If you have $1 million or more in investable assets, reviewing your potential tax liabilities early in the year is often less about reacting to last year’s results and more about creating flexibility for the year ahead. With various tax laws set to change in 2026, even minor adjustments to your financial plan can have significant downstream benefits.
When you partner with BCR Wealth Strategies, you’ll have conversations with our Birmingham financial advisors about wealth accumulation, preservation, retirement planning, and estate planning that often begin with questions about how current tax rules impact the pursuit of long-term financial goals.
Below are several of the most common tax-related questions high earners ask at the start of a new year, along with optimal ways those questions are typically addressed within a broader financial plan.
How Do Annual Income Thresholds and Tax Brackets Affect My Planning?
Each year, the IRS resets key tax brackets, deductions, credits, and thresholds, and 2026 will see several changes. For most taxpayers, the IRS has confirmed updated income tax brackets and several inflation-adjusted amounts that will apply when you file your 2026 return in 2027. These changes matter if you’re planning income timing, estimating your tax bill, or coordinating retirement income.
What Tax Laws are Changing for 2026?
Income Tax Brackets Will Adjust Upward
For 2026, income ranges for federal tax brackets have increased to reflect inflation and legislative updates. The top marginal rate stays at 37%, but the income level at which it applies is now higher, for example, more than $640,600 for single filers and $768,700 for married couples filing jointly. Other brackets (35%, 32%, 24%, 22%, 12%, and 10%) also shift upward.
Why this matters: Higher thresholds mean you may stay in a lower bracket for a bit longer as wages and inflation rise.
Standard Deduction Will Increase Again
Under the One, Big, Beautiful Bill adjustments, the 2026 standard deduction rises to:
- $32,200 for married couples filing jointly
- $16,100 for single filers and married filing separately
- $24,150 for heads of household
Why this matters: A larger standard deduction reduces taxable income, which can affect whether you itemize or use strategies like charitable bunching.
Alternative Minimum Tax (AMT) Exemptions Will Rise
AMT exemption amounts are also adjusted for inflation: $90,100 for singles and $140,200 for married couples filing jointly, with phase-out ranges tied to their respective income levels.
Estate Tax Exclusion Increases
The basic exclusion amount for estate tax increases to $15 million in 2026, up from approximately $13.99 million in 2025; another inflation-indexed adjustment.
Other Inflation-Indexed Items That Will Change in 2026
Several other tax items are updated, including:
- Earned Income Tax Credit (EITC) amounts
- Limits on qualified transportation and health savings arrangements
- Foreign earned income exclusion
- Gift tax annual exclusion amounts
What These Changes Mean for You
Income Planning: As brackets shift up, properly timing realizations of income—whether from bonuses, equity awards, retirement distributions, or capital gains—can make a measurable difference in your tax bill.
Deductions and Itemizing: With a higher standard deduction, some taxpayers may find itemizing less advantageous; others might benefit from strategic deduction timing.
Retirement Income and Medicare: Income levels still affect Medicare Part B and D premiums (IRMAA), so your taxable income decisions today can influence healthcare costs later.
Estate and Gift Planning: Higher exclusion amounts may change strategies related to wealth transfer and gifting.
Why Does 2026 Planning Start Earlier Than You Might Expect?
Even though tax payments on 4/15/27 may feel like a long way off, the choices you make in 2026 often have the most significant impact on what shows up on your return this spring. Income, bonuses, investment activity, and retirement contributions are already in motion. Waiting until filing season to review them can leave you reacting instead of making well-thought-out adjustments ahead of time.
Looking forward, rather than backward, usually starts with projecting your income for the year ahead. That estimate helps guide decisions regarding when income is received, how bonuses or equity compensation are handled, whether withholding or estimated payments require adjustments, and how your investment strategy aligns with any potential tax exposure.
When discussing possible 2026 tax law changes, planning conversations often center on:
- Whether income should be recognized sooner or spread into future years
- How capital gains or Roth conversions fit within updated tax brackets
- How close your projected income is to thresholds that affect Medicare premiums or phaseouts
- Ways to smooth income across multiple years
- Coordinating income events with deductions or charitable strategies
The goal isn’t to guess the impact of future tax rules. It’s to build flexibility into your plan so you can make informed decisions earlier in the year, when you have more flexibility and control, rather than dealing with surprises and last-minute adjustments late in the year.
How Should I Take Advantage of Retirement Contribution Limits?
Retirement contribution limits will increase again in 2026, which creates planning opportunities if you look ahead rather than waiting until year-end. Here are the retirement contribution limits for 2026:
- 401(k) contributions:
- Employee limit of $24,500 for 2026
- An additional $8,000 catch-up for those aged 50 and older
- Total employee deferrals may reach $32,500, before employer contributions
- IRA and Backdoor Roth considerations:
- IRA contribution limit of $7,500, or $8,600 with catch-up
- Backdoor Roth strategies remain relevant for high earners above certain income limits
- Existing pre-tax IRA balances can affect how efficiently a backdoor Roth works
Planning takeaways: Reviewing contribution strategies before limits reset and coordinating retirement savings with projected income and tax exposure can create more flexibility than making adjustments at year-end.
Watch our video on tax-smart planning and investing strategies.
How Should You Plan for Capital Gains This Year?
If you hold investments in taxable accounts, capital gains planning is likely already on your radar. The key question isn’t just whether to realize gains or losses, but when, why, and how to optimize them.
Tying any capital gains decisions to portfolio rebalancing, cash flow needs, or longer-term investment goals often leads to more consistent outcomes than making trades based solely on tax deadlines. Reviewing this early with your Birmingham financial advisor gives you more control over timing and tax exposure.
What Charitable Strategies Make Sense at Higher Income Levels?
Think of your income like traffic entering a busy city during rush hour. At higher income levels, more cars attempt to use the same roads simultaneously, leading to congestion and resulting in higher taxes, phaseouts, and additional thresholds.
Charitable strategies serve as alternative routes and express lanes. They don’t eliminate traffic, but they help redirect it more efficiently so everything doesn’t funnel through the same choke points.
Applied to charitable planning, tools like donor-advised funds, qualified charitable distributions, or appreciated asset gifts can help shift income and taxes in more thoughtful ways, supporting causes you care about while keeping your broader financial picture organized.
Beginning in 2026, however, two rule changes can reduce the federal tax value of itemized charitable deductions, making planning around how you give more critical.
- New 0.5% of AGI floor (starting 2026): If you itemize, you can only deduct charitable gifts above 0.5% of AGI. The first 0.5% provides no federal income tax benefit. This also applies to carryovers, which may reduce their future value.
- Top-bracket deduction benefit cap: If you are in the 37% bracket, the benefit of itemized deductions (including charitable giving) is effectively capped at 35%, reducing the value of each deductible dollar.
Why QCDs and DAFs may matter even more in 2026 and beyond:
- QCDs can be compelling for eligible retirees because they are not dependent on itemizing and can lower taxable income while supporting charitable goals.
- DAFs can support “bunching,” which may help clear the 0.5% floor by concentrating multiple years of giving into one tax year, while allowing grants to be distributed over time.
As with any charitable strategy, these work best when coordinated with income timing and retirement distribution planning, rather than handled separately from the rest of the plan.
How Do RMD Rules and Inherited IRAs Affect Your Retirement Plan?
RMD rules and inherited IRA requirements continue to raise questions, especially if you have multiple accounts or intended beneficiaries. When distributions occur, and how inherited assets are managed, can influence future tax brackets and Medicare premiums.
Addressing these decisions ahead of time helps keep planning proactive, rather than forcing last-minute reviews and decisions. This is where the services of a Birmingham CFP® professional with tax planning expertise can be invaluable.
Why Do Credits and Deductions Phase Out at Higher Income Levels?
Many tax credits and deductions begin to phase out as income rises, which can catch high earners by surprise. Knowing where these thresholds start helps set realistic expectations and make informed decisions around income timing, charitable giving, and tax deductions.
While phaseouts can’t always be avoided, understanding them early allows for better planning and coordination across multiple accounts and strategies.
How Do State and Local Taxes Fit Into Your Planning?
Even with limits on SALT deductions, state and local taxes continue to impact overall planning strategies. Alabama-specific rules, estimated payments, and multi-state income can all play a role, particularly if you have business income or investments outside the state. Reviewing these items early in the year can help smooth quarterly payments and reduce surprises later in the tax year.
How BCR Wealth Strategies Supports Year-Round Tax Planning
At BCR Wealth Strategies, tax planning is viewed as an ongoing part of wealth management, rather than a one-time exercise. Our financial planning process helps clients connect the impact of taxes with investment management, retirement planning, and long-term priorities.
Schedule a call with our CFP® tax planning professionals today.
