Tax Planning in Light of Recent Law Changes 2025/2026

 

As a CPA, having gone through two major tax legislation changes, I’ve learned that year-round tax planning has become the norm for tax professionals and proactive advice is critical during times of change. The primary goal of tax planning is to maximize after-tax wealth while also achieving non-tax goals. In this writing I will be outlining core tax planning strategies and highlighting key provisions from the latest tax legislation.

Core Principles of Tax Planning

At Allen Trust Company, our tax team generally considers three main strategies to effectively plan:

  1. Timing: Adjusting when income is recognized and when deductions are taken.

  2. Income Shifting: Moving income or deductions between taxpayers to take advantage of differing tax rates.

  3. Conversion: Changing the nature of income or deductions to benefit from favorable tax treatment.

Timing is Key

Timing requires a holistic approach – it is not just about when, but also different account types and their capabilities to defer. This involves deferring income to future years when tax rates may be lower or accelerating deductions to years when tax rates are higher. A common example is contributing to retirement accounts:

  • Traditional 401(k): Defers taxes until retirement, when income (and tax rates) may be lower.

  • Roth 401(k): Taxes are paid now, but withdrawals are tax-free in retirement.

Having both types of accounts provides flexibility in managing future tax liabilities.

Shifting Income

This strategy involves reallocating income or deductions among family members or entities with different tax rates. For example: Debbie can take advantage of the income shifting strategy by gifting income-producing assets such as stocks to her son who is in college.* He is in a low tax bracket, so it reduces the overall household tax burden. Debbie also gifts the full $19,000 annual gift exclusion amount to avoid filing a gift tax return. *Note: This strategy requires careful consideration of non-tax implications.

Conversion Strategy

Tax rates are different among taxpayers, and they are also different across different activities and sources. For example: ordinary income (salary, interest income, and business income) is taxed at the individual’s ordinary marginal tax rate. Long-term capital gains (assets held longer than one year) and qualified dividends are taxed at a lower tax rate. By understanding how different sources of income are taxed you can lower your tax bill by choosing tax efficient investments.

For instance:

  • Investing in municipal bonds because interest is tax-exempt at the federal level.

  • Investing in funds that pay out qualified dividends (taxed at a lower rate.)

  • Recognizing gains on assets after a one year holding period.

Key Provisions from the OBBBA Tax Bill

The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th, 2025. It contains many tax provisions that go into effect in 2025 and beyond. In case you missed it, I wrote about the SALT and the senior deduction in a past viewpoint. You can find more information on our website: Tax Provisions under the OBBBA — Allen Trust Company

Charitable Contributions

New Above-the-line deduction for non-itemizers: Up to $1,000 for single filers, $2,000 for married filing jointly.

New 0.5% floor for itemized charitable deductions: A single filer with $100,000 AGI can only deduct donations exceeding $500.

Standard Deduction (Made Permanent)

  • Single: $15,750

  • Head of Household: $23,625

  • Married Filing Jointly: $31,500

  • Adjusted annually for inflation

Estate & Gift Tax

Federal exemption increased to $15 million and was made permanent. Oregon exemption remains at $1 million with marginal tax rates ranging from 10%-16%. Washington exemption increased from $2.193 million to $3 million, with annual adjustments and tax rates ranging from 10%-35%. Alaska does not have estate or inheritance tax; only federal tax applies.

Action Steps Moving Forward

  • Consult your tax professional to understand how OBBBA provisions affect you.

  • Revisit your tax and financial plans – laws and personal circumstances may have changed.

  • Review state-level impacts – not all states will adopt OBBBA provisions.

  • Manage income and tax brackets – especially important near retirement or income changes.

Tax planning is not about avoiding taxes; it’s about optimizing your financial outcomes, within legal boundaries of course. Always consult a tax professional to tailor strategies for your situation.

Edgar D. Paz, CPA, is a Certified Public Accountant (CPA) and serves the Allen Trust Company team as a Financial & Estate Planning Specialist. To speak with Edgar Paz, call our office at 503-292-1041 or via email to info@allentrust.com.

Disclosure: The information provided in this writing is for general informational purposes only and does not constitute financial advice from Allen Trust Company and Allen Capital Management. Readers are encouraged to consult with a qualified financial advisor to assess their individual circumstances and make informed decisions based on their specific situation.

 
Edgar D. Paz, CPA