We just got back from the AICPA (largest CPA membership group) national conference in Las Vegas. The yearly gathering of top-notch speakers and educators at the AICPA national conference in Las Vegas offered helpful tax and planning insights.
My biggest takeaway is to start preparing for higher individual tax rates starting in 2026. Trump's individual tax cuts from 2017 (Tax Cuts and Jobs Act) expire at the end of 2025, raising tax rates across the income spectrum and changing how tax deductions are calculated.
As tax cuts are set to expire, the question on everyone's mind is where they will go next. The reality is that we may not have answers until close to the end of 2025 so we recommend preparing for the worst case versus waiting to see what will happen.
Let's Look at how the Rates Will Change
I think the best way to understand the changes is to look at examples. I analyzed a few examples of married couples with no kids and no itemized deductions. Tax rates are higher at lower income thresholds, resulting in higher tax liabilities for individuals across the income spectrum.
Example. $250k of wage income.
| 2022 | 2026 | Added Tax | |
| Marginal Tax Bracket | 24% | 28% | |
| Taxes Owed | 36,295 | $40,009 | $3,712 |
Example. $500k of wage income.
| 2022 | 2026 | Added Tax | |
| Marginal Tax Bracket | 35% | 33% | |
| Taxes Owed | 109,643 | 122,991 | $13,348 |
Example. $1M of total income.
| 2022 | 2026 | Added Tax | |
| Marginal Tax Bracket | 37% | 39.6% | |
| Taxes Owed | 309,992 | 333,600 | $23,608 |
What can you do to reduce your taxes before rates increase in 2026?
Given the expected increase in tax rates, here are a few strategies to consider for accelerating income into 2024 and 2025:
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Roth IRA Conversions: Converting traditional IRA funds to a Roth IRA can be beneficial. By paying taxes on the converted amount now, you can take advantage of the current lower tax rates. Future withdrawals from the Roth IRA will be tax-free.
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Accelerate Income: If possible, consider accelerating income into 2024 and 2025. This could include business sales, bonuses, stock options, or other forms of compensation. By doing so, you can lock in the lower tax rates before they increase.
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Timing Deductions: Consider timing tax deductions to occur in 2026 when tax rates are higher. Alternatively, you could increase deductions in 2024 and accelerate income at the same time to offset the added taxes. Deductions include charitable contributions, property taxes, medical expenses, and other itemized deductions.
Waiting till Next Year to Plan is a Bad Idea
With the sunset of the TCJA provisions on the horizon, it's essential to start planning now. By considering strategies to accelerate income and manage deductions, you can better position yourself for the higher tax rates expected in 2026.
For personalized advice, book an introduction call to start the tax planning process for your personal situation.
