Planning for Tax Increases
.webp)
By Ben Dolan, CFP®
Summer is coming to an end and my kids are in full denial about school starting next week. Trips to the beach, late nights playing outside, and bumming around on the couch watching Olympic badminton are all but over!
But my kids aren’t the only ones in denial about the future. In a recent meeting, I asked a prospect about the steps they are taking to prepare for a high probability event of tax increases in 2026. The response I received from the prospect was that they did not believe tax increases were likely. Perhaps they were only referring to new legislation versus what we know to be true about the Tax Cuts and Jobs Act (and I’m happy to give them the benefit of the doubt).
Unless Congress acts within the next year (or so), on January 1, 2026, tax rates will revert to their pre-act levels. Below are the changes:
The numbers by themselves might not look like much. To better understand the impact, let’s calculate a real-life example using the calculator at taxfoundation.org. To keep it simple, let’s look at the impact on a married couple filing jointly with two dependent children, taking the standard deduction, and varying income levels from $150k to $1M.
When viewed in dollars and cents, the tax increase is significant, ranging from a $5,000 increase to a $37,000 increase, depending on income.
There are ways to mitigate the impact of looming tax increases. Below are some helpful hints:
- If you have flexibility regarding when you get paid, move income into 2024 and 2025 to receive favorable rates. But keep an eye on your marginal bracket so that you don’t jump into a higher one with too much income.
- Maximize your pre-tax retirement savings through your employer. If you invest in a Roth 401(k), consider adjusting the amount you save in the Roth to pre-tax.
- Save in a tax-advantaged Health Savings Account if you have a high-deductible health plan.
- Check to see if your state provides tax-advantages for saving in a 529 education savings plan.
Higher taxes are no fun, but with good planning, you can reduce your tax bill while maintaining your financial goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data are historical and are no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.
Nothing in this material should be construed as investment advice offered by Dolan Capital Advisors, Inc. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction, or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction, or investment strategy. You should speak with your own financial professional before making any investment decisions.
Past performance is not indicative of future results. Dolan Capital Advisors, Inc. does not guarantee any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal.
Certain statements contained herein are statements of future expectations and other forward-looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance, or events to differ materially from those expressed or implied in such statements.
Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors, Inc., a SEC-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.