2026 is the first full year under the tax law passed in July 2025, and several of its new rules work in ways the published brackets do not show. Most of them share one deadline. Decisions made by December 31 can lower a 2026 tax bill. The same decisions made on January 2 usually count toward 2027, or not at all.
Below are twelve year-end decisions worth making on purpose, each with its deadline, the rule in plain English and an illustration of what it can be worth. The figures come from IRS guidance and the law itself. The illustrations are hypothetical, and any of them should be checked against your own return with your tax advisor.
The 2026 year-end calendar at a glance
Twelve decisions, most of them due December 31.
Source: Commons Capital summary of 2026 federal tax law. Deadlines are for calendar-year individual taxpayers. State rules vary. Hypothetical illustration; not tax advice. Consult your tax advisor about your own situation.
1. Check whether you are in the hidden 45% band
Deadline: December 31. Who it matters for: income of roughly $505,000 to $606,000.
The new law raised the cap on the state and local tax (SALT) deduction to $40,400 for 2026. It also shrinks that cap by 30 cents for every dollar of modified adjusted gross income above $505,000, until it falls back to $10,000 at about $606,000. Inside that band, each additional dollar of income is taxed once as income and again through the lost deduction.
Federal income tax on the next dollar earned, 2026
The top bracket is 37%. For some earners, the real rate is 45.5%.
In the shaded band, every extra dollar of income also shrinks the state and local tax deduction by 30 cents. A 35% bracket becomes a 45.5% rate.
Source: Commons Capital calculations under 2026 federal law (IRS Rev. Proc. 2025-32 and Public Law 119-21). Assumes all income is wages, $50,000 of state and local taxes paid and $20,000 of other itemized deductions. Federal income tax only; excludes payroll taxes, the 3.8% net investment income tax and state tax. Smaller bumps above $640,000 reflect the new limit on itemized deductions in the 37% bracket. Hypothetical illustration; not tax advice. Consult your tax advisor about your own situation.
What it can be worth. For a single filer in the 35% bracket who pays at least $40,400 in state and local taxes, an extra $10,000 of income in this band adds about $4,550 of federal tax, a rate of 45.5%. A married couple in the same band faces a similar effect, reaching 45.5% in the upper part of it.
If your 2026 income is near the band, the levers are timing: deferring a bonus or a sale into 2027, harvesting losses (item 6), giving from an IRA instead of with cash (item 3), or postponing a Roth conversion (item 7). Income above the band is taxed at the ordinary bracket rates again, so the band matters most to people sitting inside it, not above it. The cap reverts to $10,000 in 2030 unless Congress changes it.
2. Ask whether your business should pay state tax at the entity level
Deadline: varies by state, and some require the election or payment within the tax year. Who it matters for: owners of partnerships and S corporations.
The SALT cap applies to individuals, not to businesses. Most states with an income tax let a pass-through business elect to pay state tax at the entity level, where it is deducted in full before the income reaches the owners. The new law left these elections intact.
What it can be worth. An owner above the phase-down band can deduct only $10,000 of state and local tax personally. If the business pays $40,000 of that owner's state tax instead, the extra $30,000 of deduction is worth about $11,100 at a 37% rate. The election can also help owners subject to the alternative minimum tax, since the AMT disallows the personal SALT deduction. Rules differ by state, so this one starts with a call to the business's CPA.
3. Give from your IRA instead of your checking account
Deadline: December 31. Who it matters for: IRA owners age 70½ and older.
A qualified charitable distribution sends money straight from an IRA to a charity. For 2026 the limit is $111,000 per person, and the gift counts toward a required minimum distribution. Because the money never enters taxable income, it sidesteps two new limits on charitable deductions described in item 4, and it keeps adjusted gross income lower, which matters for the SALT band above. It does not require itemizing.
What it can be worth. A retiree in the 35% bracket who gives $20,000 through a qualified charitable distribution keeps $20,000 out of taxable income, worth about $7,000 of federal tax, whether or not they itemize. The distribution must go directly to the charity, and it cannot go to a donor-advised fund.
4. Bunch charitable gifts, and give stock instead of cash
Deadline: December 31. Who it matters for: itemizers who give every year.
Two new rules took effect this year. Itemizers can now deduct charitable gifts only to the extent they exceed 0.5% of adjusted gross income. And for taxpayers in the 37% bracket, itemized deductions are now worth at most 35 cents per dollar. Taxpayers who take the standard deduction can now deduct up to $1,000 of cash gifts ($2,000 for married couples) to public charities, though not to donor-advised funds.
The floor rewards concentrating several years of giving into one, often through a donor-advised fund, because the 0.5% is lost once instead of every year.
What it can be worth. A couple with $600,000 of income who gives $30,000 a year loses $3,000 of deduction to the floor each year, or $9,000 over three years. Giving $90,000 in one year loses $3,000. If that $90,000 is given as stock bought for $30,000 rather than as cash, the $60,000 gain is never taxed, which avoids up to $14,280 at a 23.8% rate.
5. Use this year's $19,000 gift exclusion
Deadline: December 31. Who it matters for: anyone with an estate plan.
Each person can give $19,000 per recipient in 2026 without using any lifetime exemption or filing a gift tax return. An exclusion not used this year is gone. The amount rises to $20,000 in 2027, and the estate tax exemption rises from $15 million to $15.48 million.
Three ways to use it: direct gifts, a front-loaded 529 plan contribution of up to five years of exclusions at once ($95,000 per giver, with an election on a gift tax return), and the new Trump accounts for children, which accept up to $5,000 per child per year.
What it can be worth. A couple with three grandchildren can move $114,000 out of their estate in 2026 alone, and the growth on that money leaves the estate with it. Whether this saves estate tax depends on the size of the estate, since the 2026 exemption is $30 million for a married couple. For families near or above that level, every unused year is a permanent loss.
6. Harvest losses without tripping the wash sale rule
Deadline: trades must execute by December 31. Who it matters for: taxable investment accounts.
Selling a position at a loss lets you offset realized gains, plus up to $3,000 of ordinary income, with the rest carried forward. The wash sale rule disallows the loss if you buy the same or a substantially identical security within 30 days before or after the sale, and that includes purchases in your IRA and your spouse's accounts.
What it can be worth. Harvesting a $50,000 loss to offset $50,000 of long-term gains saves up to $11,900 at a 23.8% rate. This is where owning individual securities matters. A portfolio of individual holdings almost always has some positions trading below cost, even in a year the market is up. A single fund wrapper offers one cost basis. We covered the difference in Why We Don't Use Funds.
7. Decide on a Roth conversion
Deadline: December 31. Who it matters for: people in a lower-income year, and retirees before required distributions begin.
A conversion moves money from a traditional IRA to a Roth IRA. You pay income tax now, and the money then grows and comes out tax free. Since 2018 a conversion can no longer be undone, so it should be sized with care.
What it can be worth. A married couple with $300,000 of taxable income has $103,550 of room before leaving the 24% bracket. Converting that amount costs about $24,852 today. Whether that is a good trade depends on the rate the money would otherwise face later. One caution for 2026: a conversion raises adjusted gross income, which can push someone into the SALT band in item 1.
8. Take your required minimum distribution
Deadline: December 31, except for the year you turn 73, when the first one can wait until April 1. Who it matters for: IRA owners 73 and older, and most heirs of inherited IRAs.
A missed distribution carries an excise tax of 25% of the shortfall, reduced to 10% if corrected within two years.
What it can be worth. Missing an $80,000 distribution costs $20,000, or $8,000 if fixed promptly, on top of the income tax still owed. Delaying a first distribution to April also puts two distributions in one tax year, which can push income into a higher bracket or the SALT band.
9. Run the AMT math before exercising stock options
Deadline: December 31. Who it matters for: holders of incentive stock options.
Exercising incentive stock options and holding the shares can trigger the alternative minimum tax on the spread, even though no shares were sold. The new law lowered the income level where the AMT exemption starts to disappear, to $500,000 for single filers and $1,000,000 for couples, and doubled the speed at which it disappears. Between those levels and about $680,200 (single) or $1,280,400 (joint), the AMT rate on the next dollar can reach 42%.
What it can be worth. For a single filer earning $450,000, exercising options with a $100,000 spread adds about $17,353 of AMT in our model. Doubling the spread to $200,000 adds about $59,353, more than three times as much. Splitting an exercise across December and January can keep each year below the steepest part of the curve.
10. Fill your 401(k), and know where catch-ups now go
Deadline: the last payroll of 2026. Who it matters for: employees, especially those 50 and older.
The 2026 employee limit is $24,500, plus $8,000 for those 50 and older, or $11,250 for those turning 60 through 63. New this year: if your 2025 Social Security wages from that employer exceeded $150,000, catch-up contributions must go in as Roth. That means after tax, with no deduction this year.
What it can be worth. A 61-year-old can put up to $35,750 into a 401(k) in 2026. For a high earner, the $24,500 base contribution can still be pre-tax, worth about $8,575 in the 35% bracket, while the catch-up portion now builds tax-free Roth savings instead. Contributions run through payroll, so the window closes with the last paycheck, not on December 31.
11. Place business equipment in service
Deadline: December 31. Who it matters for: business owners.
The new law made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. The full cost of equipment can be deducted in the year it is placed in service, which means installed and ready to use, not merely ordered or paid for.
What it can be worth. $200,000 of equipment placed in service on December 30 is deducted on the 2026 return. The same equipment placed in service on January 4 is deducted on the 2027 return. At a 37% rate, that moves $74,000 of tax savings by a full year.
12. Gift appreciated shares to family in the 0% bracket
Deadline: December 31. Who it matters for: families with adult children or other relatives in lower brackets.
Long-term capital gains are taxed at 0% on taxable income up to $49,450 for single filers in 2026. Shares given to a family member keep their original cost and holding period, so a relative in that bracket can sell and owe nothing on gains that would cost the giver up to 23.8%. The kiddie tax generally blocks this for children under 19, and for full-time students under 24.
What it can be worth. An adult child with $30,000 of taxable income has $19,450 of room in the 0% bracket. Gifting $19,000 of stock with a $15,000 gain, within the annual exclusion, saves the family about $3,570 of federal tax.
What these twelve have in common
Most of the value here comes from timing and coordination, not from any single product or strategy. The SALT band, the charitable floor, a Roth conversion and the AMT all respond to the same number, adjusted gross income, so a decision on one changes the math on the others. A conversion that looks sensible in isolation can cost 45 cents on the dollar if it lands in the wrong band.
That is why we work through year-end decisions together, alongside each client's CPA, as part of our Financial Planning work. Because we build portfolios from individual securities across asset classes, we can also choose which tax lots to sell, harvest losses position by position and give appreciated shares directly, as part of ordinary Investment Management.
Quick answers
What is the SALT deduction cap for 2026?
$40,400, reduced by 30% of modified adjusted gross income above $505,000, but never below $10,000. It reverts to $10,000 in 2030 under current law.
What is the SALT torpedo?
The informal name for the phase-down of the SALT cap. Between about $505,000 and $606,000 of income, it can raise the federal rate on the next dollar from 35% to 45.5%.
Can I still deduct all of my charitable gifts in 2026?
Itemizers can deduct gifts only above 0.5% of adjusted gross income, and taxpayers in the 37% bracket get at most 35 cents per dollar. Qualified charitable distributions from an IRA avoid both limits.
What is the 2026 gift tax annual exclusion?
$19,000 per recipient. It rises to $20,000 in 2027.
What is the qualified charitable distribution limit for 2026?
$111,000 per IRA owner age 70½ or older.
Do high earners have to make 401(k) catch-up contributions as Roth in 2026?
Yes, if their prior-year Social Security wages from that employer exceeded $150,000.
When does the AMT exemption phase out in 2026?
Starting at $500,000 of alternative minimum taxable income for single filers and $1,000,000 for married couples, at 50 cents per dollar.
How we calculated the examples
All illustrations use 2026 federal brackets and thresholds from IRS Revenue Procedure 2025-32 and Public Law 119-21. The SALT and AMT examples assume income from wages, $50,000 of state and local taxes paid and $20,000 of other itemized deductions, and include the regular tax, the alternative minimum tax and the new limit on itemized deductions in the 37% bracket. Capital gain examples use the 20% rate plus the 3.8% net investment income tax. Figures exclude state taxes and payroll taxes and are rounded. Your results will differ.
Sources
- IRS, tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill
- IRS, tax inflation adjustments for tax year 2027, November 5, 2026
- Kiplinger, "SALT Deduction Gets an Update for 2026 Taxes"
- The Tax Adviser, "Cap raised, strings attached: The 2025 SALT shake-up," March 2026
- PKF O'Connor Davies, "Charitable giving after OBBBA: changes for individuals in 2026"
- Congressional Research Service, Qualified Charitable Distributions from IRAs, January 2026
- IRS, required minimum distribution year-end reminder
- Tax Foundation, 2026 tax brackets
- Mercer Advisors, "Alternative Minimum Tax After OBBBA"
- Mayer Brown, IRS annual limits for benefit plans, 2026
- RSM, IRS finalizes rules on Roth and enhanced catch-ups
- Grant Thornton, OBBBA offers new ways to accelerate depreciation
- AAII, "Trump Accounts: Key Rules to Know Before You Contribute"
- IRS Publication 550, Investment Income and Expenses
This material is educational and reflects our analytical framework. It is not tax, legal or investment advice, and it is not a recommendation to buy or sell any security. All examples are hypothetical, simplified and rounded, and are not actual client results. Tax law is complex and subject to change, and state rules vary. Consult your tax and legal advisors before acting on any item described here.
Commons Capital is a fee-based fiduciary Registered Investment Adviser regulated under the Investment Advisers Act of 1940. Additional information, including our Form ADV Part 2, is available on the SEC's Investment Adviser Public Disclosure system.
