How 2026 Tax Inflation Adjustments Could Shape Your Business and Personal Finances

The IRS has released its 2026 inflation-adjusted tax updates, and while the headlines focus on higher deductions and shifting tax brackets, the ripple effects for business owners are far-reaching. These changes, which will apply to returns filed in 2027, offer new opportunities for strategic planning, from payroll and benefits decisions to succession strategies and long-term wealth transfer.

Here’s a breakdown of what’s changing, why it matters, and how proactive planning now can help New York and Long Island businesses stay ahead.

Bigger Standard Deductions, More Income Sheltered

For most taxpayers, the simplest way these adjustments show up is through a higher standard deduction, a built-in reduction to taxable income. For 2026, the new figures are:

• $32,200 for married couples filing jointly
• $16,100 for single filers and married individuals filing separately
• $24,150 for heads of household

That increase can translate to thousands in tax savings, especially for owners reinvesting profits, contributing to retirement accounts, or planning major capital purchases.

Shifting Brackets: New Income Thresholds Could Affect Strategy

While the top marginal tax rate remains at 37%, the income levels that determine which rate you pay are rising. For example:

• 35%: Income above $256,225 (joint filers: $512,450)
• 32%: Income above $201,775 (joint filers: $403,550)
• 24%: Income above $105,700 (joint filers: $211,400)

For closely held companies and pass-through entities, these shifts offer a chance to revisit income timing, distributions, and bonus structures. Adjusting when and how revenue is recognized could reduce overall tax exposure.

Wealth Transfer & Succession: New Estate and Gift Tax Limits

With those business owners approaching retirement or planning for succession, updated estate and gift tax thresholds are a crucial part of long-term strategy.

• Estate Tax Exemption: Rises to $15 million per individual.
• Annual Gift Exclusion: Remains at $19,000, while gifts to a non-U.S. citizen spouse increase to $194,000.

These expanded limits provide more flexibility to transfer ownership, support family members, or structure trusts, all while minimizing future tax liabilities.

Enhanced Employee Benefits: Stronger Retention Tools

Compensation is more than a paycheck, and rising limits on key employee benefits can make a real difference in talent retention, especially in the competitive Greater New York market.

• Child Care Tax Credit: Expands to $500,000 for employer-provided care (or $600,000 for eligible small businesses).
• Flexible Spending Accounts (FSA): Contribution limit climbs to $3,400, with a $680 carryover.
• Qualified Transportation Benefits: Monthly cap increases to $340.

These changes make it easier to offer robust, tax-efficient benefits packages, which can be a critical factor in attracting and retaining top talent.

Individual Tax Breaks: Opportunities for Households Too

Beyond business considerations, 2026 adjustments include several updates that can improve household cash flow:

• Adoption Credit: Up to $17,670, with $5,120 refundable.
• Earned Income Tax Credit (EITC): Maximum benefit for families with three or more children increases to $8,231.
• Foreign Earned Income Exclusion: Now $132,900, which is particularly relevant for globally active business owners.

These changes create planning opportunities for business owners juggling both personal and professional financial priorities.

Why Planning Early Matters

While most of these changes won’t take effect until you file in 2027, they should already be shaping your decisions today. From how you structure compensation and time income to how you design succession plans, proactive tax planning can help you capture more savings and avoid surprises.

The earlier you start preparing, the more strategic you can be about minimizing your tax burden and maximizing your business’s long-term value.

Inflation adjustments might sound routine, but they can have a powerful effect on both your business and home bottom line. Smart business owners should be thinking about adjusting their strategies to make the most of these updates. We are here to help you determine the best way to take advantage of these changes, so reach out to schedule a tax planning conversation.