2026 Tax Updates Every Business Owner Needs to Know
2026 tax updates every business owner needs to know start with this. The IRS changed key tax numbers again, and if you’re still using last year’s limits, you could be making expensive decisions without realizing it.
Most business owners don’t pay attention to these updates until tax season. By then, many of the best planning opportunities are already gone.
That’s the problem.
Tax brackets changed. Retirement contribution limits increased. The Social Security wage cap moved. Mileage rates changed. These numbers affect how much you deduct, how much you contribute, and how much tax you pay.
This guide breaks down the most important 2026 tax updates for business owners, what changed, and why these numbers matter for tax planning in 2026.
Why 2026 Tax Updates Matter for Business Owners
The IRS updates tax numbers every year based on inflation and tax law changes.
That includes tax brackets, standard deductions, retirement contribution limits, Social Security wage caps, HSA limits, mileage rates, capital gains thresholds, and more.
For business owners, those updates affect real decisions.
A higher retirement contribution limit can create a larger deduction. A new Social Security wage cap can affect payroll planning. A higher mileage rate can increase your deduction. New capital gains thresholds can change the tax cost of selling stock, real estate, or a business.
Most business owners don’t build these numbers into their planning early enough.
They keep using old limits. They make decisions without updated thresholds. Then they find out later that they missed a better move.
That’s why 2026 tax updates every business owner needs to know matter. These aren’t background numbers. They shape smarter decisions throughout the year.
2026 Standard Deduction Changes
The standard deduction is the baseline amount you can subtract from your taxable income without needing to itemize. For 2026, here’s where it lands:
- Single filers: $16,100
- Married filing jointly: $32,200
These numbers matter for two reasons.
First, they determine whether itemizing makes sense for you. Itemized deductions include things like mortgage interest, state and local taxes, real estate taxes, and charitable contributions. If your itemized deductions don’t exceed the standard deduction, you simply take the standard amount — no itemizing needed.
Second, this number plays a key role in the hire-your-children strategy. If your child is on payroll in your business and earns less than the standard deduction — $16,100 for a single filer in 2026 — they owe zero federal income tax on those wages. That’s a legitimate business deduction for you and potentially tax-free income for your child. It’s a powerful strategy, and knowing the updated threshold keeps it working properly.
2026 Tax Brackets and What They Mean
The federal tax system uses seven brackets in 2026: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income ranges for each bracket are adjusted slightly upward each year due to inflation, which means if your income stays the same as last year, you’ll likely pay a little less in taxes — your income spreads across slightly wider lower brackets.
Here’s a quick look at two commonly referenced brackets for 2026:
- 22% bracket (single): $50,400 – $105,000
- 22% bracket (married): $100,000 – $211,000
- 37% bracket (single): Income over $640,000
- 37% bracket (married): Income over $768,000
Marginal Rate vs. Effective Rate — Know the Difference
This is one of the most misunderstood areas in tax planning.
Your marginal tax rate is the rate applied to the next dollar you earn — it’s the highest bracket your income reaches. Your effective tax rate is the average rate you actually pay across all your income. These two numbers are almost never the same.
If you’re in the 37% bracket, that doesn’t mean all of your income is taxed at 37%. The first portion of your income is taxed at 10%, the next at 12%, then 22%, and so on. Only the income above the threshold for that top bracket gets taxed at 37%.
Why does this matter? Because business owners sometimes avoid taking bonuses, raises, or additional income out of fear of “bumping into the next bracket.” But moving into a higher bracket only taxes the additional income at that higher rate — not everything you’ve already earned. The math almost always still works in your favor.
One practical planning move: look at the gap between your current income and the next bracket threshold. If there’s room, that’s an opportunity — for a Roth conversion, accelerating income, or other strategies that make sense at your current rate.
2026 Social Security Wage Cap
The Social Security wage cap is the maximum amount of earnings subject to the Social Security portion of payroll taxes. For 2026, that cap is $184,500.
Here’s how it works: Social Security tax is 6.2% for the employee and 6.2% for the employer. If you’re self-employed, you’re paying both sides — 12.4% — up to that $184,500 threshold. Once your wages exceed the cap, no additional Social Security tax applies to the overage.
For S-Corp owners, this is an especially important number. The wage cap directly affects how you think about your reasonable compensation — the salary you pay yourself through the S-Corp. Structuring your compensation thoughtfully in relation to this cap can have a real impact on your total payroll tax liability for the year.
Medicare Tax Still Applies After the Cap
Here’s the part that catches people off guard: while Social Security tax stops at $184,500, Medicare tax does not have a cap.
Medicare tax is 1.45% for the employee and 1.45% for the employer (2.9% if you’re self-employed), and it applies to all earned income — no ceiling.
On top of that, there’s an Additional Medicare Tax of 0.9% for higher earners:
- Single filers: Kicks in at $200,000 in income
- Married filing jointly: Kicks in at $250,000 in income
This is important for business owners whose income grows significantly year over year. Even after the Social Security cap is hit, Medicare taxes continue — and they increase at certain income levels. Plan accordingly.
2026 Retirement Contribution Limits
Retirement accounts remain one of the most powerful tax-reduction tools available to business owners, and the 2026 limits are the highest they’ve ever been.
IRA Contributions
- Under age 50: $7,500
- Age 50 and older: $8,600
401(k) Employee Contributions
- Standard contribution limit: $24,500
- Catch-up (age 50+): Additional $8,000
- Catch-up (ages 60–63): Additional $11,250 (a special window under current tax law)
Combined Maximum (Employer + Employee)
- $72,000 for 2026, plus applicable catch-up amounts
For self-employed business owners and those with their own 401(k) plans, the combined limit is significant. Maximizing retirement contributions could be one of the single largest deductions available to you — and the 2026 limits give you more room than ever before.
If you haven’t already reviewed your contribution strategy for this year, now is the time.
2026 HSA Contribution Limits
Health Savings Accounts remain one of the most underutilized tools in a business owner’s tax toolkit. The 2026 limits are:
- Individual plan: $4,400
- Family plan: $8,750
HSAs are often called triple tax advantaged — and for good reason:
- Contributions are tax-deductible
- Growth inside the account is tax-free
- Withdrawals for qualified medical expenses are tax-free
No other account type offers all three. If you qualify for an HSA, maximizing it should be a priority.
One strategy worth considering: if you can afford to pay medical expenses out of pocket, let the HSA grow untouched. Make sure the funds are invested — not just sitting in a low-interest savings option — so they compound over time. You can always reimburse yourself later using past medical receipts, even years down the road.
2026 Mileage Rate Increases
The IRS business mileage rate for 2026 is 72.5 cents per mile.
This rate applies to business owners who use the standard mileage method rather than deducting actual vehicle expenses (depreciation, gas, insurance, etc.). If you’re taking the standard mileage deduction, this updated rate applies to every business mile you drive this year.
To put it in perspective: 10,000 business miles at 72.5 cents equals a $7,250 deduction. For business owners who drive frequently for client visits, deliveries, or other business purposes, this number adds up quickly.
The key requirement: proper mileage tracking. The IRS expects documentation — date, destination, business purpose, and miles driven. Use a mileage tracking app or maintain a logbook to protect this deduction.
Medical and Charitable Mileage Rates
Two additional mileage rates are worth knowing for 2026:
- Medical mileage: 20.5 cents per mile
- Charitable mileage: 14 cents per mile
These rates apply when you’re driving for qualifying medical purposes — such as traveling to see specialists or visiting medical facilities — or driving on behalf of a qualifying charitable organization. In certain situations, particularly for families dealing with significant medical care needs, these rates can add up to a meaningful deduction. Keep records the same way you would for business mileage.
2026 Capital Gains Tax Thresholds
If you’re planning to sell stock, a business, real estate, or other appreciated assets, understanding the capital gains tax structure for 2026 is essential.
Short-Term vs. Long-Term
- Short-term gains (assets held less than one year) are taxed at your ordinary income tax rates — the same brackets discussed above.
- Long-term gains (assets held more than one year) qualify for preferential rates: 0%, 15%, or 20%, depending on your income.
2026 Long-Term Capital Gains Thresholds
| Rate | Single Filers | Married Filing Jointly |
|---|---|---|
| 0% | Up to $49,500 | Up to $98,900 |
| 15% | $49,500 – $545,000 | $98,900 – $613,000 |
| 20% | Over $545,000 | Over $613,000 |
Why this matters: If your total income puts you under the 0% threshold, capital gains from a sale could be completely tax-free. Strategic timing — deciding which year to complete a sale — can mean the difference between paying 0%, 15%, or 20% on the same gain.
For business owners approaching an exit, this planning is critical. Even spreading a sale across two tax years can reduce the effective capital gains rate significantly.
Section 179 and Bonus Depreciation for 2026
If your business is purchasing equipment, vehicles, or other qualifying business property, 2026 brings strong deduction opportunities.
Section 179
The Section 179 deduction limit for 2026 is $2,560,000. This provision allows businesses to immediately deduct the full cost of qualifying equipment in the year of purchase, rather than depreciating it over multiple years.
Bonus Depreciation
Bonus depreciation is now permanently set at 100% — a significant win included in recent tax legislation. This means qualifying assets can be fully deducted in year one, similar to Section 179.
In practice, Section 179 and bonus depreciation can be used together or independently depending on your situation. For businesses making large purchases — heavy vehicles, machinery, technology equipment — the ability to take a full deduction in year one is a powerful planning tool.
If you’re considering a significant equipment purchase, the timing matters. Running the numbers before year-end can help determine whether making the purchase in 2026 makes the most sense for your tax position.
2026 Gift and Estate Tax Limits
For business owners thinking about wealth transfer or succession planning, the 2026 gift and estate tax limits have increased meaningfully.
- Annual gift exclusion: $19,000 per recipient
- Lifetime estate and gift tax exemption: $15,000,000
The annual exclusion means you can give up to $19,000 to any individual in 2026 without filing a gift tax return. Gifts above that amount aren’t necessarily taxable — they count against your lifetime exemption — but they do require reporting.
Here’s where the planning opportunity grows: these limits are per recipient, and both spouses can give independently. If you and your spouse want to gift money to a married child, you could each give $19,000 to the child and $19,000 to their spouse — totaling up to $76,000 gifted in a single year without triggering any gift tax return.
For business owners looking to pass ownership interests to the next generation, this structure also applies to business interests. Gifting small ownership percentages over time — staying under the annual limit — can be a tax-efficient way to transfer a business without a large taxable event.
Final Takeaways
Here’s a quick summary of the 2026 numbers that should be on your radar:
| Item | 2026 Limit |
|---|---|
| Standard Deduction (Single) | $16,100 |
| Standard Deduction (Married) | $32,200 |
| Social Security Wage Cap | $184,500 |
| IRA Contribution (Under 50) | $7,500 |
| IRA Contribution (50+) | $8,600 |
| 401(k) Employee Max | $24,500 |
| 401(k) Combined Max | $72,000 |
| HSA (Individual) | $4,400 |
| HSA (Family) | $8,750 |
| Business Mileage Rate | 72.5¢/mile |
| Section 179 Limit | $2,560,000 |
| Annual Gift Exclusion | $19,000 |
| Lifetime Estate Exemption | $15,000,000 |
These numbers don’t just matter at tax time. They should shape decisions you make all year long. Retirement contributions, equipment purchases, payroll structure, asset sales; All of it connects back to these updated limits. The earlier you build them into your planning, the more options you have.
Proactive planning beats reactive filing every time.
Business owners who take time to understand the 2026 limits can adjust retirement contributions, structure their payroll more efficiently, time asset sales strategically, and use deductions more effectively. Over time, that difference can add up to tens of thousands of dollars or more.
Frequently Asked Questions
What are the most important 2026 tax updates for business owners?
The biggest updates include new tax brackets, standard deductions, retirement contribution limits, the Social Security wage cap, HSA limits, mileage rates, capital gains thresholds, and the Section 179 deduction limit.
Why do these 2026 tax updates matter?
They affect real tax planning decisions. Using outdated numbers can lead to missed deductions, poor payroll planning, and unnecessary overpayments.
What is the standard deduction for 2026?
The standard deduction is $16,100 for single filers and $32,200 for married filing jointly.
What is the Social Security wage cap for 2026?
The Social Security wage cap is $184,500. Wages above that amount are not subject to additional Social Security tax.
Does Medicare tax stop after the Social Security cap?
No. Medicare tax continues even after you pass the Social Security wage cap, and higher earners may owe an additional Medicare tax.
What are the 2026 retirement contribution limits?
The IRA limit is $7,500 if you are under 50 and $8,600 if you are 50 or older. The 401(k) employee contribution limit is $24,500, with catch-up contributions available.
What are the 2026 HSA contribution limits?
The HSA limit is $4,400 for an individual plan and $8,750 for a family plan.
What is the business mileage rate for 2026?
The business mileage rate is 72.5 cents per mile for taxpayers using the standard mileage method.
How are capital gains taxed in 2026?
Short-term gains are taxed at ordinary income rates. Long-term gains are taxed at 0%, 15%, or 20% depending on your income.
What is the Section 179 deduction limit for 2026?
The Section 179 deduction limit is $2,560,000 for 2026.
What is the annual gift tax exclusion for 2026?
The annual gift tax exclusion is $19,000 per recipient.
Transcription
Mike J: [00:00:00] Every year the IRS quietly changes the numbers. Tax brackets move, retirement limits change, social security threshold increase and mileage rates adjust. And here’s the problem. Most business owners, they don’t notice until tax time when they realize. They’ve missed opportunities. Maybe they contributed too little to retirement.
Maybe they didn’t plan around the new brackets, or maybe they paid more in self-employment tax than necessary. So today we’re gonna break down the key tax numbers for 2026, the ones that matter the most for business owners and how to actually use them to plan smarter this year. So let’s dive into it.
Mike J: The first thing we wanna talk about is why do these numbers change? Why do these numbers change? And in some quick context before we kind of get into what the numbers are, what the changes are. [00:01:00] Every year the IRS adjust many different types of limits based on inflation and tax policy updates. So those are things like tax brackets, standard deductions, retirement contribution limits social security, wage caps, HSA limits, mileage deductions.
These are all changes that adjust based on inflation just for that aspect. Now. What we’re gonna talk about today, we’re gonna go through a lot of these different numbers and the different changes that went through that will be in place for 2026. If you are a Tax Elm member, make sure you download your 2026 tax Resource Guide.
It’s just a one pager. Print it out, put it on your desk, but it’s in the backend platform of Tax Elm. So if you’re a Tax Elm member, make sure you download that. Now the first thing we wanna talk about is the standard deduction. So standard deduction for 2026 if you’re single is 16,100, and if you’re married it’s 32,200.
And so the standard deduction is gonna affect whether you itemize deductions or if you just take the standard deduction. Remember, back in 2017, this number significantly went up and and continues to go up slightly every year from now [00:02:00] based on the inflation piece. So standard deduction. If you’re single for 2026 is 16,100, if you’re married, it’s 32,200.
That means that if you do not have itemized deductions, think of things like real estate taxes, estate and local taxes mortgage interest charitable contributions. If you, if no, if your itemized deductions do not add up to at least the standard deduction, you’re just gonna take the standard deduction on that.
Another key thing when we talk about tax strategy for business owners that this affects is hiring your children. Now, we always talk about how hiring your children can be such a powerful strategy and how it can be a business deduction, potentially no income tax for your children and so on. Now, for a child, if it’s a child of yours, if they earn under the standard deduction, so 16,100 in 2026, if they’re single, they do not pay any income taxes.
So if their total income is under that standard reduction of 16,100. They won’t pay income taxes on that. Now that’s at the federal level. Check your states as well. So that’s a key number to think about when we’re looking at hiring our children in our business. So the next thing we wanna talk about is tax brackets.
And so I’m gonna kind [00:03:00] of go down the sheet and I’m gonna talk about specifically single and married. And I have a checklist here that I’m gonna go through. So if you’re single, the tax brackets are, and this is for single married, any kind of bracket you are 10% bracket, 12%, 2224. 32, 35 and 37% tax bracket.
So that’s the number of brackets are there’s 1, 2, 3, 4, 5, 6, 7. There’s seven different tax brackets, 10%, 12%, 22%, 24%, 32%, 35%, and 37% in what income gets taxed in those various different brackets changes every single year. So as an example the 22% tax bracket, if you’re single is 50,000. 400 up to 105,000.
So if you have income in that range, you’re paying the 22% tax bracket. If you’re married, that 22% tax bracket is a hundred thousand to 211,000. Now, the highest tax bracket, the 37% tax bracket is once you have income, if you’re single, over 640,000. Or if you’re [00:04:00] married over 768,000. So look at those tax brackets to see where you’re at.
And you know, actually, if your income stays the same as last year, you actually are probably gonna pay slightly less tax due to that bracket expansion. So you have more in that lower tax bracket. But now when we talk about tax brackets, I wanna talk about two concepts, the marginal tax rate and your effective tax rate, because this is where people get so confused.
They say, well, I’m in the 37% tax bracket, so all my income. Is taxed at 37% and that’s not true. So your marginal tax rate, it measures the tax on the next dollar that you earn. So it’s the next, it’s the highest bracket you fall into. So if you are in the 37% tax bracket, the next dollar you earn will be taxed at 37%.
But that does not mean that all of your income. Was taxed at 37% and that’s where the effective tax rate comes in. The effective tax rate measures the average rate paid, representing your true tax burden. So even if you are making a million dollars a year, of course you’re in the [00:05:00] 37% tax bracket, but you have some of your money taxed at 10%, some of your money at 12, at 22, at 24, 32, 35, 37, you have money tax at all of those brackets.
Affect your marginal tax bracket. The tax rate and the bracket that you’re in would be 37%. In that example, if you were making a million dollars a year. But your effective rate would actually be a little bit less than that because you’d have some of that million dollars being taxed at lower rates. It’s just the amount over $640,000, if you’re single, that’s taxed at the 37%.
All that income from zero to 640,000 is taxed at a lower rate, and that’s broken up between the various tax brackets. So just something to think about when people say, well, I don’t want to take a $5,000 bonus ’cause it’s gonna bump me into the next tax bracket. Now all my income’s gonna be taxed higher.
That’s not true. Now, if you get bumped into a next tax bracket, you’re gonna have a portion of your income, whatever is over that dollar amount tax at that new bracket, but not all of your income. I just wanna make that very clear because I’ve heard people talk to me and they’re like, Mike, I’m not gonna take that bonus because I am [00:06:00] bumping into a tax bracket and eventually, you know, if I add it all up, I’m actually gonna lose money in that deal.
We’re misunderstanding how the tax bracket works. So keep that in mind. And then also. Look at where your bracket is, look at where your income’s gonna be and look at where your bracket is, because sometimes there’s planning opportunities there. You know, if you have a good, a large amount of income before you jump into another tax bracket, maybe you look at a, a Roth conversion or something like that in that year.
So just look at those tax brackets to do the planning there. The next number that we wanna talk about that change is the Social security cap. So one of the biggest changes each year is the social security cap, and that’s basically just means that there’s a max amount of wages that are subject to Social Security.
Now, social security tax is 6.2% is. Employee pays 6.2 and then the employer matches it. So if you’re self-employed, it’s 12.4. It’s both the employee and the employer, but there’s a maximum amount. And so for that number here in 2026, it’s 184,500. So W2 wages up to 184,500 are gonna be subject [00:07:00] to Social security tax.
That’s it, 6.2 or 12.4 if you’re self-employed. But once you hit over that amount, once you hit over that 184,500. You’re no longer subject to Social security tax. That’s a good, that’s good news. Why does this matter? Well, if you’re an S-Corp owner, paying yourself a salary, this cap affects payroll tax planning.
It affects reasonable compensation, how much income avoids social security tax or not. So just something to consider. Now, once wages exceed that cap. That 12.4% tax disappears. But one thing to make clear is the Medicare tax does not. So when we talk about self-employment taxes, we always say 15.3%, a large portion of that social Security.
But then there’s the Medicare. And the Medicare does not go away. And so Medicare is 1.45% for the employee and 1.45% for the employer. So if you’re self-employed, its. Those two combine 2.9% and Medicare actually goes up as income increases. So once income hits 200,000, if you’re single or 250,000, if you’re married, there’s an additional 0.9% Medicare tax on top of that.
So just know that yes, you [00:08:00] do have a cap on the social security side, but the Medicare is still doesn’t go away. And actually once you hit certain income levels that there, there is a surtax on the Medicare.
Now, quick pause for a second. If you are a business owner listening to this and thinking, I probably should be doing more tax planning, you are probably right because the difference between reactive tax filing and proactive tax strategy can easily be 5,000, $10,000, even $30,000 a year depending on your business.
So if you wanna see what strategies might apply to you, go to tax Savings podcast.com/starter kit to grab our free tax savings starter kit. Again, that’s tax savings podcast.com. Forward slash starter again. Alright, back to some of the new 2026 numbers. The next number I wanna talk about is retirement contributions.
And so let’s first look at IRA contributions. So individual retirement account contributions. If you’re under 50, you can put $7,500 into an IRA if you’re over 50. You can put $8,600 into an IRA and if you’re a 4 0 1 for let. And then let’s look at a 401k. [00:09:00] So this would be if you have a 401k in your business as an owner.
If you have an employee that’s in a 401k, the employee contribution max is 24,500 and there’s an $8,000 catch up if you’re over the age of four. Over the age of 50. So employee contribution max 24,500. There’s a catch up if you’re over the age of 50 of $8,000. Now, if you are between the ages of 60 and 63.
You have a catch up of 11,250. Why? I don’t know, that’s just part of the tax law, but you have an additional catch up opportunity there also for those who self-employed, those that are doing high contributions, wanna max out your retirement account in your business. The combined max, so the employer portion and the employee portion is $72,000 in 2026.
Plus any kind of catchups that might be there. So for many business owners, maximize retirement contributions could be one of the largest tax deductions available. So it’s important to know where these numbers increased, because last year those numbers were different. You know, you can put more in this year than you could last year.
Okay, now let’s talk about [00:10:00] HSA or health savings account. Contribution limits. Now, an HSA remains, you know, one of the most powerful tax tools that I tell everybody, business owner or not. If you qualify for an HSA, you should be maximizing this thing out as long as you have the funds available to do it.
The 20, 26 limits of this, if you have an individual plan, it’s $4,400 for the year. And if you have a family plan, it’s 8,750. Now people say, well, why are HSAs so powerful? They are triple tax advantage. There’s nothing like this. You get a tax deduction going in, you get tax free growth and you get tax free withdrawals for medical expenses.
There are very few, if any, accounts that offer that triple advantage, and that’s why I say everybody should be taking advantage of these. And then I also say putting that strategy on steroids a little bit
when we talk about an HSA, we should also. Not be using those funds if we can afford to pay for medical expenses out pocket, because let that thing grow in such a tax advantaged account.
Tax free, tax free withdrawals. Let that thing grow. And if you’re doing that strategy, make sure that your HSA is invested, [00:11:00] because a lot of times when you put money into an HSA, it’s just in a small, you know, low low rate savings account or something like that. So if you are playing this area where you just wanna let that thing grow as, as fast as much as possible and try to pay for medical expenses out of pocket.
Make sure that you have the funds in that HSA invested. Now, of course, if, let’s say six down, six years down the road, you hit a money gap, money crashing, you need some cash, you can provide receipts from six years ago at that time and take tax withdrawals out of there. So the next thing we wanna talk about is mileage rate increases.
So the 2026 business mileage deduction is 72.50 cents per mile. So for business owners who drive frequently, this deduction can be quite significant. And I’ll go through a quick example of this, but one thing to think about from the mileage deduction, this is for those business owners that take the mileage opportunity, not the actual deduction.
So if you’re taking depreciation gas and all those different items, and you’re taking the actual expenses, the mileage doesn’t matter for you. But if you are taking the mileage. Deduction increased. The mileage for 2026 is [00:12:00] 72.50 cents per mile. So let’s say you drive 10,000 business miles in the year.
Take 10,000 business miles, times 72 and a half, cents. Gives you a $7,250,000 deduction. So $7,250,000 deduction. Again, super powerful. But remember with anything mileage related, you need to have proper mileage tracking. So make sure that you’re tracking that and keeping good records of that. And when you else talk about mileage, and these we don’t talk about too often, but there’s also two more mileage opportunities.
This would be for medical or charitable. And so this comes into play. Let’s say you’re, you have a. You or your spouse or somebody in your family is going through some medical issues, there could potentially be a lot of travel associated with that, where you’re seeing different specialists, maybe you’re traveling to specialized hospitals, different things like that.
And those can add up and potentially do provide a, an opportunity in certain instances. So the medical mileage is 20 and a half cents per mile and charitable. So if you’re driving for charity that’s 14 cents. Per mile. So a couple mileage rate items to think about there. The next thing I wanna talk about is capital gain [00:13:00] tax thresholds.
So this would be those of you that are selling stock, selling a business, selling real estate, whatever it might be. If you’re facing a capital gain, how are those taxed? Now, if it’s a short term, which means you held it less than a year. Bought a stock in January, sold a stock in June that’s gonna, it’s gonna be taxed at personal tax rates.
Your normal tax brackets that the ones we talked about earlier, the 10, 12, 22, 24, 32, 35, 30 7% tax bracket. So if it’s a short term capital game, just tax at your normal income tax rates, and again, that’s if you held it for less than a year, but if you held it for more than a year. Then you go into some more specialized brackets.
And so if you are single and your income is under 49,500, or if you’re married and your income is under 98,900, your capital gain tax is zero. Let’s say you’re married and you had $50,000 in income, W2 income and then you had a $20,000 capital gain. So your total income is $70,000.
You’re under the 98,900. Your tax on that capital gain. 0%. Now that next bracket up from there is 15%. And [00:14:00] so, that’s, if you are single, it’s up to 545,000 in household earning income. So 50,000 to 545,000, or if you’re married basically 99,000 to 613,000. If your income’s in that range. Your tax on that capital gain piece would be 15%, and then anything over that income range would be taxed at a max capital gain rate of 20%.
So again, this matters for stock sales, business exits, different things like that. Again, strategic timing can significantly reduce taxes Here, you know, we definitely try to plan around these capital gain tax rates, especially if we’re gonna bump into that 20%. I’d rather say, hey. Let’s cash out some now, but can we push some down the road to, to, so we’re not pushing it all into the 20%, we’re taking some at 15, maybe at zero, and doing some planning around there.
So that’s how capital gain tax rates work. The next thing I wanna talk about for business owners is the section 1 79 deduction. So section 1 79, expensive deductions. If you’re buying equipment, different things like that, you can get a full upfront deduction using the Section 1 79 expensing election.
The limit for 2026 is [00:15:00] $2,560,000. Basically, this allows businesses to immediately deduct equipment instead of having to depreciate it over many years. Now, another key thing to note about is that bonus depreciation. Which also does something very similar. Oftentimes Section 1 79 can be combined with bonus depreciation, or one or the other is taken.
But bonus depreciation is also now at a hundred percent, and that’s done permanently. That’s was part of the one big beautiful Bill. So really good news from from that tax from that aspect as far as equipment, some vehicles you know, especially heavier vehicles and, and business related items. Allow very good chance you’re gonna be able to deduct a large portion of that, if not all of it in year one, using either section 1 79 or bonus depreciation.
So, a good thing to look at there. The next thing I wanna talk quote is gift and estate tax changes. So, for 2026, the annual gift limit is 19,000 per recipient. Now a gift, if you go over that amount, it’s not necessarily taxable yet. Per se, but you do have to file a gift [00:16:00] tax return if you give more than $19,000 to a specific per recipient.
And this is not charity, this is just gifting to Ryan’s family, whatever it might be. If you give gift over $19,000 per recipient there you’d have to file a gift tax return and there would be no tax on that until you hit your estate or lifetime tax exemption. And for 2026, that’s $15 million.
Let’s say you gave, gave a gift of a hundred thousand dollars to a family member of yours, you’d be over that $19,000 limit by $81,000. But that 81 would just start to go towards your lifetime exclusion, which is that $15 million. So something to keep in mind there, but there is planning associated with this.
So again, it’s 19,000 per recipient. So let’s say. That you want to gift your child some money and maybe let’s say, let’s say you are married and your child’s married, so you could gift your child 19,000, and then you could gift their spouse 19,000, and then your spouse could gift your child 19,000 and your spouse.
Could gift their spouse [00:17:00] $19,000. So you are looking at a close to $80,000 deduction by just changing who is giving this gift. There is some planning opportunities here. We also see this a lot with businesses where parents wanna pass down their business and they want to gift it to them. They might do it proportionately, so they might say, okay, we’re gonna give point.
Oh 5% of the business because it’s under that $19,000 limit. Or, you know, different planning around that. They might gift it over time. Staying under that limit again, this estate tax exemption where you don’t have to pay the estate tax for 2 26 is up to $15 million now. So for high net worth individuals or business owners paying planning generational wealth and different things like that, these numbers are important.
So those are some of the major number changes that I think, affect so many people and business owners and individuals alike that I think are most important to know. So, keep note of these. Look at your tax brackets. Kind of understand where you’re, because these come into planning all the time, you know, understanding these numbers and kind of where you’re gonna be in the year can really.
Be strategic, especially as we get closer to year end, have a [00:18:00] better concrete number of where our numbers are at. They can be super beneficial as well as taking advantage of different things like retirement or health savings account. And if you are a tax L member, make sure you go download your 2026 tax resource guide.
There’s a cheat sheet directly in the software that you can download. It’s just a one pager. Put it on your desk that you can reference it when different things come up of numbers that you’re looking to take advantage of.
Here’s the big takeaway with all this. Most business owners, they ignore these IRIS updates, but the people who understand the numbers, they plan around them, and that can be so powerful.
They adjust for retirement contributions. They structure their income more str strategically, and they plan around asset sales and different things like that. And they also use deductions more effectively and over time. That difference can add up to tens or even hundreds of thousands of dollars saved.
Now. If you found this episode helpful, make sure to subscribe, leave a review, and share it with another business owner who wants to stop overpaying the IRS. And if you’d like help implementing strategies like these along with so many others, visit us@taxelm.com. That’s [00:19:00] TAX elm.com, or click the link in the description to schedule a free discovery call with our team.
We help business owners legally reduce their tax bill every single day. Thanks for tuning in and I’ll see you on the next one.
Thanks for tuning in to the Small Business Tax Savings Podcast. We hope today’s episode sparked some brilliant ideas to help you save on taxes and grow your wealth. If you loved what you heard, hit the subscribe button and share the wealth with fellow entrepreneurs. For a treasure trove of tax saving resources, visit tax Savings podcast.com.
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