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Deep Dive Teaser: 2026 Tax Sunset
Anna Eisenberg
November 01, 2025
Anna's Deep Dives
Just facts, you think for yourself
The 2026 Tax "Time Bomb"? It's been defused. (The new game just began.)
For the last two years, every financial conversation started with the 2026 "Tax Sunset."
It was a ticking time bomb set to vaporize trillions in wealth.
Your ~$14M estate exemption? Gone. Cut in half.
Your 20% business deduction? Evaporated.
Your tax rate? Jacked back to 39.6%.
Everyone was scrambling. CPAs were preaching defense. Lawyers were drafting doomsday trusts.
Then, July 4th, 2025 happened.
Congress didn't just kick the can. They rewrote the entire game. The "One Big Beautiful Bill Act" (OBBBA) made the cuts permanent.
The time bomb is gone.
And 99% of the financial advice out there? It's now completely, dangerously wrong.
This isn't a "sunset" anymore. It's a new playbook. A playbook where:
The $15 MILLION estate exemption isn't a temporary gift, it's a permanent foundation.
The pass-through deduction isn't 20%—it's a permanent 23%.
The top rate is locked at 37%.
The game is no longer "how to defend your wealth." The new game is "how to compound it."
We’ve torn up the old advice and built the new map.
Here’s the playbook.
Section 1: The "Tax Time Bomb" That Was. What was the 2026 sunset? We break down the $7 trillion bullet we just dodged. More importantly, we explain the "anti-clawback" rule that still makes strategic gifting in 2025 a critical move. [Click here for Section 1: The Backstory]
Section 2: The New Income Playbook. With the 37% top rate now permanent, is a Roth Conversion still smart? (Hint: yes, but for a completely different reason). We cover the "bracket filling" method and the counter-intuitive case for intentionally harvesting capital gains now. [Click here for Section 2: Income & Gains Strategy]
Section 3: The $15 Million Permanent Exemption. This is the big one. The exemption didn't just survive—it got bigger and permanent. This changes the entire math on wealth transfer. We break down the tools (SLATs, IDGTs) to lock in this new reality. [Click here for Section 3: The New Wealth Transfer Plan]
Section 4: The Business Owner's New Goldmine. The 20% QBI deduction didn't die—it became a permanent 23%. This is a massive win for pass-through businesses. Does a C-Corp still make sense? Plus, how to use "bunching" and QSBS (the 100% tax-free gain) in this new world. [Click here for Section 4: Business & Giving Blueprint]
Section 5: Inside the "One Big Beautiful Bill Act." This is the section you can't miss. We analyze the new law that rewrote the tax code. We also cover which 17 states are now "death tax traps" and why high-interest rates make some trusts (like GRATs) totally obsolete. [Click here for Section 5: The New Political & State Map]
Section 6: Your 24-Month Action Plan. The law is new. The opportunity is now. You have a window to act. We lay out the exact implementation checklist and the "Tiger Team" (your CPA, FA, and Attorney) you need to assemble today. [Click here for Section 6: Your Execution Plan]
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Table of Contents
(Click on any section to start reading it)
1.1 The Ticking Clock: Why 2025 is the Final "Year of Opportunity"
Defining the "Tax Sunset": How temporary provisions in the 2017 Tax Cuts and Jobs Act (TCJA) automatically expire on January 1, 2026.
The "Use It or Lose It" Framework: Why strategies executed now lock in benefits that may be impossible to achieve after the reversion.
Beyond the Headlines: Moving past simple income tax hikes to understand the profound structural shifts affecting wealth, business, and estates.
1.2 Anatomy of the Reversion: A New Tax Reality in 2026
The Income Tax Squeeze: Analyzing the return of the 39.6% bracket and the compression of all marginal tax brackets.
The Business Owner's Dilemma: The scheduled evaporation of the 20% Qualified Business Income (QBI) deduction (Section 199A).
The "Nuisance Taxes" Return: How the Alternative Minimum Tax (AMT) exemption shrinks and the "Pease" limitation on itemized deductions complicates HNW filings.
1.3 The Generational "Clawback": The Halving of the Estate & Gift Tax Exemption
The $7 Trillion Question: Explaining the reversion of the federal estate and gift tax exemption from ~$13.6M to an estimated ~$7M per person.
Understanding Portability: How the "Deceased Spousal Unused Exclusion" (DSUE) works and why it isn't a perfect substitute for proactive gifting.
The Anti-Clawback Regulation: Assurance from the IRS that gifts made using the high exemption now will not be "clawed back" into the estate later.
1.4 The HNW Cost of Inaction: Quantifying the Financial Impact
Modeling the Delta: Case studies showing the 5-year tax difference for HNW families, W-2 earners, and business owners who fail to plan.
The Compounding Effect: How paying higher taxes post-2026 creates an "opportunity cost," reducing capital available for investment and growth.
The Psychological Hurdle: Overcoming planning paralysis and the false hope that Congress will extend all cuts.
2.1 The Roth Conversion Masterclass: "Paying Taxes on Sale"
The Core Concept: Shifting assets from tax-deferred (Traditional IRA/401k) to tax-free (Roth) accounts, paying taxes now at today's "discounted" rates.
Analyzing the "Tax Arbitrage": Identifying ideal candidates for conversion (e.g., those expecting higher future taxes, those with compressed income years).
Beyond the Conversion: Funding the tax payment with non-qualified assets to maximize the efficiency of the conversion and preserve qualified funds.
2.2 Strategic Bracket "Filling": Modeling the Multi-Year Conversion Plan
Avoiding the Tax Cliff: Why a single-year, lump-sum conversion is often suboptimal and how it can trigger higher Medicare premiums (IRMAA).
The "Fill to the Top" Method: Executing partial conversions annually to "fill up" the 24%, 32%, and 35% tax brackets without tipping into the 37% bracket.
Coordinating with Other Income: Timing conversions in years with lower business income, higher deductions, or planned charitable giving.
2.3 A Counterintuitive Strategy: Intentional Capital Gains Harvesting
Beyond Loss Harvesting: The case for accelerating long-term capital gains into 2024 and 2025 to intentionally pay the 15% or 20% rate.
Resetting Your Cost Basis: Selling appreciated assets, paying the current LTCG tax, and immediately repurchasing them to create a higher basis for the future.
The Post-2026 Math: Why realizing gains at 20% now is superior to realizing them at a potential 23.8% (or higher) in a compressed tax environment.
The 2025 Pain Point: The $10,000 cap on State and Local Tax (SALT) deductions remains a major burden for HNW individuals in high-tax states.
The 2026 "Relief": How the expiration of the SALT cap will be offset by the return of the "Pease" limitation, which phases out itemized deductions.
Strategic State Tax Payments: Evaluating the timing of state-level tax payments and the viability of pass-through entity (PTE) tax elections before the sunset.
3.1 The $14 Trillion Imperative: Why Gifting is a 2025 Priority
The "Use It or Lose It" Mandate: Reinforcing that the high exemption is a temporary asset on the HNW balance sheet that must be deployed.
Gifting vs. Dying: The mathematical certainty of transferring wealth tax-free via lifetime gifts versus the uncertainty of relying on a future (and lower) estate exemption.
Growth-Freezing: How gifting assets now removes all future appreciation from the taxable estate, creating a powerful "double win."
3.2 The HNW Gifting Toolkit: Spousal Lifetime Access Trusts (SLATs)
The "Have Your Cake and Eat It Too" Trust: How a SLAT allows one spouse to make a permanent gift into a trust for the benefit of the other spouse.
Key Mechanics: Understanding the role of an independent trustee and the critical importance of non-reciprocal drafting to avoid IRS challenges.
Asset Selection: Why funding a SLAT with high-growth assets, partnership interests, or life insurance provides the greatest estate-freezing advantage.
3.3 Advanced Trust Vehicles: IDGTs, GRATs, and CLTs
The Intentionally Defective Grantor Trust (IDGT): Using a "sale" to a trust to freeze asset values, while the grantor pays the income tax as an additional tax-free gift.
The Grantor Retained Annuity Trust (GRAT): A "heads I win, tails I tie" strategy for transferring appreciation above a low IRS interest rate (the 7520 rate) with minimal gift tax.
The Charitable Lead Trust (CLT): A powerful tool for the charitably inclined to provide an income stream to charity while passing assets to heirs with a reduced gift tax.
3.4 Simple Yet Powerful: Superfunding 529s and Annual Gifts
The Annual Exclusion: Leveraging the $18,000 (in 2024) per-donor, per-donee annual gift exclusion, which is separate from the lifetime exemption.
529 "Superfunding": How to "front-load" five years of annual exclusion gifts ($90,000 per donor) into a 529 college savings plan in a single year.
Direct Payments: Remembering that tuition and medical expenses paid directly to an institution (school or hospital) do not count against either the annual or lifetime exclusion.
The QBI Cliff: Modeling the "effective" tax rate increase for pass-through entity (S-Corp, LLC) owners when the 20% deduction vanishes.
Entity Choice Re-evaluation: Does the C-Corp's 21% flat tax (which is not sunsetting) become more attractive post-2026?
Planning for Reclassification: Analyzing Specified Service Trade or Business (SSTB) rules and the income thresholds that phase out the QBI deduction.
4.2 Accelerating and "Bunching" Charitable Deductions
The "Bunching" Strategy: Concentrating multiple years of charitable giving into 2024 or 2025 to surpass the higher standard deduction and maximize itemized deductions.
The Donor-Advised Fund (DAF): Using a DAF as the vehicle for "bunching" to get the full tax deduction now, while deciding on grant recipients over time.
Gifting Appreciated Assets: Why donating long-term appreciated stock (instead of cash) to charity remains the most tax-efficient giving method.
4.3 The Qualified Small Business Stock (QSBS) Goldmine
Understanding Section 1202: The rules allowing for a 100% exclusion of capital gains (up to $10M or 10x basis) on the sale of QSBS.
Interplay with the Sunset: How the QSBS exclusion provides a powerful, independent path to tax-free gains, regardless of the 2026 rate hikes.
Trusts as QSBS Holders: Using non-grantor trusts to potentially "stack" multiple $10M exclusions for a single family's stock position.
4.4 Planning for High-Growth Assets: Carried Interest & Stock Options
The Carried Interest Hurdle: How the TCJA's 3-year holding period for long-term capital gains on carried interest interacts with rate uncertainty.
Incentive Stock Options (ISOs): The complex interplay between ordinary income (at exercise) and capital gains (at sale) in a changing rate environment.
Non-Qualified Stock Options (NQSOs): The strategy of exercising options in 2025 to lock in ordinary income at 37% versus a potential 39.6% (plus NIIT) later.
5.1 The Washington Wildcard: Will Congress Act?
The "Lame Duck" Scenario: Analyzing the political likelihood of a deal being struck after the 2024 election but before the 2026 sunset.
Paths of Least Resistance: Assessing which provisions are most likely to be extended (e.g., lower/middle-class brackets) vs. most likely to expire (e.g., HNW provisions).
Planning for Uncertainty: The advisor's imperative to plan based on current law (the scheduled sunset) rather than speculative political outcomes.
5.2 The "Higher for Longer" Interest Rate Environment
Impact on Trust Strategies: How elevated interest rates (AFR, 7520 rate) make strategies like GRATs less effective but enhance others (e.g., QPRTs).
The Cost of Capital: How higher borrowing costs affect business planning and the liquidity needed to pay taxes on Roth conversions.
National Debt as a Catalyst: The argument that massive government debt service costs necessitate higher tax revenue, making the sunset more likely to occur.
5.3 State-Level Tax Nexus: The "Other" Tax Man
The Rise of State Estate Taxes: Identifying the 17 states (and D.C.) that have their own estate or inheritance tax, creating a separate planning challenge.
The "State Tax Arbitrage" Play: Evaluating a change of domicile from a high-tax state (e.g., NY, CA, MA) to a zero-tax state (e.g., FL, TX, NV) before 2026.
Complex Trust Situs: Understanding how the location of a trust, its beneficiaries, and its trustees can create (or avoid) state-level income tax.
5.4 Global Considerations for HNW Families
The U.S. Expat Dilemma: How U.S. citizens abroad are still subject to the sunset and must coordinate U.S. planning with foreign tax credits.
Inbound Investment: How foreign nationals with U.S. assets (especially real estate) are impacted by the changing estate tax exemption.
Reporting and Compliance: The non-negotiable need for FACTA and FBAR compliance as a backdrop to any international HNW tax strategy.
6.1 The HNW "Tiger Team": A Non-Negotiable Alliance
The Three Pillars: Why a successful plan requires the proactive, coordinated efforts of a Financial Advisor (the "Quarterback"), a CPA (the "Tax Strategist"), and an Estate Attorney (the "Legacy Architect").
Breaking Down Silos: The danger of "siloed advice" where one professional's recommendation undermines another's (e.g., a tax move that violates a trust).
The Client's Role: The HNW individual's responsibility to initiate the conversation, share all documents, and authorize the team to collaborate.
6.2 The Modeling Imperative: Stress-Testing Your Plan
Cash Flow is King: Building multi-year, forward-looking financial models that project the impact of various strategies (Roth conversion vs. no conversion).
Liquidity Planning: Earmarking the specific assets that will be used to pay the taxes on conversions or accelerated gains.
Sensitivity Analysis: Running scenarios based on different market returns, inflation rates, and potential (but not guaranteed) congressional actions.
6.3 The Implementation Checklist: A 24-Month Action Plan
2024 (Q4): The "Discovery & Modeling" Phase. (Gather documents, hold initial Tiger Team meeting, run preliminary numbers).
2025 (Q1-Q3): The "Execution" Phase. (Draft and fund trusts, begin systematic Roth conversions, harvest gains, execute charitable bunching).
2025 (Q4): The "Final Review" Phase. (Finalize 2025 tax-loss harvesting, complete final Roth conversions, confirm all trust documents are signed and funded).
6.4 Concluding Thoughts: Beyond the Balance Sheet
The Certainty of Law vs. the Uncertainty of Politics: A final reminder that planning based on current law is the only prudent path.
From Defense to Offense: Framing this "time bomb" not as a threat, but as a once-in-a-generation opportunity to secure a tax-efficient future.
The Legacy Mandate: How the actions taken (or not taken) in the next 24 months will define a family's financial legacy for decades to come.
Baked with love,
Anna Eisenberg ❤️
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