Inflation-Adjusted Tax Provisions: 2026 Updates

Posted on November 19, 2025

Every year, the government adjusts certain tax thresholds and deductions for inflation. These changes can have a significant impact on how individuals and businesses plan their finances. For the 2026 tax year, a host of new inflation-adjusted figures have been released, many of which also reflect updates under the One, Big, Beautiful Bill Act (OBBBA). 

Major Inflation-Adjusted Provisions for Tax Year 2026

Standard Deduction Increases

For 2026, taxpayers will see modest increases in the standard deduction across all filing statuses. Married couples filing jointly can expect a new standard deduction of $32,200, up from $31,500 in 2025. Single taxpayers and married individuals filing separately will see an increase from $15,750 in 2025 to $16,100 in 2026, while heads of household will experience a jump from $23,625 in 2025 to $24,150 in 2026.

Even these seemingly small changes can add up to considerable tax savings over the course of the year. Taxpayers who are on the cusp of itemizing may want to reassess whether the higher standard deduction could yield a better outcome. Adjusting your withholding or estimated tax payments is also wise if you anticipate lower taxable income as a result of the new deduction figures.

Marginal Tax Rate Thresholds

The OBBBA retains the top tax rate of 37%, which continues to apply to single taxpayers with incomes exceeding $640,600 and married couples filing jointly with incomes over $768,700. Other bracket thresholds have also been nudged upward. For example, the 35% bracket for single filers now begins at $256,225, while those filing jointly see it start at $512,450. Similarly, the 32% bracket starts at $201,775 for singles and $403,550 for joint filers, followed by the 24% bracket beginning at $105,700 for singles (or $211,400 for joint returns). Individuals in the 22% bracket will see it apply to income above $50,400 (or $100,800 for joint filers), and the 12% bracket now begins at $12,400 for individuals and $24,800 for those filing jointly. The lowest bracket of 10% applies to income at or below those same $12,400 and $24,800 thresholds.

While the percentage rates themselves remain unchanged, the upward shift in the bracket boundaries can mean that some portion of your annual income might now be subject to a lower tax rate. Planning strategies could include timing certain deductions or deferring income. For relatively high-income households approaching a bracket change, professional advice can help optimize your overall tax picture.

Alternative Minimum Tax (AMT) Exemptions

The AMT system ensures that certain income items are taxed at a minimum level. For 2026, the exemption amount is rising to $90,100 for individuals, phasing out at $500,000. Married couples filing jointly receive a higher exemption of $140,200, which begins phasing out at $1,000,000. 

Estate Tax Exemption

For the 2026 tax year, the basic exclusion amount for estates increases to $15,000,000, up from $13,990,000 in 2025. This higher estate exemption allows more assets to pass free of federal estate tax, potentially giving families additional tools for long-term planning. 

Adoption Credits

Families planning to adopt can benefit from a higher maximum adoption credit in 2026. The allowable credit for qualified adoption expenses now goes up to $17,670, a slight increase from $17,280 the previous year. Notably, up to $5,120 of this credit can be refundable, which may provide extra relief for families who do not typically have a large tax liability to offset. Those going through the adoption process can consider coordinating finalization timelines so that they can maximize the use of this credit.

Employer-Provided Childcare Tax Credit

The OBBBA significantly expands the tax credit available to employers who offer childcare benefits to employees, increasing the cap from $150,000 to $500,000. For qualifying small businesses, the limit can go as high as $600,000. 

Earned Income Tax Credit (EITC)

In 2026, the maximum value rises to $8,231 for individuals who have three or more qualifying children, compared to $8,046 in 2025. Because EITC amounts depend on both income level and number of qualifying children, it is essential to review the updated phase-out thresholds to see whether your household still meets the requirements or if you may receive a larger credit this year.

Qualified Transportation Fringe Benefit

The monthly limits for commuter benefits and qualified parking move up to $340, marking a $15 increase from 2025. This adjustment may help employees defray more of their commuting expenses on a pre-tax basis. It is also a good moment for employers offering these programs to confirm their plan documents reflect the updated limits.

Health Flexible Spending Arrangements (FSAs)

For 2026, individuals who leverage FSAs can set aside up to $3,400 in pre-tax funds, which is $100 more than in the prior year. Unused amounts carried over after the plan year can now be as high as $680. If you tend to spend consistently on healthcare costs, a higher annual limit can help shield more of your income from taxes, but be sure not to overfund the account if your projected medical expenses are uncertain.

Medical Savings Accounts (MSAs)

MSA participants will see a slight increase in plan deductibles and out-of-pocket maximums for 2026. For self-only coverage, the deductible must now be between $2,900 and $4,400, while the out-of-pocket limit can go up to $5,850. For family coverage, the deductible range begins at $5,850 and tops out at $8,750, with a $10,700 limit on out-of-pocket expenses. If you rely on an MSA to cover medical costs, it is important to understand these thresholds to tailor your contributions accordingly.

Foreign Earned Income Exclusion (FEIE)

U.S. taxpayers living abroad will see the foreign earned income exclusion tick upward to $132,900, up from $130,000 in 2025. This may slightly reduce your taxable income if you qualify, though eligibility depends on factors such as residence or physical presence tests. Tracking your travels meticulously ensures you meet these tests, keeping you in compliance and free from unwanted tax surprises.

Annual Gift Exclusion

The standard gift exclusion remains at $19,000 for 2026. However, there is a new figure to note for spouses who are not U.S. citizens, with the exclusion for gifts to such spouses moving to $194,000. Since gifting strategies can be complex, especially for couples who maintain citizenships in different countries, it is best to map out a plan that optimizes these thresholds.

Next steps

With these new inflation-adjusted provisions set to take effect for the 2026 tax year, it is an opportune time to review your current financial situation and make any necessary tweaks to your long-term strategy. Even small changes in thresholds and exclusions can produce tangible differences in your taxable income and the credits you can claim. Businesses, too, should consider whether they can leverage expansions in credits such as the employer-provided childcare program.

If you have any questions about the inflation-adjusted tax provisions, our team is here to help. Please contact your trusted TBC advisor for the latest updates and guidance.

Getting More from Every Dollar: Pre-Tax Arbitrage for Business Owners

Posted on October 08, 2025

High-income business owners face a unique challenge: their personal and business finances are deeply intertwined, and taxes often feel like the single largest expense both personally and for the business. While most people think of tax savings in terms of deductions, business owners have opportunities to spend pre-tax dollars by structuring expenses through their entities.

It’s important to note that some strategies are pure pre-tax opportunities, where dollars never touch taxable income. Others are technically deductions, but when routed through a business structure, they function much like pre-tax spending. The real difference isn’t just classification; it’s timing and intent. Owners who plan ahead can position their spending to capture the maximum tax benefit. Those who wait until year-end to see “what can be written off” are usually too late.

This is a concept referred to as pre-tax arbitrage, and it’s about intentionally structuring your spending to convert what would normally be after-tax personal expenses into pre-tax benefits. When done consistently, this doesn’t just reduce a tax bill in the current year; it reshapes the cost of recurring expenses and compounds savings over time.

Some of the most effective strategies fall squarely within business planning: electing to pay state taxes at the entity level, reimbursing healthcare through a corporation, funding education as a business benefit, or contributing to retirement plans where the dollars are deductible to the company and pre-tax to the participant. Each strategy stands on its own, but together they can create six-figure annual savings for high earners.

PTET: Converting State Taxes into Business Deductions

For years, one of the most frustrating limits for high earners has been the federal cap on state and local tax (SALT) deductions. Even business owners with significant state tax liabilities were limited to deducting just $10,000 at the individual level.

The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, raised that cap to $40,000 through 2029. On the surface, that’s good news. But for many high-income business owners, $40,000 still falls well short of actual state tax obligations, and the cap begins phasing out once income passes $500,000. By 2030, the limit reverts back to $10,000.

That’s where the Pass-Through Entity Tax (PTET) election remains a powerful planning tool. PTET allows certain businesses, like partnerships and S corporations, to pay state income taxes at the entity level. Because the payment is made by the business, it’s treated as a fully deductible business expense on the federal return, bypassing the individual SALT cap entirely.

For a high-income partner in a state like California or New York, this election can mean deducting tens or even hundreds of thousands in state tax payments that would otherwise have been nondeductible. Even with the OBBBA’s temporary SALT relief, PTET elections can provide more consistent, higher-value savings, especially for owners whose income exceeds the new phaseout thresholds.

However, PTET election windows, owner eligibility, credit mechanics, and estimated payment timing differ by state. Modeling needs to happen before the election deadline and with full owner-by-owner analysis to avoid cash-flow surprises. The key takeaway is that planning ahead is necessary, but, in doing so, you may be able to shift how state taxes are paid to the tune of considerable savings. 

Healthcare Through the Business 

Healthcare is one of the most significant recurring expenses for families, which makes it an obvious target for pre-tax arbitrage. For business owners, entity type determines how much flexibility you have in covering these costs with pre-tax dollars.

• Self-Employed/Partnerships: Health insurance premiums are generally deductible above the line. This helps, but out-of-pocket costs are still typically after-tax.

• C Corporations: C corps offer the broadest planning opportunities. By establishing a Health Reimbursement Arrangement (HRA), the business can reimburse medical expenses for the owner, spouse, and dependents. What would otherwise be a personal cost becomes a deductible business expense.

• S Corporations: Owners holding more than 2% of an S corp face limitations. They can deduct premiums, but cannot receive pre-tax benefits through cafeteria plans or HRAs in the same way as C corp owners. Still, premiums alone are a meaningful deduction.

• Section 125 Cafeteria Plans: For businesses with employees, cafeteria plans allow staff to pay health, dental, vision, and dependent care expenses with pre-tax dollars. The business benefits, too, by reducing payroll taxes.

The point is not just that healthcare costs can be deducted, but that the right business structure determines how far you can push those dollars into the pre-tax category. A C-corp owner with a well-designed HRA could turn $20,000 in family medical expenses into a fully deductible cost of doing business. Yet, these benefits are not plug-and-play. You need the right plan documents, adoption dates, and may need nondiscrimination testing for certain types of benefits. 

Education Funding as a Business Benefit

Education is another area where business structures create unique opportunities. Under Section 127 of the Internal Revenue Code, employers can provide up to $5,250 per year in tax-free educational assistance per employee, and the business gets a deduction for the expense. The OBBBA expanded this benefit by making permanent the ability for employers to apply the same $5,250 toward student loan repayments. 

A properly documented, nondiscriminatory Section 127 plan can provide up to the annual limit tax-free to employees and certain owners, provided no more than 5% of total benefits go to >5% owners (and their spouses/dependents). 

Like the other pre-tax strategies we’ve discussed, a Section 127 plan requires a written program, eligibility terms, nondiscrimination testing, and coordination with other benefits. It must be established before benefits are provided because you can’t “re-label” wages after year-end.

Retirement Plans as Pre-Tax Engines

Retirement plans are often discussed as personal savings vehicles, but for business owners, they’re also a way to convert compensation into deductible business spending.

• Defined Contribution Plans: Traditional 401(k)s and profit-sharing plans allow owners to defer income, lowering both personal taxable income and the company’s taxable profit.

• Cash Balance and Defined Benefit Plans: For high-income owners, these advanced plans allow six-figure contributions that are deductible to the business and pre-tax to the participant. They are especially powerful for professional practices or closely held businesses with predictable cash flow.

This creates immediate arbitrage: saving on taxes today, then withdrawing funds years later, often at much lower effective rates. Retirement contributions also integrate with other strategies like Roth conversions in low-income years, or charitable planning through Qualified Charitable Distributions (QCDs).

Putting It All Together

Individually, each of these strategies delivers measurable savings. Together, they can transform how a business owner manages both taxes and wealth. 

For illustration only, consider a professional services firm organized as an S corporation reporting $1.2 million in annual income. The owners elect PTET, shifting $80,000 of state income tax from nondeductible to deductible at the business level. A defined benefit plan, designed by an actuary, enables approximately $150,000 in owner contributions, deductible to the business and pre-tax for the participants.

In total, these deductions and pre-tax spending reach about $230,000. The actual federal tax reduction equals the marginal rates those dollars span on your return, plus any state-level effects. 

This is, of course, a simplified scenario. Every business has unique variables that determine what’s possible. And, many strategies require thorough documentation, compliance, and testing. But the principle holds true: layering pre-tax strategies through the business can reduce taxable income by tens or even hundreds of thousands annually, creating efficiency today and compounding benefits over time. 

Making Every Dollar Work Harder

These strategies aren’t about cutting back. They’re about structuring your business and personal finances so every dollar works harder. For business owners, that’s where the real advantage lies.

The key is timing. Pre-tax arbitrage doesn’t happen at year-end when the return is filed. It requires proactive design, implemented throughout the year, often in collaboration with your advisor.

If you’re wondering how these opportunities apply to your situation, we invite you to connect with your trusted TBC advisor. Together, we can identify where your business structure can be leveraged to capture efficiencies, reduce unnecessary tax exposure, and position your wealth for maximum long-term impact.

Why Adding Children to Your Bank Account or Home Deed Could Be a Bad Idea

Posted on October 17, 2024

Adding your kids to your bank account or home deed may seem like a simple solution to avoid probate and ensure a smooth transfer of assets after you pass away. However, this seemingly straightforward approach can create a host of legal, financial, and tax issues that can leave you and your loved ones vulnerable to significant risks and losses. While many people use these methods to simplify the estate planning process, experienced professionals typically recommend against them.

In this article, we will explore why adding your kids to your bank account or home deed can cause more problems than it solves and discuss alternative solutions to help you achieve your estate planning goals while avoiding unnecessary complications and risks.

Understanding the risks of adding kids to bank accounts or home deeds

Legal issues

Adding your kids’ names to assets can create several legal issues and risks. If your child has a creditor, legal judgment, bankruptcy, or is going through a divorce, adding their name to any of your assets (including a bank account or home deed) can potentially make your assets vulnerable to seizure.

It is also important to understand that adding your child to a bank account, for instance, doesn’t necessarily mean they are only entitled to half of the account; for legal purposes, they could be considered a full owner. Adding your child’s name to a bank account could give them the same rights as you to the entire account. Therefore, you risk losing the full asset, not just half the account, if your child faces legal or financial issues.

Loss of control and potential exploitation

Adding your children’s names to a bank account, deed, or any asset can lead to a loss of control. When you add someone else’s name to your bank account or home deed, you essentially give them legal ownership and access to your assets. This means they may be able to use your money or make decisions regarding the asset without your permission, leaving you with far less control over your finances.

Furthermore, adding your child’s name to a home deed gives them an interest in your home now, not just when you pass away. This means that they will have to agree to sell the house if you decide to do so, and they will also be involved in any closing. This can lead to a loss of control over your property, as your child may not always agree with your decisions regarding the home, leading to disagreements and disputes.

Tax issues

Adding your child’s name to your bank account or home deed could also result in a taxable gift. If your child withdraws funds from your bank account, it could constitute a gift if more than the annual gift tax exclusion. If you add your child to the deed of your home, the portion of the home they receive will be considered a gift. That said, the lifetime gift tax exclusion will probably cover the amount depending on the size of your estate.

More significantly, though, adding your adult child’s name to the deed of your home can have potential capital gains tax implications. When you add your child to the title of your home, they receive ownership in your home along with your basis for such portion. When they eventually sell the home, they may realize a capital gain on the difference between the sale price and the basis for that portion of the home.

For example, you bought your home for $250,000 twenty years ago. You add your child to the deed, and they receive $125,000 in basis (50% of the basis). They sell the home after you pass away for $600,000. They could realize a capital gain on the portion of the home gifted to them before your death. In this example, they could realize a capital gain of $175,000 ($300K – $125K).

The problem with the above example is not only that your child may have to pay capital gains tax, but your child loses the step-up in basis from inheriting the house. If the house is simply left to the child through inheritance, the child’s basis in the home will automatically increase to the home’s fair market value as of the time of inheritance. If they sell the home, they would only owe capital gains tax on the difference between the sale price and the stepped-up basis.

Medicaid issues

Adding your child’s name to your assets could result in Medicaid eligibility issues for you and your child. If you add your child’s name to your bank account or home deed, it becomes an asset of your child, which could limit their eligibility for Medicaid or any other needs-based benefits.

Moreover, if you need to apply for Medicaid to cover nursing home costs, Medicaid will scrutinize if you have given away money or assets to become eligible for benefits. Adding your child’s name to assets could be considered a gift, which may trigger a period of Medicaid ineligibility for you.

Inheritance issues

If you have multiple children, adding one child to your home deed may cause that child to receive a larger share of your estate than the other children. This can create resentment and disputes among your heirs, potentially leading to lengthy and expensive legal battles.

And, if your child passes away before you, the wording of the deed could determine what happens to their share of the house. For instance, if you are tenants in common, your child’s share of your home would pass to their heirs. This could result in you co-owning your home with your son or daughter-in-law, which may not be your intention.

Alternatives to Adding Kids to Bank Accounts or Home Deeds

There are several alternatives to adding your child’s name to your bank account or home deed that can help achieve your goals while avoiding the legal issues and risks associated with joint ownership.

Power of Attorney

A Power of Attorney is a legal document that allows you to designate someone to act on your behalf in financial or legal matters. You can specify the powers that your designated agent will have, and the document can be limited or broad in scope. This can be a good option if you want someone to be able to manage your finances if you become incapacitated, but you do not want to give them full ownership of your assets. It also makes your agent a “fiduciary,” meaning they would be obligated to act in your best interests, reducing the risk of abuse or exploitation.

POD or Totten Trust

A POD (Payable on Death) or Totten Trust is a type of bank account that allows you to name a beneficiary who will receive the funds in the account after you pass away. This is a simple way to transfer funds to your child without giving them joint ownership of the account or necessitating that they go through probate to access the account. The beneficiary designation can also be changed at any time, so you can easily update your plan if circumstances change.

Trusts

A trust is a legal arrangement in which you transfer ownership of specified assets to a trustee, who manages the assets for the benefit of the beneficiaries. There are many different types of trusts that serve different purposes, but one option is a revocable living trust. With a revocable living trust, you retain control of the assets during your lifetime, but after you pass away, the assets are transferred to your beneficiaries according to the terms of the trust. This can be a good option if you want to avoid probate and ensure that your assets are distributed according to your wishes.

This article is intended to provide a brief overview of the potential risks and issues associated with joint ownership and various estate planning techniques. It is not a substitute for speaking with one of our expert advisors. For more information, please contact our office.

The information provided in this article does not, and is not intended to, constitute legal advice. Instead, all information in this article is for general informational purposes only.