The Tax Cuts and Jobs Act of 2017 is scheduled to sunset on December 31, 2025. Unless Congress acts, 2026 brings the largest automatic federal tax increase in decades — and the business owners who win are the ones who position before the calendar flips.
What Changes in 2026
The TCJA's individual and pass-through provisions were written with a sunset date. If they expire as scheduled, here's what reverts:
| Provision | 2025 (TCJA) | 2026 (Sunset) |
|---|---|---|
| Top marginal rate | 37% | 39.6% |
| Standard deduction (MFJ) | ~$29,200 | ~$13,900 |
| QBI deduction (Sec. 199A) | 20% of qualified income | Expires |
| Estate exemption (per person) | ~$13.99M | ~$7M |
Figures are projections based on the scheduled TCJA sunset and IRS inflation adjustments; final 2026 numbers depend on Congressional action.
The Core Strategy: Accelerate and Lock In
With top rates rising and the QBI deduction disappearing, the overarching move is to recognize income and deductions at today's lower rates and defer deductions that are more valuable at next year's higher rates. For most high earners, that means pulling income forward into 2025 and pushing deductions into 2026 — the opposite of the usual year-end playbook.
Your Year-End Action Plan
- 1Accelerate income where possible.If you can realize a gain, take a bonus, or convert a Roth IRA in 2025, do it at the 37% top rate rather than waiting for 39.6%. Roth conversions are especially powerful this year.
- 2Maximize retirement contributions now.Fund your Solo 401(k), SEP-IRA, or cash balance plan to the 2025 limits. Every dollar deferred at today's rates is a dollar not taxed at next year's higher bracket.
- 3Lock in S-Corp reasonable compensation.Document your salary analysis before year-end so your 2025 split is defensible and your 2026 planning builds on a clean baseline.
- 4Execute Augusta Rule rentals.If you have qualifying business use of your home, run the rental before December 31 to capture the deduction at today's rates.
- 5Defer deductions to 2026 where it helps.For expenses that aren't rate-sensitive (depreciation, certain charitable gifts), pushing them into 2026 — when deductions are worth more — can be the smarter move.
- 6Review estate planning with your attorney.The exemption is projected to roughly halve. If your estate is near the threshold, gifting or trust planning before the sunset can lock in the higher lifetime amount.
Important: Congress may extend some or all of the TCJA provisions — and the political makeup of Congress will shape what survives. Build your plan around the law as written, but stay flexible enough to adjust if extensions pass. The cost of waiting to see is usually higher than the cost of acting and adjusting.
Why Acting Now Matters
Most of these moves must happen before December 31 to count for the 2025 tax year. Once the calendar flips, the window for accelerating income and locking in lower rates is closed. The owners who come out ahead in 2026 are the ones who treated the sunset as a deadline, not a possibility.
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Disclaimer: This article is provided for general informational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently and individual situations vary. Consult a qualified tax professional before acting on any strategy. © 2026 Smith Tax & Wealth Group. All rights reserved.