Strategy library

The strategylibrary.

Six ideas that come up again and again in tax planning, explained in plain terms. Each one carries the rule behind it and a link to the source. Whether any of them fits you depends on your facts.

Federal law as of October 2, 2026. Educational, not tax advice.

The rules moved

What changed in2025 and 2026.

Public Law 119-21, signed July 4, 2025, rewrote several rules that had been scheduled to change. Advice built on last year’s assumptions can be out of date.

Income tax rates: The seven brackets (10% to 37%) are permanent; they had been scheduled to expire after 2025. For 2026 the 37% rate starts above $640,600 (single) and $768,700 (married filing jointly). IRS Rev. Proc. 2025-32
State and local tax (SALT) deduction: The cap is $40,000 for 2025 and $40,400 for 2026, rising 1% a year through 2029 and returning to $10,000 in 2030. It phases down for incomes above $500,000 (2025) and $505,000 (2026), to a floor of $10,000. Public Law 119-21
Qualified business income deduction (§199A): The deduction is permanent, with a wider phase-in range and, from 2026, a minimum deduction for taxpayers with at least $1,000 of qualified income from an active business. It remains subject to limits. IRS Form 1040-ES (2026)
Bonus depreciation: 100% bonus depreciation is permanent for qualifying property acquired after January 19, 2025. The scheduled step-down to lower percentages no longer applies. IRS Notice 2026-11
Section 179 expensing: The limit is $2,500,000 for 2025 and $2,560,000 for 2026, phasing out above $4,000,000 and $4,090,000 respectively. IRS Rev. Proc. 2025-32
Estate and gift tax exclusion: The basic exclusion is $15,000,000 per person for 2026, with no scheduled drop, and is indexed for inflation from 2027. IRS Rev. Proc. 2025-32
Itemized deductions for top-bracket earners: New for 2026: itemized deductions are reduced by 2/37 of the lesser of total itemized deductions or taxable income above the 37% threshold, and charitable gifts are deductible only above 0.5% of adjusted gross income for itemizers. Public Law 119-21

Entity structuring

How a business is organized and paid — and when a change is worth making.

A business can be a sole proprietorship, an LLC, a partnership or an S corporation, and the choice affects how its profit is reported and which taxes apply. Structure is not a one-time decision: income, owners and the law all change, so it is worth asking the question again as the business grows.

Worth a look when

Profit has grown well past where the business started.
An owner is joining or leaving, or a second activity is being added.
The structure was chosen years ago and nobody has revisited it.

The rules behind it

An S-corporation election generally has to be made within two months and 15 days of the start of the year it takes effect — March 15 for a calendar-year company — and can also be filed at any time during the year before. IRS Form 2553 instructions
An S corporation must pay a shareholder-employee reasonable compensation for the services provided before non-wage distributions can be made. IRS: S corporation compensation

Whether a change is worth making depends on the numbers. Sometimes the answer is to leave things as they are.

Cost segregation

Sorting a building’s cost into shorter-lived components so depreciation starts sooner.

When a rental or commercial building is bought, built or renovated, its cost is normally depreciated over a long period. A cost segregation study allocates that cost among property classes with different recovery periods, so the components that wear out sooner can be depreciated sooner. It is usually an engineering-based study.

Worth a look when

A rental or commercial property was recently bought, built or substantially renovated.
A large renovation or construction cost was incurred during the year.

The rules behind it

Residential rental property is depreciated over 27.5 years and nonresidential real property over 39 years. IRS Publication 946
Qualifying shorter-life components acquired after January 19, 2025 can be eligible for 100% bonus depreciation, which is now permanent (Public Law 119-21). IRS Notice 2026-11
Depreciation has a cost later: the part of a gain on selling real property that comes from depreciation (unrecaptured section 1250 gain) is taxed at a maximum 25% rate. IRS Topic 409
The IRS publishes its own audit techniques guide for cost segregation studies. IRS Cost Segregation Audit Techniques Guide

Whether a study is worthwhile depends on the property, its cost, and the owner’s overall tax picture.

Real estate professional status

A demanding two-part test that changes how rental losses are treated.

Rental activity is generally treated as passive, which limits how rental losses can offset other income. A taxpayer who qualifies as a real estate professional can be treated differently for qualifying rental activity. The test is strict, applies year by year, and has to be documented.

Worth a look when

Real estate is a substantial part of how you spend your working time — not a side activity.
Rental losses are being suspended and you want to understand why.

The rules behind it

There are two tests: more than half of your personal-service time across all trades or businesses is in real property businesses in which you materially participate, and you spend more than 750 hours in them during the year. IRS Publication 925
Time worked as an employee generally does not count unless you own more than 5% of the employer. IRS Publication 925
On a joint return, a spouse’s hours are not added to yours for these two tests. 26 U.S.C. §469
The $25,000 special allowance for actively participating rental owners phases out between $100,000 and $150,000 of modified adjusted gross income — one reason higher earners look at this status. IRS Publication 925

Because the test counts more than half of all your working time, it is hard to meet for someone with a full-time job outside real estate.

Depreciation planning

Deciding when and how equipment and property costs are deducted.

Business equipment, vehicles and improvements are usually recovered over several years — or, in some cases, deducted much sooner. Which method applies, and when the asset has to be in use, are decisions worth making before year-end rather than after it.

Worth a look when

A significant equipment, vehicle or property purchase is planned.
An asset was bought during the year but is not yet in use.

The rules behind it

Bonus depreciation is permanently 100% for qualifying property acquired after January 19, 2025 (Public Law 119-21). IRS Notice 2026-11
Section 179 expensing for 2026: up to $2,560,000 of qualifying purchases, phasing out above $4,090,000. IRS Rev. Proc. 2025-32
For both, property generally has to be placed in service during the tax year — buying it is not enough. IRS Notice 2026-11

Not every asset qualifies, and accelerating a deduction can raise taxes in later years.

Retirement optimization

Using plans and accounts to defer income, with the deadlines each one carries.

Employer plans, SEPs and IRAs let income be set aside before it is taxed, subject to annual limits and each plan’s own rules. The right mix depends on the business, whether there are employees, and cash flow.

Worth a look when

Income is high and retirement savings stop at a default workplace plan.
A business owner has no plan, or has not revisited one since it was set up.

The rules behind it

2026 limits: $24,500 employee deferral to a 401(k), 403(b) or governmental 457 plan; $8,000 catch-up at 50 and over; $7,500 for an IRA; $72,000 in total annual additions to a defined-contribution plan. IRS IR-2025-111
A SEP can be set up and funded as late as the return due date, including extensions. IRS Publication 560

Deadlines for other plan types differ and depend on how the business is organized.

Income shifting

Arranging who earns and who owns, so income is reported by the person or entity it belongs to.

Family members and entities can sit in different tax brackets. Income shifting is the practice of arranging who earns and who owns — within a family or across entities — so income is reported by the person or entity it genuinely belongs to. It only works where the facts are real, and it comes with limits.

Worth a look when

Family members actually work in, or own part of, the business.
Assets are being gifted or transferred within the family.

The rules behind it

Special rules — the “kiddie tax” — apply to some of a child’s unearned income, including for some older children who are full-time students. IRS Topic 553

This is the area where the facts matter most: the work has to be real and the ownership genuine.

This library is general information for educational purposes. It is not legal, tax or investment advice, and it does not create a client relationship. Tax law changes, and how any rule applies depends on individual facts. Where a rule is stated, the linked source controls.

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