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!
One of the ways I establish my opinions and to an extent, investment leanings and preferences, is by having a firm understanding of how most prominent investment strategists are thinking. These strategists set and lead the investment thought leadership and investment direction for their firms. Generally speaking, most strategists remain positive and constructive on the markets for 2026. As we receive and digest more information on these firms’ capital market expectations for this year, the notion of “higher for longer” is more or less the consensus. Mix in some volatility from overall uncertainty and you get the general gist.
This theme is supported by the backdrop and expectations of the general environment we are in. Which involve a lower tax environment, interest rate cuts (we will have a new FED Chair this Spring), decent earnings momentum, reindustrialization domestically (further onshoring), heightened US investment, the continuation of an AI super cycle – all of which should lead to higher productivity and ultimately margin expansion.
It is difficult to argue against these strong themes, driving the markets higher. Where we might differ from some firms is in the “who, how & where” the returns will be generated. 2025 by any standards was a solid year. The S&P 500 was up roughly 18% for the year. Driven once again by large cap technology stocks. In fact, technology sectors drove 60% of the S&P 500’s return and earnings growth. Large cap value and small cap stocks underperformed growth as much of the money flow and investment interest remained concentrated in large cap growth.
