After two choppy years for dealmakers, 2026 is starting with a very different tone, one that many business owners have been waiting for. While the past few years brought tariff swings, interest‑rate volatility and a cautious lending environment, the fundamentals are shifting in a way that increasingly favors sellers, especially those in the lower-middle-market (LMM).
The year 2025 was marked by stops and starts. LMM deal volume fell by roughly 27% through the third quarter, as owners and buyers hesitated amid policy uncertainty and an uneven economic backdrop. Even so, valuations held steady at about 5 to 7 times EBITDA, with the higher end achieved by larger, more mature companies and the lower end more typical for smaller or less developed firms. In short, the companies that did reach the market were still commanding healthy, quality‑dependent pricing.
By the end of 2025, the picture had improved. Analysts described the period as a “reset” rather than a downturn, with buyers and lenders adjusting to a new normal of higher but steadier borrowing costs. As 2026 arrived, several indicators began lining up in favor of sellers. Interest rate cuts reduced financing burdens, strengthened deal pipelines, and both strategic buyers and Private Equity (PE) firms signaled a greater willingness to engage. Sentiment in the LMM entering 2026 was noticeably stronger, supported by stabilizing capital markets and more predictable economic conditions. However, the clearer outlook still carries policy risk. The recent Supreme Court decision overturning the administration 2025 tariff actions has introduced fresh uncertainty as new tariffs may now be pursued under different trade authorities.
Well, here we are, the special time of year that we all know and dread. . . tax time! While the immediate focus is no doubt currently on the 2025 tax year, now is a good time to do some preliminary planning for 2026 and factor in some of the changes that may impact your income tax.
Major Individual Tax Law Changes Beginning in 2026 Under OBBBA
The Tax Cuts and Jobs Act (TCJA) enacted in 2017 contained many temporary individual tax provisions scheduled to expire after 2025.
The One Big Beautiful Bill Act (OBBBA)—passed in 2025—prevents many of those expirations by making key TCJA changes permanent, while also modifying several other provisions.
(All points reflect provisions made permanent or modified by the OBBBA beginning after Dec. 31, 2025.)
- Income Tax Rates & Brackets
The 2026 sunset for TCJA’s individual tax brackets has been eliminated and the individual brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now permanent.
This eliminates the scheduled change back to the higher pre‑2018 rates. The 2026 brackets have also been increased from 2025 due to inflation adjustments and the brackets will continue to be indexed annually for inflation.
- Standard Deduction Enhancements
Most filers claim the standard deduction vs. itemizing. The standard deduction enhancements introduced in TCJA were scheduled to sunset in 2026. Under OBBBA, the higher standard deductions are now permanent.
The 2025 standard deductions are increased due to inflation adjustments as follows:
$16,100 for single filers, $32,200 for married filing jointly and $24,150 for heads of household. Note that deduction amounts will change annually due to inflation adjustments.
2025 Market Performance: A Brief Review
The U.S. markets overcame April’s “Liberation Day” pullback and Information Technology’s November woes as the S&P 500 returned 17.9%, 35% of which was attributable to the Mag Seven. Large cap value outperformed growth in the fourth quarter, but growth was the leader for the year.
I have read that a positive January has led to an average S&P 500 return of 12% for the year, but a negative January leads to an average 2% return. Interesting folklore perhaps? This comes to mind as January was off to a good start in the first 10 days then all major indexes were down for the week ended January 16th in response to tariff issues. Up or down, we’ll have to wait 11 months to see if history repeats itself!
