Since the tax filing season starts on January 26, the U.S. federal tax landscape has shifted significantly due to major legislation enacted in 2025. For high-net-worth individuals (HNWIs) and business owners, understanding these changes now can unlock tax savings, reduce liabilities, and inform smart planning decisions before year-end.
Major Tax Legislation: One Big Beautiful Bill Act (OBBBA)
The One Big Beautiful Bill Act (OBBBA), signed in July 2025, represents the most sweeping overhaul of the U.S. tax code in years and will shape the 2026 tax season. It permanently extends many of the Tax Cuts and Jobs Act (TCJA) provisions that were set to expire at the end of 2025, while introducing new benefits and limitations that matter most to high earners and business owners.
Individual Income Tax Rates & Brackets
For 2026, the familiar individual tax rate structure—including the top 37% marginal rate—remains in place because OBBBA made the TCJA rate cuts permanent rather than allowing them to sunset. This provides valuable long-term planning certainty for high-income earners.
Inflation-indexed tax brackets and standard deductions have also increased again for 2026, shielding more income from higher tax brackets and helping taxpayers avoid “bracket creep.”
SALT Deduction Cap & Phase-Out
One of the most discussed provisions affects taxpayers in high-tax states:
- The State and Local Tax (SALT) deduction cap was raised from $10,000 to $40,000 beginning in 2026 for the 2025 tax year.
- For 2026 tax filings, this cap is indexed upward slightly (e.g., around $40,400) and begins phasing down for filers above the income thresholds (around $505,000 for joint filers).
Beyond the phase-down range, the SALT benefit ultimately drops back toward the traditional $10,000 limit. This makes SALT planning—especially through entity elections like pass-through entity taxes (PTET) and trusts—a critical consideration for HNWIs in high-tax states.
Qualified Business Income (QBI) Deduction — Now Permanent
For business owners, the 20% QBI deduction under IRC Section 199A is now a permanent tax provision, providing ongoing relief for owners of pass-through entities (S corporations, partnerships, LLCs, sole proprietorships). This deduction remains a core tool for reducing taxable income from business operations.
Depending on ongoing legislative changes, some proposals even suggested increasing the deduction rate slightly, though final provisions stayed at 20% for many taxpayers.
Alternative Minimum Tax (AMT) Adjustments
High-income individuals should pay close attention to the Alternative Minimum Tax (AMT):
- The TCJA’s elevated AMT exemptions have been made permanent, but phaseout thresholds reset to 2018 levels (e.g., around $500,000 single, $1 million joint), and the exemption phase-out rate doubled.
This means more income could be subject to the AMT for 2026, making timing of incentive stock option exercises, capital gains, and other income events essential to optimal tax planning.
Estate, Gift & Generation-Skipping Transfer (GST) Tax
For 2026 and future years:
- The federal estate and gift tax exemption increases to approximately $15 million per individual ($30 million for married couples), with indexing for inflation.
This permanent increase offers a significant window for wealth transfer planning, but it also underscores the importance of strategic gifting, trust planning, and multigenerational wealth structures to protect family legacies.
Charitable Giving Changes
OBBBA introduced nuanced changes to charitable deductions:
- While a new above-the-line deduction is available for non-itemizers for smaller cash gifts, itemized charitable deductions are now limited by a percentage of AGI (only deductible to the extent they exceed 0.5% of AGI starting in 2026).
For high-net-worth donors, charitable bunching strategies, donor-advised funds (DAFs), and planned giving vehicles should be revisited ahead of year-end. In addition, the 2025 Act permanently extends the 60% of AGI limitation for cash contributions to “50% charities,” which was set to expire for tax years beginning after 12/31/25.
Business Deduction & Depreciation Opportunities
Business owners continue to benefit from incentives that encourage capital investment:
- 100% bonus depreciation and enhanced Section 179 expensing remain available for qualifying assets, allowing immediate deductions for equipment, software, and other business purchases.
These provisions improve cash flow and reduce taxable income when used strategically.
401(k) Catch-Up Contribution Rule Change
Under the SECURE 2.0 Act changes effective in 2026:
- High-income earners (those with wages above certain thresholds) must make 401(k) catch-up contributions to Roth accounts instead of traditional pre-tax plans. This eliminates the upfront deduction but promotes tax-free withdrawals later.
This impacts retirement planning and tax timing decisions for executives and entrepreneurs nearing retirement age.
IRS Modernization and Operational Shifts
The IRS is going through significant leadership and operational changes aimed at improving service and compliance ahead of the 2026 tax filing season. These reforms may affect processing times, audits, and taxpayer support.
Qualified Residence Interest
The 2025 Act made the TCJA mortgage interest rules, originally in place only for 2018–2025, permanent. The deduction for interest on debt incurred after 12/15/17 is limited to qualified residence interest on acquisition indebtedness of up to $750,000 ($375,000 if married filing separately) [IRC Sec. 163(h)(3)(F)].
Personal Casualty Losses
Prior to the TCJA, personal casualty and theft losses were deductible on Schedule A, subject to a $100 floor ($500 for qualified disaster loss) and a 10% of AGI limitation (0% of AGI for a qualified disaster loss). The TCJA further restricted personal casualty and theft losses to those located in a federally declared disaster area for 2018–2025.
The 2025 Act makes permanent the TCJA limitations on the deduction for personal casualty and theft losses. However, beginning in 2026, in addition to losses from federally declared disaster areas, losses from state declared disaster areas will also be eligible for deduction [IRC Sec. 165(h)(5)].
Educator Expense
The 2025 Act reclassifies unreimbursed employee business expenses of educators as non-2% miscellaneous itemized deductions, beginning in 2026 [IRC Secs. 67(b)(13) and (g)]. In addition, the 2025 Act expands the definition of eligible educator expenses. The above-the-line deduction for the first $300 (for 2025; $350 for 2026) is still available [IRC Sec. 62(a)(2)(D)]. For more detailed information about deducting educator expenses, see NTA-1333 (dated 10/28/25).
Miscellaneous Itemized Deductions
The 2025 Act permanently eliminates the deduction for 2% miscellaneous itemized deductions, which the TCJA had suspended from 2018–2025 [IRC Sec. 67(h)]. Formerly deductible items such as unreimbursed employee business expenses, investment expenses, and tax determination expenses are permanently disallowed.
Gambling Losses
Beginning in 2026, the 2025 Act limits gambling losses (for both professional and amateur gamblers) to 90% of the amount of such losses incurred during the year and then limits this amount to the extent of winnings [IRC Sec. 165(d)].
Overall Limit on High-income Earners
The TCJA suspended the overall limitation on itemized deductions (the 3% phaseout, otherwise known as the “Pease limitation”) for tax years 2018–2025. The 2025 Act permanently repeals the 3% phaseout but introduces a new version of the overall limitation on itemized deductions.
In tax years beginning after 12/31/25, taxpayers are subject to an overall reduction in itemized deductions by 2/37 of the lesser of total itemized deductions or the amount by which income (before itemized deductions) exceeds the 37% bracket threshold [IRC Sec. 68(a)]. This new limit applies after all other applicable floors, phase-outs, and limitations.
Conclusion
The 2026 tax season brings a blend of stability and complexity. Permanent extensions of key tax cuts combined with new deduction limits, evolving retirement rules, and opportunities like elevated SALT caps and business deductions create a dynamic planning environment. If you want to discuss any of the points above, contact your WFY advisor here to talk about strategic advantages—and help avoid costly surprises when filing your 2025 returns in early 2026.
- https://tax.thomsonreuters.com/news/what-obbb-means-for-your-clients-itemized-deductions/
Wright Ford Young & Co. is headquartered in Irvine, CA and is one of the largest local CPA firms in Orange County. WFY is a full service corporate accounting firm offering audit, tax, estate and trust, and business consulting services to closely held company and family business owners. More information about our Firm can be found at www.cpa-wfy.com.