January 31, 2024

What is the Great Tax Sunset of 2026? A Guide for Financial Advisors

The favorable tax changes from the 2017 Tax Cuts and Jobs Act (TCJA) will ‘sunset’ or expire by the end of next year.

Financial advisors and tax professionals should prepare clients for the effects of this act ending to prevent surprises in January 2026.

Understanding the Tax Expiration of 2026

The great tax sunset of 2026 refers to the scheduled expiration of certain provisions from the Tax Cuts and Jobs Act (TCJA) of 2017. This landmark tax legislation introduced substantial changes to the tax code, including adjustments to tax brackets, deductions, and credits.

Several of these modifications were provisional and are presently slated to return to their pre-TCJA condition unless fresh laws are passed to prolong or alter them.

Which Tax Provisions are set to ‘Sunset?’

Among the most impactful of these sunsetting provisions is the estate and gift tax, which temporarily granted an elevated exemption of nearly $13 million per individual. However, in 2026, this exemption is expected to plummet to approximately $6 million, causing potential concern for clients with substantial estates.

To navigate this impending change, it is crucial for advisors to help all their clients prepare their estate plans accordingly, especially for those with taxable estates above $13 million and families above $24 million, but that’s not all.

There are several key provisions in addition to the estate and gift tax that are set to revert, affecting individual taxpayers and businesses alike, including:

  1. Individual Tax Rates: The TCJA lowered individual income tax rates across the board. Without congressional action, these rates will return to their previous levels, potentially resulting in higher tax bills for many clients.
  2. Standard Deduction: The standard deduction, which was nearly doubled under the TCJA, will also decrease if no new legislation is passed, impacting the itemization decisions of clients.
  3. Child Tax Credit: The TCJA increased the Child Tax Credit and expanded its availability. Unless renewed, this credit will revert to its previous levels, affecting families with dependent children.
  4. Estate Tax Exemption: The TCJA substantially increased the exemption limit for the estate tax. Without action, it will return to pre-TCJA levels, potentially subjecting more estates to taxation.
  5. Business Tax Provisions: Various business tax provisions, including bonus depreciation and certain deductions, are set to change, impacting businesses’ financial planning. 100% bonus depreciation is already starting to phase out gradually, with the transition to be complete by January 1, 2027.


What Advisors Need to Know

Nationally recognized thought leader, speaker, and industry trainer, Dave Alison, CFP®, EA, BPC, recently commented on the implications of this change, during the Rainmaker Multiplier On-Demand Podcast, titled, “Clients for Life: The Impact of Tax Planning Management.” In the episode, he urges fellow advisors that “clients may not be at a transfer tax issue right now, but if the exemptions get cut in half they certainly could be in the future.”

Some considerations in financial planning strategies have changed because of TCJA and will continue to be affected if the act expires. Understanding what’s to come from these changes is important for advisors and their clients alike.

As Alison says, “When the Tax Cuts and Jobs Act happened, pretty much every good attorney went from talking about estate tax to income tax, because the estate tax wasn’t really relevant for a big audience. Now what we’re starting to see is there’s a lot more conversation stirring up about the estate tax again. And the conversation is, of course always laser-focused on trying to solve for your income tax, but we also want to focus on your lifetime tax burden.”

Advisors with a tax management approach have a unique opportunity to help clients navigate this change and help them effectively reduce the taxes they will owe throughout their lifetime.

How Advisors Can Prepare

Now more than ever, financial advisors can help reduce or minimize a client’s current taxes and or their future lifetime taxes ahead of these key changes.

Here are some actionable strategies for advisors to consider in preparing for the great tax sunset:

  1. Monitor Legislative Developments: Stay informed about any legislative changes related to tax policy. Be prepared to adapt your recommendations based on new laws that may extend or modify the TCJA provisions, especially with a 2024 U.S. election on the horizon.
  2. Explore Tax Planning Opportunities: Identify tax planning and management opportunities that may arise from the shift in 2026. This could involve adjusting income and investment strategies or reevaluating retirement planning.
  3. Provide Proactive Client Education: Teach your clients about the potential impact of the great tax sunset on their financial goals and tax liabilities.
  4. Perform a Scenario Analysis: Run analyses to help clients understand the range of potential outcomes based on different tax scenarios. These can aid in decision-making and financial preparedness.

By staying vigilant, offering tailored guidance, and exceptional tax expertise, financial advisors can provide unique opportunities for their clients and help them thrive in the evolving tax environment.

How to Help Clients Prepare

As a financial advisor, your role in helping clients prepare for the great tax sunset of 2026 is pivotal. 2026 may seem far away now but these changes will start making waves by the end of next year.

You can also help your clients plan ahead by adjusting the following:

  1. Tax Projection: If you don’t provide tax management services to your clients, work with tax professionals to project your clients’ future tax liabilities under various scenarios. This can help them anticipate potential changes and plan accordingly.
  2. Tax-Efficient Diversification: Explore strategies for tax-efficient investing and asset allocation to minimize the impact of rising tax rates.
  3. Retirement Account Optimization: Review retirement account contributions and conversions, considering both traditional and Roth accounts, to optimize tax outcomes in retirement.
  4. Estate Planning: Discuss the effect on estate tax laws with clients and explore planning tactics to protect their wealth and minimize tax consequences, like growing a client’s assets in a beneficiary’s name instead of their own.
  5. Financial Goals: If necessary, help clients adjust their financial goals and method of saving to account for potential changes in disposable income due to higher taxes.

Prepare Yourself and Your Clients for The Great Tax Sunset

The great tax sunset of 2026 presents both challenges and opportunities for financial advisors and their clients. If you don’t offer tax management services or have a tax professional in your practice, now might be the time to start adding additional value to your clients with proactive tax planning. C2P can help enhance your tax expertise and provide more comprehensive planning solutions to your clients that maximize their income by minimizing taxes.

For more resources C2P offers, book a call, and subscribe to the C2P podcasts to stay up to date on all the latest news and insights from industry leaders.

For Financial Professional Use Only

The information provided in this presentation is not intended as investment advice or legal advice. The information provided is for informational and training purposes only. The information in this presentation was accurate as of the time the material was created. Tax laws and rulings can frequently change. Please discuss the client’s current situation with an accountant or tax advisor.