Taxes in 2026 after TCJA Sunsets
We are just two short years away from the 2017 TCJA (Tax Cut and Jobs Act) sunsetting, and taxes for physicians (both in accumulation and retirement) are set to increase.
Since we only have 2024 and 2025 to plan for taxes, what will happen to physician’s taxes once the TCJA expires in 2026?
Tax Rates and TCJA
Tax brackets will compress, and the rates will increase. For instance, the 12% bracket becomes the 15%, 22 becomes 25, etc. One of the biggest changes is that the 24% tax bracket becomes 28%, but the amount allowed in the bracket shrinks from about 384k to 273k. That means more of your money will be subject to higher tax brackets on day one in 2026. Tax rates will go up! Consider Roth Conversions in the next two years, if appropriate.
Next, the standard deduction will shrink back to pre-2018 levels (inflation-adjusted). This means many people will be itemizing deductions again instead of taking the standard deduction.
Of course, the 10k SALT cap will also expire, giving people in high-tax states increased state and local tax deductions. Mortgage interest deductions and miscellaneous itemized deductions are also reverting.
Most significantly, AMT is back on the table, and QBI is leaving. Let’s look at those individually.
AMT
Most physicians used to be subject to AMT, but the TCJA increased the exemption amounts, and many fewer have paid attention to AMT since 2018. This is set to change in 2026, and physicians will have to worry again about AMT causing higher tax bills.
AMT removes many deductions, including the SALT deductions, increasing your taxable income. Pass-through entities on private businesses will have to be reconsidered. AMT also removes tax credits.
Look back at your 2017 taxes. Did you pay AMT? If so, start talking to your tax preparer about if you will face AMT again in 2026.
QBI
QBI (also known as Section 199A deduction) will also expire in 2026. This was meant to offer small businesses a tax break, but unlike the cut to corporate taxes, which is permanent in TCJA, QBI is set to expire. Most small businesses must re-evaluate their tax structure or pay higher tax rates.
Estate Taxes
The TCJA essentially doubled the estate and gift tax exemption, which adjusts for inflation every year. 2026, the exemption will revert to 2017 levels and be cut in half from 2025’s numbers. The numbers will be close to 7M for individuals and 14M for married couples. If the Republicans don’t control all three branches of government (and extend the TCJA), many people will be considering SLATs for their estate tax problems in 2025.
What is a High Earner Supposed to Do about TCJA in 2026?
Here is a tax calculator showing how much extra you might be expected to pay in taxes when TCJA expires in 2026.
In retirement, taxes are on sale for two more years. If appropriate, consider a series of partial Roth Conversions.
If you have deduction you can extend into 2026 rather than taking them in 2025, this makes sense given that the standard decision will shrink back to inflation-adjusted 2018 amounts. Also, talk to your tax advisor to see what effect AMT will have on you. If you have stock options, a plan is necessary to avoid paying extra in AMT.
Also, understand what the end of QBI will do to your pass-through entity tax rate and consider whether you need to file as a different tax entity.
There aren’t many ways to plan your way out of AMT, but at least you know that you will be paying more in taxes in 2026 again.