2026 Year-End Tax Planning Letter

Each fall we send this letter so you have time to act before the year closes. For 2026, most of the planning turns on the 2025 federal tax law (Public Law 119-21, the One Big Beautiful Bill, or OBBB). It made many expiring rules permanent and added new limits that fall hardest on higher incomes, so this year’s letter concentrates on business owners, investors, and families with larger estates.

The letter is grouped by topic: what changed, individual deductions, retirement, investments, charitable giving, business owners, selling a business, family accounts, estate planning, and Missouri. A checklist at the end pulls the steps together. Amounts are for 2026 unless noted. Please talk with us before acting, because the right choice depends on your full picture.

What Changed for 2026

Permanent rules: Individual tax rates and brackets from the 2017 law are now permanent and continue to adjust for inflation, and the corporate rate stays at 21%. Also permanent are the 100% bonus depreciation deduction, the deduction of up to 20% of qualified business income (QBI) for owners of pass-through businesses, and the $15 million estate and gift tax exclusion.

New this year: Charitable gifts are treated differently, and the deduction for state and local taxes (SALT) is larger but shrinks once modified adjusted gross income (modified AGI) passes $505,000. Itemizers in the top bracket face a new limit, and new deductions for taxpayers age 65 or older and for interest on new-car loans run through 2028, though both phase out at moderate incomes.

No longer available: The credits for home energy improvements and residential clean energy, such as solar panels, do not cover projects finished in 2026, and electric vehicle credits stopped for vehicles acquired after September 30, 2025.

Key 2026 figures:

Deductions for Individuals

Estimated taxes: The Internal Revenue Service (IRS) will not charge an underpayment penalty if this year’s withholding and estimates cover 90% of the 2026 liability or 100% of last year’s. That prior-year figure becomes 110% when 2025 adjusted gross income (AGI) topped $150,000 ($75,000 married filing separately). Withholding counts as if spread evenly across the year, while an estimate counts only from the day it is paid, so raising December withholding is a practical fix after a large gain or bonus earlier in the year.

SALT cap and alternative minimum tax: You may deduct up to $40,400 of state and local income and property taxes ($20,200 married filing separately), but the cap falls by 30 cents for each dollar of modified AGI over $505,000 ($252,500 married filing separately). At $550,000 of modified AGI the cap is $26,900, and from about $606,333 up it is back to $10,000. For most business owners, that makes the pass-through entity tax election described below the main way to deduct state income tax. Prepaying taxes helps only if you are still under your cap, and Missouri real estate and personal property taxes are due by December 31 in any event. The alternative minimum tax (AMT) allows no deduction for these taxes, and for 2026 its exemption starts phasing out at $1,000,000 for joint filers and $500,000 for others, lower than in 2025. If AMT applies this year but not in 2027, hold payments that are not yet due until January.

Top-bracket itemizers: Beginning in 2026, the law reduces itemized deductions for those in the 37% bracket by 2/37 of the lesser of the deductions or the amount by which taxable income plus itemized deductions exceeds the start of that bracket. For taxpayers well into the bracket, each dollar of itemized deductions now saves about 35 cents instead of 37.

Mortgage interest: Interest remains deductible on up to $750,000 of debt that paid for buying, building, or substantially improving a main or second home ($375,000 married filing separately), with a higher limit for some loans from before December 16, 2017. Interest on home equity borrowing spent for other purposes is not deductible.

Standard deduction and age 65: For those who do not itemize, the 2026 standard deduction is $32,200 for joint filers, $24,150 for heads of household, and $16,100 for single filers, plus $1,650 for each spouse 65 or older ($2,050 if unmarried). A married couple who are both 65 or older starts at $35,500.

Senior and car loan deductions: The new $6,000 deduction for each person 65 or older shrinks by 6% of modified AGI over $75,000 ($150,000 joint) and is gone at $175,000 ($250,000 joint); married couples must file jointly to claim it. The deduction for up to $10,000 of interest on a loan for a new, U.S.-assembled vehicle shrinks above $100,000 of modified AGI ($200,000 joint) and is gone at $150,000 ($250,000 joint). Retirees just above these ranges can sometimes get back in through qualified charitable distributions or by timing Roth conversions.

Retirement Accounts

Contribution limits: Employees may defer up to $24,500 into a 401(k), 403(b), or governmental 457 plan for 2026, plus $8,000 at age 50 or $11,250 at ages 60 through 63. The individual retirement account (IRA) limit is $7,500, plus $1,100 at age 50. If your 2025 Social Security wages from the plan sponsor exceeded $150,000, your 2026 catch-up contributions to that plan must be Roth (after-tax), so confirm the setup with your payroll provider.

Roth conversions: Paying tax on a conversion now buys tax-free withdrawals later, for you and for heirs. Most heirs who inherit a traditional IRA must empty it within 10 years, often during their own peak earning years, so converting at your rate can lower the family’s total tax. Converted amounts add to AGI, which can raise Medicare premiums, pull more investment income under the 3.8% net investment income tax, and cost the senior deduction. Years with a business loss, a large charitable gift, or a gap before required distributions begin are often the best years to convert.

Required distributions: If you are already taking required minimum distributions, take the 2026 amount by December 31. A qualified charitable distribution, described below, can satisfy it.

Investments

Rates and losses: Long-term gains are taxed at 0%, 15%, or 20%, and the 3.8% net investment income tax brings the top rate to 23.8%. Short-term gains are taxed as ordinary income, at up to 37% plus the same 3.8%. Harvested losses offset gains first, then up to $3,000 of other income ($1,500 married filing separately), and any excess carries forward with no time limit. A loss is deferred if you buy the same or a substantially identical security within 30 days before or after the sale.

Opportunity Zone deadline: Investors who deferred capital gains into a Qualified Opportunity Fund under the original 2017 program must report the deferred gain on December 31, 2026, even without a sale. The amount is the lesser of the deferred gain or the investment’s fair market value that day, reduced by any basis increase earned for a five- or seven-year hold. No cash comes with this income, so build it into your fourth-quarter estimate or withholding.

Qualified small business stock: For C corporation shares issued after July 4, 2025, the gain exclusion now phases in: half after a three-year hold, three-quarters at four years, and all of it at five. Excluded gain per company can reach $15 million, up from $10 million, and the corporation may have up to $75 million of gross assets, up from $50 million, when it issues the stock. Older stock still needs a holding period of more than five years. For a new venture built to be sold rather than to pay out income, the 21% corporate rate combined with this exclusion can now beat pass-through treatment, though businesses in fields such as health, law, accounting, and consulting do not qualify.

Charitable Giving

The new floor and the 35-cent ceiling: Starting in 2026, itemizers lose the first 0.5% of AGI they give each year, and those in the 37% bracket get about 35 cents of tax benefit per dollar deducted. Because the floor applies in each year you give, concentrating several years of giving into one year reduces the lost deduction. At $1,000,000 of AGI, giving $50,000 a year loses $5,000 of deductions every year, while giving $100,000 in one year loses $5,000 once. A donor-advised fund makes this practical: the deduction comes when the fund is contributed, and grants to charities can follow over time.

Appreciated assets: Stock held more than one year is generally deductible at full market value when given to a public charity, and the gain is never taxed. Because Missouri no longer taxes individuals’ capital gains, the tax saved on the gain is federal only for Missouri residents. Donating appreciated property to a private foundation that does not run its own charitable programs usually limits the deduction to your cost, though publicly traded stock is an exception.

Charitable remainder trusts: For low-basis stock, real estate, or a business interest you expect to sell, a charitable remainder trust can sell the asset without an immediate tax on the gain, pay you an income stream for life or a term of years, and produce a current deduction for the value expected to pass to charity.

Qualified charitable distributions: If you are at least 70½, your IRA custodian can send up to $111,000 for 2026 straight to charities. The amount is excluded from income rather than deducted, so the 0.5% floor and the 35-cent ceiling do not apply. It also satisfies your required distribution and lowers AGI, which can reduce the taxable part of Social Security and Medicare premiums. Request the transfer early in December.

Other rules: Taxpayers who take the standard deduction can now deduct up to $1,000 ($2,000 joint) of cash gifts made directly to public charities, but not gifts to donor-advised funds. A C corporation now deducts only gifts above 1% of taxable income, still subject to the 10% of taxable income ceiling.

Business Owners

Section 179 and bonus depreciation: Businesses can expense up to $2,560,000 of qualifying purchases for 2026; the limit shrinks dollar for dollar above $4,090,000 and disappears at $6,650,000. The permanent 100% bonus deduction has no dollar cap and covers new and used equipment, qualified improvement property, and land improvements such as parking lots and fencing. Assets must be in service by December 31 to count for 2026, but because the full write-off is no longer scheduled to shrink, purchases can follow your own timetable.

Buildings: If you bought or built a building, a cost segregation study can move a large share of its cost from 27.5- or 39-year property into 5-, 7-, and 15-year property eligible for 100% bonus depreciation. For owners who are not real estate professionals, the resulting rental losses are generally passive and offset only passive income. A separate 100% deduction now applies to certain new manufacturing and production buildings when construction begins before 2029 and the building is in service before 2031, so plan before a project starts.

Retirement plans for the business: A Simplified Employee Pension (SEP) or 401(k) profit-sharing plan adopted by the business’s 2026 filing deadline, including extensions, can still produce 2026 deductions of up to $72,000 per participant, though a plan adopted after year-end generally supports only the business contribution. Owners who want to save much more, often in their 50s and 60s, should look at a cash balance plan, which can be paired with a 401(k) and allows age-based contributions well above that limit.

Timing income, expenses, and bonuses: Income from a sole proprietorship, partnership, S corporation, or limited liability company (LLC) is taxed at your individual rates, which are unchanged for 2026 apart from inflation adjustments. If 2027 looks similar or lower, a cash-basis business can pay deductible expenses in December and bill late-year work in January; if 2027 looks higher, reverse those steps. An accrual-basis business can deduct a 2026 bonus that is fixed by December 31 and paid by March 15, 2027, but bonuses to S corporation shareholders, partners, or owners of more than 50% of a C corporation are deductible only when paid.

Pass-through entity tax (PTET): Missouri’s SALT Parity Act lets partnerships and S corporations choose, one year at a time, to pay Missouri income tax at the entity level. The business deducts that tax on its federal return, so owners are not limited by the SALT cap, which for most owners is back to $10,000. A partnership election can also lower partners’ self-employment income. To deduct the tax for a 2026 election on the 2026 return, the business generally needs to pay it before December 31, and the election should be modeled each year because it does not help every owner.

Qualified business income deduction: Owners of sole proprietorships, partnerships, S corporations, and LLCs may deduct up to 20% of their qualified business income (QBI), which is generally the business’s net profit. Wages an S corporation pays its owner, guaranteed payments to partners, and investment income are not QBI. In effect, only 80% of QBI is taxed: for an owner in the 37% bracket, the federal rate on that income drops to about 29.6% (37% × 80%). The deduction also cannot exceed 20% of taxable income, figured without net capital gains.

Wage and property limits, and a phase-out for professional service businesses such as law, accounting, health, and consulting, start at $403,500 of taxable income for joint filers ($201,750 for single filers) and fully apply at $553,500 ($276,750). Above that level, a service business gets no deduction, and the deduction for any other business cannot exceed the greater of 50% of the W-2 wages it pays or 25% of those wages plus 2.5% of the original cost of its depreciable property. Owners with at least $1,000 of QBI from businesses in which they materially participate now receive a minimum deduction of $400. Wages, depreciation, and S corporation salaries all move the result, so we model them together.

Research costs: U.S.-based research spending, software development included, is once again written off in the year it is paid or incurred. Businesses that chose to recover their leftover 2022 to 2024 research balances over two years take the second half on the 2026 return.

Family on the payroll and Forms 1099: A child with only wage income can earn $16,100 in 2026 free of federal income tax and may be able to fund a Roth IRA, so paying a reasonable wage for real work shifts income out of your bracket. Wages a sole proprietor, or a partnership owned only by the child’s parents, pays a child under 18 also escape Social Security and Medicare taxes; corporate wages do not. Separately, Forms 1099-NEC and 1099-MISC are now required only for payments of $2,000 or more made in 2026, up from $600.

Selling a Business

If a sale is on the horizon, the structure can matter as much as the price.

Allocation and Missouri: Missouri does not tax individuals on income reported as capital gain for federal purposes, but it does tax the ordinary-income pieces of a sale, such as depreciation recapture, payments for a noncompete agreement, and consulting or employment payments to the seller. How the price is allocated therefore drives both the federal and the Missouri result.

Net investment income tax: An owner who materially participates in the business may be able to keep much of the gain on selling an S corporation or partnership interest out of the 3.8% net investment income tax. Owners who are passive in the business generally cannot.

Installment payments: Spreading payments over several years can keep more of the gain at the 15% rate and out of the 3.8% tax, though ordinary-income recapture is taxed in the year of sale no matter when the cash arrives.

Before terms are set: Gifts of part of the business to family or to a trust can move future appreciation out of your estate, and a charitable remainder trust funded before the sale can defer tax on the donated share. Both need to happen before a sale is effectively agreed, or the gain may still be taxed to you.

Health and Family Accounts

Health accounts: With qualifying high-deductible coverage, a Health Savings Account (HSA) accepts up to $4,400 for self-only coverage or $8,750 for family coverage, plus $1,000 at age 55, and bronze and catastrophic marketplace plans now qualify. Invested and left alone, an HSA can serve as a tax-free reserve for medical costs in retirement. A health flexible spending account (FSA) can carry over up to $680 or offer a grace period of up to two and one-half months, but not both, and the dependent care FSA limit is now $7,500 per household.

529 plans: Tax-free 529 withdrawals for kindergarten through 12th grade (K-12) can now reach $20,000 per student per year, double the old cap, and qualifying K-12 costs now include tutoring, testing fees, and curriculum materials as well as tuition. Missouri residents may subtract up to $8,000 of contributions ($16,000 on a joint return) to Missouri’s plan or another state’s 529 plan, and the contribution must be made by December 31 to count for 2026. Grandparents can also front-load five years of annual exclusion gifts, $95,000 or $190,000 for a couple, into a 529 plan for each grandchild.

Trump Accounts: These tax-deferred accounts for children under 18 have accepted contributions since July 4, 2026, up to $5,000 per child per year in after-tax dollars, including up to $2,500 per employee each year from an employer. Children who are U.S. citizens with Social Security numbers and were born in 2025 through 2028 qualify for a one-time $1,000 federal deposit, outside the annual limit, once a parent files Form 4547, and that election can be handled through an IRS Individual Online Account.

Estate and Gift Planning

Each person can pass $15 million ($30 million per married couple) free of federal estate and gift tax in 2026, and the OBBB made that amount permanent with inflation increases starting in 2027. With no scheduled drop to plan around, estate planning can turn to moving future growth out of the estate, holding assets that will receive a basis step-up at death, and state estate tax. Trusts for a spouse and descendants, gifts of interests in a family business or partnership, and sales to grantor trusts remain the main tools for families above the exclusion.

When the first spouse dies, the survivor can keep the unused exclusion only if a timely estate tax return is filed, even when no tax is due. The $19,000 per-recipient annual exclusion still moves assets out each year without touching the lifetime amount, and a check gift counts only once the bank pays it, so allow time before December 31.

Do not give away property that has dropped below your cost, since that built-in loss is generally lost to the recipient; selling, deducting the loss, and gifting the cash usually works better. Appreciated assets held until death generally get a basis equal to their value, which a lifetime gift gives up. Periodically review your beneficiary designations, wills, trusts, and powers of attorney so your plan still reflects your wishes.

Missouri has no estate or inheritance tax. Illinois taxes estates over $4 million, does not let a surviving spouse use the first spouse’s unused exemption, and reaches nonresidents who own Illinois real estate, so let us know if you own property there.

Missouri Considerations

Capital gains: Since 2025, Missouri individuals subtract 100% of the capital gains reported on their federal return, including short-term and long-term gains on stock and real estate. If you have a large gain this year, your Missouri estimated payments can usually be reduced. C corporations do not get this subtraction until Missouri’s top individual rate falls to 4.5% or lower.

Rates: Missouri’s top individual rate remains 4.7% for 2026. On August 4, 2026, voters rejected Amendment 5, which would have phased out the state income tax.

New federal deductions: Missouri starts from federal AGI and has not adopted the new federal deductions, including the senior deduction and car loan interest, so they do not reduce your Missouri income.

Other states: If you work in Illinois or Kansas, own property in another state, or have customers or employees across state lines, each state’s rules apply separately. Please tell us about any new out-of-state activity in 2026.

Year-End Checklist

• Schedule a 2026 projection with us, and compare it with what you expect for 2027.
• Confirm withholding and estimates meet a safe harbor.
• Model the PTET election, and send any 2026 Missouri entity-level tax payment before December 31.
• Plan charitable gifts around the 0.5% floor, using a donor-advised fund, appreciated stock, or an IRA transfer to charity if you are 70½ or older.
• Fund retirement accounts, consider a cash balance plan, and test a partial Roth conversion.
• Take required minimum distributions.
• Harvest investment losses, and budget for any Opportunity Zone gain reported on December 31.
• Have equipment in service by December 31, consider a cost segregation study, and coordinate depreciation with the QBI deduction.
• Set bonus payment dates, and collect vendor Forms W-9 for the $2,000 Form 1099 threshold.
• If a business sale is likely, settle gifts, trusts, and price allocation before terms are agreed.
• Finish annual exclusion gifts and 529 contributions, and claim the $1,000 Trump Account deposit for an eligible child.

Conclusion

This letter reflects the law and IRS guidance as of November 2026. It is general information, not advice for your particular situation, and tax rules continue to change. Please contact us before year-end so we can review your circumstances and act while there is still time.

Click here to view the 2026 Year-End Tax Planning Letter

If you have any questions or desire more information, please do not hesitate to
reach out to your Abeles and Hoffman tax professional. Acting now gives you more flexibility and time to optimize your strategies. We are eager to help you make the most of your tax situation.

Very truly yours,

Abeles and Hoffman, P.C.