributions may help maximize both philanthropic impact and tax efficiency.
State Taxes: To Conform or Not to Conform
While the OBBBA changed the federal tax landscape for many taxpayers, not all states have adopted these changes. This means your state tax liability may not align with your federal outcome.
Some states have partially conformed, while others are considering legislation to fully adopt the new provisions. This disconnect can make it difficult for taxpayers trying to complete both federal and state tax filings. It is important to stay informed on what your state has done, or plans to do, and to work with your tax preparer to determine the best strategy for your federal and state filings.
In Conclusion
Tax law changes do not exist in isolation. They intersect with retirement planning, investment strategy, charitable goals, and long-term wealth decisions. As 2026 unfolds, we are here to help you interpret these changes and apply them in a way that supports your long-term goals.
Please reach out if you would like to discuss how these updates may affect your plan.
Means Wealth Management is a registered investment adviser. The information in this material is for educational purposes only and is not intended to act as individualized tax, legal, financial, or investment advice.
