The IRS has released the 2026 tax inflation adjustments, and there's good news for most taxpayers. Higher standard deductions, adjusted tax brackets, and expanded business credits mean you could pay less in taxes next year. Whether you're a small business owner, employee, or family, understanding these changes is essential for effective tax planning.

Higher Standard Deductions for 2026

The most immediately beneficial change for individual taxpayers involves increases to the standard deduction—the amount of income you can earn tax-free.

Married Filing Jointly (MFJ): $32,200 (up from $29,200 in 2025)
Single Filers: $16,100 (up from $14,600 in 2025)
Head of Household: $24,150 (up from $21,900 in 2025)
Married Filing Separately: $16,100 (up from $14,600 in 2025)

These increases mean that couples can earn more money before owing federal income taxes—potentially saving thousands of dollars in annual tax liability. For self-employed individuals and small business owners, this translates to lower taxable income.

Updated Tax Bracket Thresholds

Income thresholds for each tax bracket have shifted upward, which means you can earn more income before jumping into the next tax bracket.

For Single Filers:

37% (top rate): Incomes over $640,600
35%: $256,225 to $640,600
32%: $201,775 to $256,225
24%: $105,700 to $201,775
22%: $50,400 to $105,700
12%: $12,400 to $50,400
10%: Incomes of $12,400 or less

For Married Filing Jointly:

37% (top rate): Incomes over $768,700
35%: $512,450 to $768,700
32%: $403,550 to $512,450
24%: $211,400 to $403,550
22%: $100,800 to $211,400
12%: $24,800 to $100,800
10%: Incomes of $24,800 or less

The tax rates themselves haven't changed, but these higher thresholds help offset inflation and benefit taxpayers at all income levels.

Expanded Estate Tax and Gift Tax Exemptions

For high-net-worth individuals and business owners, the basic exclusion amount for estate taxes has increased significantly.

Estate Tax Basic Exclusion: $15,000,000 per person (approximately $30,000,000 for married couples)
Annual Gift Tax Exclusion: Remains at $19,000 per recipient (unchanged from 2025)

This is particularly important for business owners and property owners planning to pass wealth to heirs. With higher exemptions, you may be able to transfer significant assets during your lifetime or at death without triggering estate taxes.

Increased Business and Family Credits

The IRS has expanded several important credits for families and businesses:

Childcare Tax Credit Expansion:

Regular employers can claim up to $500,000 in dependent care tax credits
Small businesses can claim up to $600,000 (if they have 100 or fewer employees)
This encourages businesses to offer onsite childcare or childcare subsidies

Adoption Tax Credit: Increased to $17,670, making it easier for families to afford adoption costs.

Enhanced EITC for Large Families

The Earned Income Tax Credit (EITC) helps lower-income working families reduce their tax burden. For 2026:

Maximum EITC (three or more children): $8,231

This is one of the most valuable tax benefits for working families earning modest incomes. If you're self-employed or have variable income, make sure you review your EITC eligibility each year.

Foreign Earned Income Exclusion Increased

If you work for a U.S. company abroad or are an expat running a business, the foreign earned income exclusion has increased.

Foreign Earned Income Exclusion: $132,900 (for 2026 tax year)

This means you can exclude up to $132,900 of foreign income earned abroad from U.S. taxation, reducing your federal tax liability significantly if you qualify.

Health FSA Contribution Limits

If you use a Flexible Spending Account (FSA) for medical expenses, the contribution limits have increased:

Health FSA Maximum Contribution: $3,400 per year

This tax-advantaged account allows you to set aside pre-tax money for qualified medical expenses, saving you approximately 25-37% in taxes depending on your tax bracket.

What Remained the Same

While many provisions increased, some important items stayed the same:

Personal Exemptions: Still eliminated (since 2018)
Tax Rate Structure: No changes to the 7 individual tax rates
Capital Gains Rates: 0%, 15%, and 20% rates unchanged

Tax Planning Implications for Small Businesses

If you own a small business, here's what you should consider:

Higher standard deductions reduce your effective tax rate: Even without itemizing, your baseline tax-free income is higher in 2026.
Adjusted brackets help service businesses: If your business profits are in the $100,000-$200,000 range, the bracket adjustments will benefit you more than inflation alone.
Equipment purchases become more attractive: Section 179 deductions (also adjusted annually) allow you to write off equipment purchases immediately, combining with these adjusted brackets for significant savings.
Consider S-Corp elections: With higher income thresholds, check whether electing S-Corp status would save you self-employment taxes in 2026.

Special Considerations for Korean Business Owners

For Korean-American business owners in Los Angeles, these adjustments impact several common business types:

Restaurant Owners: The higher standard deduction and adjusted brackets reduce your personal tax burden, allowing more business profits to be retained for growth and modernization.
Import/Export Businesses: The foreign earned income provisions and adjusted brackets help those with Korean business partners and international transactions.
Family Businesses: The expanded estate tax exemptions make family succession planning more favorable. With a $30 million exemption for couples, most family businesses can transfer ownership tax-free.

Action Items for 2026

Don't wait until April 2027 to think about these changes. Take action now:

Review Your Withholding: If you're an employee, verify your W-4 withholding reflects the new standard deductions and brackets. You might receive a larger refund or have less tax withheld.
Plan Equipment Purchases: If you own a business, consider timing equipment purchases before year-end 2026 to maximize Section 179 deductions alongside these adjusted rates.
Reassess Entity Structure: With adjusted brackets and deductions, compare whether your current business structure (Sole Proprietorship, LLC, S-Corp) remains optimal for 2026.
Update Quarterly Estimates: If you're self-employed, recalculate your quarterly estimated tax payments based on these new thresholds to avoid underpayment penalties.
Estate Planning: If you've been delaying an estate plan due to concerns about estate taxes, the $30 million couple's exemption may eliminate that concern.

When to Seek Professional Tax Advice

While these inflation adjustments benefit most taxpayers, your specific situation may have unique opportunities:

If you own a business earning over $60,000 in profits, an S-Corp election could save thousands in self-employment tax
If you have complex deductions (home office, vehicle expenses, equipment), ensure you're capturing all tax-saving opportunities
If you received the expanded childcare credit eligibility or have significant estate holdings, professional planning can maximize these benefits
If you're bilingual and operate between the U.S. and Korea, international tax considerations require specialized expertise

Conclusion: The 2026 IRS tax inflation adjustments bring good news—higher standard deductions, adjusted brackets, and expanded credits mean more money in your pocket. Whether you're a W-2 employee, self-employed, or business owner, taking advantage of these changes requires planning. At KSS Accountancy Corporation, our Korean-speaking CPAs understand both U.S. tax rules and the unique situations facing Korean-American business owners. Let's work together to ensure you minimize your tax burden and maximize your business growth in 2026.

Ready to optimize your 2026 taxes? Schedule a consultation with our bilingual CPA team at (323) 677-4800 to discuss how these changes impact your specific situation. We serve Korean-American business owners throughout Los Angeles and Koreatown.