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There has not been a lot of publicity about it, but beginning on January 1, 2026, a significant change in the tax laws is scheduled to take effect.  As you may recall, back in 2017, the Tax Cuts and Jobs Act (TCJA) was enacted into law which reduced individual, business, and estate taxes.  Many provisions of that law were set to expire at the end of next year and without any action by Congress, many of the current tax laws will sunset and revert to the laws in effect in 2017 adjusted for inflation.

If that occurs, individual taxpayers will likely see an increase in their tax rate.  The standard deduction will drop, but the personal exemptions will be reinstated, and the so-called SALT deductions will not be capped as they are today.  For some taxpayers, there could even be an increase in the capital gains tax paid depending on their tax bracket.

One of the big changes in 2026 would be a reduction in the federal estate tax exemption which is currently at $13.61 million per individual.  Adjusting for inflation, the estate tax exemption amount would be about cut in half.  Though this would still be a large exemption amount, some individuals could be impacted, especially those with significant ownership of farmland.

Of course, it is hoped that Congress will take some action to extend the TCJA, retain portions of it, or implement a completely different set of tax laws that will have a positive impact on individuals and businesses.  With 2024 being an election year, we could get a better sense of what might happen depending on the results of the election.  Once that is known in November, there will be time in both 2024 and 2025 to make adjustments in your financial situation, if necessary.

In other news, the IRS just released the new final regulations on required minimum distributions impacting those individuals who are a beneficiary of an inherited IRA.  Previously, it was thought that anyone who received an inherited IRA had 10 years to liquidate it and did not have to take any distributions until the tenth year if they choose to do so.  However, the new regulations state that most beneficiaries of an inherited IRA must take an annual required minimum distribution to avoid penalties.  The IRS has graciously suspended the penalty for the 2020-2024 tax years if a distribution was not taken.  That will not be the case in 2025 and beyond.

So, there will be a lot going on in the tax world over the next couple of years and it will be important to meet with your financial and tax advisors to identify what actions, if any, you should take to minimize your tax liability considering these changes.  This would also include identifying and taking advantage of longer-term tax strategies as it is expected that taxes could be on the rise in the future, especially considering the federal deficit.