2026 Year-End Income Tax Planning Under OBBBA

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made permanent many provisions of the Tax Cuts and Jobs Act (TCJA) that had been set to expire. It also introduced several changes that should now be considered as part of year-end income tax planning.

For high-income taxpayers, three provisions are particularly relevant:

• New charitable deduction floor: Beginning in 2026, charitable contributions are deductible only to the extent they exceed 0.5% of adjusted gross income (AGI). For example, a taxpayer with $1 million in AGI who makes $45,000 in charitable contributions will only be able to deduct $40,000 — that is, $45,000 minus $5,000, or 0.5% of $1,000,000 AGI.
• New cap on the tax benefit of itemized deductions: Starting in 2026, the tax benefit from all itemized deductions is limited to 35%, down from 37% for those in the top bracket.
• Expanded SALT deduction through 2029: The deduction cap was temporarily increased from $10,000 to $40,000 beginning in 2025. For 2026, the expanded deduction begins to phase out once modified adjusted gross income exceeds $505,000 and is fully phased down to the $10,000 cap at $606,333. These amounts are halved for married taxpayers filing separately. The cap increases by 1% each year, bringing the 2026 maximum deduction to $40,400.

Together, these changes may affect the timing and tax treatment of several common year-end planning strategies.

Planning Opportunities Before Year-End

Front-Load Charitable Contributions in 2026
Since the new floor on charitable deductions applies annually, taxpayers may want to consider combining several years of contributions into a single tax year. A donor-advised fund can be useful here, since it allows taxpayers to claim a deduction for the year assets are contributed and then recommend grants to charities in future years.

The new deduction floor also adds another consideration when deciding when to make a larger charitable gift. Historically, taxpayers may have sought to make large charitable contributions in a year with significantly higher income, perhaps from the sale of a business. Under the new rules, however, higher income also results in a higher deduction floor and therefore a larger portion of the contribution that is not deductible. The relative benefits should be evaluated based on the taxpayer’s circumstances and expected income.

Donate Long-Term Appreciated Securities
Donating long-term appreciated securities (LTAS) often provides the greatest tax benefit to both donor and charity — allowing a full fair market value deduction while avoiding capital gains tax on the appreciation.

Make Qualified Charitable Distributions
A qualified charitable distribution (QCD) is a direct transfer of funds from an individual retirement account (IRA) to a qualified charity. QCDs are not subject to the new floor on charitable deductions. Taxpayers aged 70½ or older may make tax-free IRA distributions of up to $111,000 per person in 2026. These distributions can be used to satisfy required minimum distributions (RMDs) while keeping income levels lower. QCDs are not deductible but are also not included in taxable income.

Pair Charitable Giving With a Roth IRA Conversion
Owners of traditional IRAs must take annual required minimum distributions (RMDs), which are taxed as ordinary income. Roth IRAs, however, are not subject to RMDs, and distributions are tax-free.

Traditional IRAs can be converted into Roth IRAs through a simple process that requires including the amount converted in taxable income.

A powerful planning strategy involves offsetting this conversion income with a large, front-loaded charitable contribution to reduce or even eliminate the tax cost of the conversion.

Because Roth IRAs are not subject to RMDs, assets can continue to grow tax-free throughout the owner’s lifetime. Distributions to beneficiaries are also tax-free, although non-spouse beneficiaries must withdraw all funds within 10 years of inheritance.

Maximize the SALT Deduction
Unlike most OBBBA provisions, the temporarily expanded SALT deduction became effective in 2025 and is only available through 2029. For eligible taxpayers, this window may offer meaningful opportunities to increase deductibility — but, as noted above, the benefit phases out at higher income levels, making income planning especially important. For 2026, the expanded deduction begins to phase out once modified adjusted gross income exceeds $505,000 and is fully phased down to the $10,000 cap at approximately $606,333.

Income tax projections can help determine whether income levels will reduce or eliminate the benefit of the expanded deduction. In some cases, managing the timing of income or realizing losses before year-end may help achieve a larger deduction.

Consider a Pass-Through Entity Tax Election
In an effort to ameliorate the effects of the current TCJA SALT cap, 36 states and New York City have enacted pass-through entity tax (PTET) legislation. If you have significant flow-through income from partnerships or S Corporations, a PTET election may offer a meaningful deduction opportunity. Although rules vary by state, a PTET election effectively shifts the state tax liability on flow-through income from the individual, where it is subject to the SALT cap, to the entity, where it is fully deductible. For eligible tax payers, this can provide a meaningful way to mitigate the effect of the SALT deduction limit.

Evergreen Annual Income Tax Planning Considerations

Several of the strategies discussed above, including donating long-term appreciated securities and making qualified charitable distributions, can be useful components of year-end planning from one year to the next. The following are additional strategies worth considering as part of an annual tax-planning review. While the benefit in any single year may be modest, the cumulative impact over time can be meaningful.

• Fund a self-employed retirement plan. If you have self-employment income, such as consulting fees or director’s fees, contributions to a qualified retirement plan are deductible, and assets can grow tax-deferred until distributed in retirement. 
• Make a Roth IRA contribution, if eligible.If you have earned income and meet income limits, you can contribute up to $7,500 to a Roth IRA in 2026 ($8,600 if age 50 or older). If your income exceeds the limits, you may still be able to contribute via a backdoor Roth IRA. It may also be possible to fund an account for a non-working spouse.
• Harvest capital losses. Selling investments at aloss can offset current-year realized capital gains, including short-term gains that would otherwise be taxed at ordinary income tax rates. 

Annual Exclusion Giving Strategies 

Year-end planning can also provide an opportunity to make progress on broader wealth transfer goals. In 2026, the annual gift tax exclusion is set at $19,000 per recipient. Individuals may give this amount to as many recipients as they choose without incurring gift tax or using lifetime exemption amounts.

The following planning strategies can provide both income and transfer tax benefits. In all cases, the amounts transferred, plus any future growth, are excluded from the donor’s taxable estate. As always, annual exclusion giving strategies should be coordinated with your broader estate plan.

• Contribute to a Trump Account for a child or grandchild. Beginning in 2026, up to $5,000 may be contributed annually to a Trump Account for an eligible child age 17 or younger. Because earned income is not required, these accounts can provide a way to begin building retirement assets for younger family members. At age 18, the account becomes subject to IRA rules, and a Roth conversion may be worth considering, particularly if the beneficiary is in a relatively low tax bracket.
• Fund a Roth IRA (or backdoor Roth IRA) for children or grandchildren with earned income.Contributions grow tax-free as RMDs do not apply to Roth IRAs, and early funding allows more years for growth. Qualified withdrawals are tax-free.
• Fund 529 plans for a child or grandchild. These tax-advantaged savings plans are designed to encourage saving for future education costs. Contributions grow tax-free, and withdrawals for qualified education expenses are also tax-free. Many states provide an income tax deduction for a portion of contributions. Unused 529 assets can be rolled into a Roth IRA for the beneficiary.
• Front load 529 plans. You may contribute up to five years’ worth of annual exclusion gifts to a 529 plan in a single year and elect to treat the contribution as though it were made evenly over five years. This can allow more assets to begin growing tax-free sooner while also removing them from your taxable estate right away.
• Pay tuition and qualifying medical expenses for family members. Payments made directly to educational institutions or medical providers for a family member’s tuition or qualifying medical expenses are not treated as taxable gifts.

A Final Word 

As you consider year-end planning opportunities, keep in mind that state tax rules may not conform to recent federal law changes. As a result, a strategy that provides a benefit at the federal level may not have the same effect in every state.

Your Bessemer advisor can work with you and your tax professionals to evaluate these strategies in the context of your broader wealth plan. For additional guidance focused specifically on charitable giving, see Year-End Giving: Three Strategies to Consider.