January 2026 Newsletter: Key Numbers as You Plan for 2026

By Charles Sherry, MSc

Tax reform usually promises a kinder, gentler, simpler tax code. For some folks—those who don’t itemize—the enlarged standard deduction that came with the 2017 revision of the tax code may have delivered.

For others, tax season is anything but simple. Whether you’re gathering records to hand off to your tax advisor or navigating prompts in tax software, the April 15 deadline looms large. For a variety of reasons, some choose to file an extension.

Let’s dive in

Before we begin, I want to emphasize that we’ll focus on the key highlights for 2026. The official tax code, along with Treasury regulations, IRS rulings, private letter rulings, and case law, is extraordinarily complex. Given the intricacy, your financial professional would be happy to answer any questions, or you may consult your tax advisor.

Late last year, the Internal Revenue Service provided detailed inflation-related adjustments to over 60 tax provisions that will impact taxpayers when they file their returns in 2027 for tax year 2026.

Why are some categories adjusted annually? Under current law, the IRS makes inflation-based adjustments to certain tax provisions each year. However, not all provisions are subject to these annual updates.

1. One notable change is the increase in the standard deduction for taxpayers who do not itemize. This adjustment is part of the annual inflation indexing. In addition, the standard deduction received an extra boost for tax year 2025 under the One Big Beautiful Bill (OBBB) Act.

Table 1: Changes in the Standard Deduction
Standard Deduction	Single; Married Filing Separately	Married Filing Jointly; Surviving Spouses	Heads of Households
Tax Year 2025 pre-OBBB	$15,000	$30,000	$22,500
Tax Year 2025 under OBBB	$15,750	$31,500	$23,625
Tax year 2026 under OBBB	$16,100	$32,200	$24,150

Source: IRS

The OBBB Act also raised the deduction cap for state and local taxes from $10,000 ($5,000 married filing separately) to $40,000 ($20,000 married filing separately) for taxpayers earning less than $500,000 in 2025, with the cap rising by 1% annually through 2029. The new cap is phased out at $500,000.

But this is a temporary feature. Beginning in 2030, the cap reverts to $10,000 ($5,000 married filing separately).

2. Tax brackets have changed. Table 2 highlights the seven tax brackets for 2026 for single, married, head-of-household, and married filing separately. The OBBB Act permanently extended the brackets, which were set to expire in 2025 and return to pre-2018 levels. The seven brackets were established when the Tax Cuts and Jobs Act was passed in 2017.

Table 2: 2026 Tax Tables
Taxable income ($)	Base amount of tax ($)	Plus	Marginal Tax Rate	Of the amount over ($)
Single
0 to 12,400		+	10.0
12,401 to 50,400	1,240.00	+	12.0	12,400.00
50,401 to 105,700	5,800.00	+	22.0	50,400.00
105,701 to 201,775	17,966.00	+	24.0	105,700.00
201,776 to 256,225	41,024.00	+	32.0	201,775.00
256,226 to 640,600	58,448.00	+	35.0	256,225.00
Over 640,600	192,979.25	+	37.0	640,600.00
Married filing jointly and surviving spouses
0 to 24,800		+	10.0
24,801 to 100,800	2,480.00	+	12.0	24,800.00
100,801 to 211,400	11,600.00	+	22.0	100,800.00
211,401 to 403,550	35,932.00	+	24.0	211,400.00
403,551 to 512,450	82,048.00	+	32.0	403,550.00
512,451 to 768,700	116,896.00	+	35.0	512,450.00
Over 768,700	206,583.50	+	37.0	768,700.00
Head of household
0 to 17,700		+	10.0
17,701 to 67,450	1,770.00	+	12.0	17,700.00
67,451 to 105,700	7,740.00	+	22.0	67,450.00
105,701 to 201,750	16,155.00	+	24.0	105,700.00
201,751 to 256,200	39,207.00	+	32.0	201,750.00
256,201 to 640,600	56,631.00	+	35.0	256,200.00
Over 640,600	191,171.00	+	37.0	640,600.00
Married filing separately
0 to 12,400		+	10.0
12,401 to 50,400	1,240.00	+	12.0	12,400.00
50,401 to 105,700	5,800.00	+	22.0	50,400.00
105,701 to 201,775	17,996.00	+	24.0	105,700.00
201,776 to 256,225	41,024.00	+	32.0	201,775.00
256,226 to 384,350	58,448.00	+	35.0	256,225.00
Over 384,350	103,291.75	+	37.0	384,350.00

Sources: Tax Foundation, Fidelity

Generally speaking, the rates in Table 2 are applied to taxable income—income less the standard deduction or itemized deductions, whichever is higher.

Taxable income is located on line 15 of Form 1040 2024 (2025 has not yet been published). It reads, “This is your taxable income.”

By way of example, if you are married and filing jointly and your taxable income is $50,000, the first $24,800 is taxed at 10%, and the remaining income is taxed at 12%.

Tax credits and self-employment tax are not included. A tax credit reduces your tax liability dollar for dollar.

Table 3 illustrates the income tax rates for trusts.

Table 3: 2026 Trusts
Tax Brackets	Taxable Income
10%	$0 to $3,300
24%	$3,301 to $11,700
35%	$11,701 to $16,000
37%	Over $16,000

Source: SmartAsset

The standard rules apply to these four tax brackets.

3. For tax year 2026, the alternative minimum tax exemption amount for unmarried individuals is $90,100 and begins to phase out at $500,000 ($140,200 for married couples filing jointly, for whom the exemption begins to phase out at $1,000,000).

4. The child tax credit is $2,200 per qualifying child. If you have little or no federal income tax liability, you may qualify for the Additional Child Tax Credit (ACTC), up to $1,700 per qualifying child depending on your income.

You must have earned income of at least $2,500 to be eligible for the ACTC.

You qualify for the full child tax credit for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return).

5. The estate exemption for individuals in 2026 is $15 million, up from a total of $13,990,000 for estates of decedents who died in 2025.

6. The annual gift tax exclusion for 2026 remains at $19,000, without using any of the lifetime gift and estate tax exemption. If a gift tops $19,000, the excess amount can be subtracted from your lifetime gift and estate tax exemption.

A married couple can combine their exclusions to gift up to $38,000 per recipient per year.

There is no limit for tuition and medical expenses.

7. Favorable treatment for long-term capital gains and qualified dividends is available. Long-term capital gains, such as the profit on the sale of a stock held for more than one year, are taxed at a more favorable rate than short-term gains. A short-term gain is taxed as ordinary income.

Table 4: 2026 Long-Term Capital Gains Rates and Qualified Dividends
Tax Brackets	Single, Taxable Income	Married Filing Joint Return, Taxable Income	Head of Household, Taxable Income	Married Filing Separately, Taxable Income	Estates and Trusts, Taxable Income
0%	Up to $49,450	Up to $98,900	Up to $66,200	Up to $49,450	Up to $3,300
15%	$49,451 to $545,500	$98,901 to $613,700	$66,201 to $579,600	$49,451 to $306,850	$3,301 to $16,250
20%	Over $545,500	Over $613,700	Over $579,600	Over $306,850	Over $16,250

Sources: Fidelity, IRS

8. If your health insurance plan allows for a Health Savings Account, the contribution limit for 2026 is $4,400 for self-only coverage and $8,750 for family coverage. The limits are up $100 and $200, respectively, from 2025. Those 55 and older who are not enrolled in Medicare can contribute an additional $1,000 as a catch-up contribution.

9. Other taxes you may be subject to or credits you may capture.

High-income taxpayers are subject to the net investment income tax of 3.8%, levied on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the following threshold amounts: $200,000 for single and head of household filers, $250,000 for married filing jointly or qualifying surviving spouse, and $125,000 for married filing separately.

These amounts have never been indexed to inflation.

In general, net investment income includes but is not limited to interest, dividends, capital gains, rental and royalty income, and non-qualified annuities, according to the IRS.

Net investment income generally does not include wages, unemployment compensation, Social Security benefits, alimony, and most self-employment income.

10. A new wrinkle created by the OBBB Act will benefit most taxpayers. Beginning in 2026, those who claim the standard deduction may deduct up to $1,000 in qualified charitable donations ($2,000 if filing jointly). The deduction applies only to cash donations.

Do you itemize? Beginning in tax year 2026, you may only deduct charitable gifts that surpass 0.5% of your adjusted gross income. In addition, the new law caps the value of all itemized charitable deductions at 35% for taxpayers in the highest income bracket (37%).

11. For tax year 2026, the maximum credit allowed for adoptions for a special needs child is the amount of qualified adoption expenses up to $17,670, up from $17,280 in 2025. For tax year 2026, the amount of credit that may be refundable is $5,120.

Income phase-out: The credit starts to phase out if your modified adjusted gross income is above $265,080 and is fully phased out at $305,080.

IRA contributions

For 2026, the IRA contribution limits are $7,500 for those under age 50 and $8,600 for those age 50 or older. That is up $500 and $600, respectively, from 2025.

SEP IRA limits

The SEP IRA contribution limit for 2026 is 25% of eligible employee compensation, up to $72,000.

If you are self-employed, you may make an employer contribution on your own behalf. If you’re self-employed, your contributions are generally limited to 20%, or up to $72,000 of compensation.

OBBB—Temporary changes

Beyond the temporary change to the deduction for state and local taxes, the OBBB Act includes temporary changes to the tax code that run through 2028, including:

No tax on tips

Employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024. Phaseouts begin when adjusted gross income exceeds $150,000 ($300,000 for joint filers).

No tax on overtime

Qualified overtime wages that exceed the regular pay rate avoid federal income tax.

For example, if you earn $20 per hour and are paid a total of $30 per hour when working overtime, only the extra $10 per hour counts toward the deduction. If you earn double time at $40 per hour, the deductible portion is still $10 per hour. Taxes will be withheld on the entire amount, and workers may deduct qualified overtime, which will be reflected on their W-2.

Employees must work more than 40 hours a week to qualify. For example, if an employee earns time-and-a-half for six hours but only works 35 hours that week, they are not eligible for the tax deduction.

The exemption is capped at $12,500 per individual (or $25,000 per couple). The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

Newborn savings

Provided both parents are U.S. citizens and have a Social Security number, children born between 2025 and 2028 will be automatically enrolled in a federal savings account, dubbed “Trump Accounts,” with a one-time $1,000 deposit. These accounts allow for annual contributions of up to $5,000 (indexed for inflation).

The account grows tax-deferred until withdrawals begin—allowed starting at age 18—at which point, it essentially follows the rules for an IRA.

Enhanced deduction for seniors

Seniors aged 65 and older will receive an additional $6,000 deduction. There is a $12,000 deduction for married taxpayers if both spouses are 65 or older and filing jointly. This benefit applies to standard and itemized filers but begins to phase out for individuals with modified adjusted gross income of more than $75,000 and $150,000 for joint filers.

No tax on car loan interest

Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the car is purchased for personal use and meets other eligibility criteria (lease payments do not qualify). The vehicle must have “undergone final assembly in the U.S.,” per the IRS. The maximum annual deduction is $10,000.

A 2025 three-peat

The bull market that kicked off in late 2022 kept rolling through 2025, with the S&P 500 recording another impressive year, climbing 16.4% following back-to-back gains that exceeded 20% in 2023 and 2024.

Key Index Returns
	December %	2025 %
Dow Jones Industrial Average	0.7	13.0
NASDAQ Composite	-0.5	20.4
S&P 500 Index	-0.1	16.4
Russell 2000 Index	-0.7	11.3
MSCI World ex-USA*	2.9	28.6
MSCI Emerging Markets*	2.7	30.6
Bloomberg Barclays U.S. Aggregate Bond TR USD	-0.1	7.3

Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
Dec. returns: November 28, 2025–December 31, 2025
2025 returns: December 31, 2024–December 31, 2025
*in US dollars

We did, however, experience a sharp but temporary pullback when so-called Liberation Day tariffs levied in early April generated an enormous amount of uncertainty. When steeper-than-anticipated tariffs were modified, volatility began to dissipate, and investors re-engaged amid positive fundamentals.

As we saw in 2024, the Federal Reserve lowered the fed funds rate. I believe it’s worth noting that recent rate cuts by the Fed came against a backdrop of continued economic growth, a key factor supporting corporate earnings.

Historically, rate cuts enacted during economic downturns have failed to lift equities, as seen in 2001 and 2008.

Profit growth also remained strong, which underpinned equities amid the expanding U.S. economy.

Moreover, the AI boom continued to fuel tech stocks and earnings. Just as in 2024, the tech-heavy Nasdaq Composite once again led the charge, outpacing other major U.S. indexes.

A 2025 surprise—the global arena

Global stocks have been hibernating for years. In 2024, the MSCI World Ex-USA Index posted a gain of just 2.0%, according to MSCI (in U.S. dollars). Its 10-year annualized gain of 2.6% per year paled in contrast to major U.S. market indexes.

Last year, however, global stocks awoke from their slumber, easily outpacing returns in the U.S.

For starters, a weaker dollar amplified global equities held by U.S. investors. A falling dollar boosts U.S. returns when foreign currencies are translated back into dollars. As referenced in the table of return, the MSCI ex-USA Index leapt 28.6%.

In contrast, the index in their respective home currencies rose 18.7%. That’s respectable, but not the turbo-charged returns U.S. investors experienced.

Other factors that bolstered returns around the world include

• Ongoing trade tensions and tariff uncertainty weighed on U.S. sentiment and encouraged investors to look at other markets.
• Many global markets sported lower valuations, attracting investors.
• Looser fiscal policies, especially in European countries, supported equities.
• Lingering doubts about the Fed’s independence from executive branch interference fueled diversification outside the US.

Last year’s outsized advance is a reminder that investments in global equities reduce home-country concentration and currency risk.

Aided by a drop in the dollar, gold also delivered an outstanding return. Globally, gold is priced in dollars, and a weaker dollar tends to support the price of gold. In addition, gold was supported by modest global central bank purchases, tariff and trade uncertainty, questions about the Fed’s independence, and Fed rate cuts.

Investors wary of heightened geopolitical tensions and other risks, like the ballooning U.S. deficit, also aided the shiny metal.

While many of the factors that supported gold last year remain in place as we enter 2026, I would be remiss not to caution that gold is very speculative, and price action can be very volatile.

The new year

According to CNBC’s 2026 survey of 14 market strategists, the average year-end target for the S&P 500 is 7,628.57.

In part, many of the themes that supported stocks last year remain in place. The economy is expanding, and corporate profits are expected to remain on an upward trajectory. Although the Fed is eyeing fewer rate cuts this year, it isn’t currently considering rate hikes amid an inflation rate that remains modestly but stubbornly above the Fed’s target rate of 2%.

But a note of caution is in order. Strategists bring unique observations to our attention. We are better informed due to their diligence and insights. They really are brilliant men and women.

But they grapple with the unknown, and no one knows precisely how the future will unfold.

Yet, the unknown encourages us to get comfortable with some degree of risk. It allows us to become better and more disciplined investors.

Final thoughts

While diversification can’t fully shield a portfolio from market pullbacks, it remains one of the most effective ways to reduce volatility and pursue long-term financial goals.

Your financial professional’s investment philosophy is rooted in experience and supported by rigorous academic research. While equities will inevitably disappoint, history has demonstrated that patient, disciplined investors are consistently rewarded over the long term.

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I trust you found this review to be insightful. If you have any questions or simply want to talk through your portfolio or other financial goals, please don’t hesitate to reach out to me or anyone on our team. We’re always here for you.

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