New Tax Rules Offer Opportunities to Save
As we head into 2026, the provisions from the Big Beautiful Bill are being phased in. While some components from this new law did start mid-year in 2025, all are in place for 2026, and several of the tax breaks are temporary.
It seems anything associated with President Trump causes contention, and this topic is no exception. But allow me to cut through the noise. The tax provisions associated with this new law are creating an exceptional tax environment for middle-income taxpayers, specifically for middle-income retirees and middle-income families with children. For purposes of this discussion, middle income refers to households with income from $80,000 to $250,000. There are also provisions in this law creating a favorable tax environment for small businesses.
The Most Favorable Tax Environment in My Career
After digging into these new tax rules, I can say without reservation this is the most favorable Federal income tax environment I have experienced in my career stretching back to 1993. Deductions are larger, tax brackets are flatter, and tax credits are more generous. With a little bit of creativity, the current tax situation invites planning — and because much of the bill is temporary, each year the law is in effect can be used to position taxpayers for potential future tax changes, if and when they eventually come.
While no one likes paying taxes, there are times when favorable tax laws incentivize planning that may result in choosing to pay tax now in order to save future taxes later. This looks to be one of those times. Standard deductions and tax bracket thresholds have all been increased for 2026.
What the Numbers Look Like for Working Families
With this in mind, using some tax modeling software, a working family with spouses filing jointly can stay in the 12% bracket with income up to $133,000. When deductions for dependents are considered (assuming two children), the effective Federal income tax rate for the family is under 9%. Even after considering Social Security and Medicare taxes, as well as Indiana state income taxes, the total effective tax rate for a family at this income level is below 20%.
This modeling ends up even better for a retired couple over the age of 65 receiving a similar amount of income from a combination of Social Security and IRA withdrawals. If we assume our retired couple is receiving $50,000 from Social Security, they can recognize up to an additional $105,000 in IRA and/or interest income and remain in the 12% tax bracket, paying a total effective rate under 10%. This is unprecedented during my career.
Capital Gains: A Rare Planning Window
While the Big Beautiful Bill did not specifically alter capital gains tax rates, it did expand the brackets used in the context of tax treatment of capital gains. If our retired couple over the age of 65 elects to fund their retirement income needs through a combination of $50,000 in Social Security combined with realized long-term capital gains, the couple can realize up to $96,700 in long-term gains without triggering any capital gains taxes. Under this scenario, the effective tax rate, including both Federal and Indiana income taxes, models at under 3%. Truly a window of planning opportunity.
It's important to note that while my firm obviously considers taxes in the planning we provide, we do not offer tax advice or tax preparation. We prefer to work with clients' tax professionals and outside experts to formulate and implement tax planning strategies. In my opinion, the planning window is open and will remain so for three more years under these new tax rules. Now is the time to put pencil to paper and see just how this favorable tax environment can be harnessed to help save taxes now and in the future.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
