2026 is coming up real fast, and the tax brackets are going to change. In this post, we’ll walk through:
- How these new brackets affect you
- How tax brackets actually work (most people misunderstand them big time!)
- What you can do in 2026 to actually save money in taxes
Why Do Tax Brackets Continually Change?
The standard deduction and all tax brackets change every year. You can count on it. One of the biggest reasons is to prevent taxpayers from getting caught in a pay increase due to inflation. If brackets did not change, inflation could push you into a higher tax bracket even though your purchasing power didn’t increas… which would be quite unfair. So, brackets adjust upward each year to help you keep more of your hard earned money.
How Tax Brackets Actually Work (Most People Get This Wrong)
Many people think: “I made $200,000 and that outs me in the 38% bracket… so I owe 38% of $200,000 or $76,000.” As a licensed CPA, I see this false assumption all the time.
Thankfully, that is NOT how the U.S. tax system works. It is a tiered system which is also called a marginal tax structure. This means income is taxed in layers at different rates.
An Example – Incorrect Assumption
Let’s use an example of someone making $388,000.
People often assume:
$388,000 × 32% = $124,160
Although the math is correct, the tax rate and bracket is not.
The Correct Breakdown on $388,000 of income.
To do this properly, we must calcutalte each tax layer individually and then add them up at the end.
| Tax Bracket Layer | Taxable Amount | Rate | Tax Owed |
|---|---|---|---|
| $0 – $12,400 | $12,400 | 10% | $1,240 |
| $12,401 – $50,400 | $37,999 | 12% | $4,559 |
| $50,401 – $102,000 | $51,600 | 22% | $11,352 |
| $102,001 – $195,000 | $93,000 | 24% | $22,320 |
| $195,001 – $388,000 | $193,000 | 32% | $61,760 |
To get our total tax we must add $1,240 + $4,559 + $11,352 + $22,320 + $61,760 and that equals $101,231 in owed taxes.
Total actual tax owed: $101,231
Not: $124,000+ as previously thought
So your actual real tax rate is:
$101,231 ÷ $388,000 = 26%
Not 32%! This is how brackets actually work — it is NOT a flat tax.
The same concept applies to married filing jointly — brackets apply in tiers, not a single percent on total income.
Standard Deduction Changes in 2026
Before calculating tax, you deduct either the standard deduction or itemized deductions. For 2026:
- Single: $16,100
- Married Filing Jointly: $32,200
Example: If you earn $100,000 and are married filing jointly, you will subtract $32,200 before tax calculation — meaning you’re taxed on $67,800, not $100,000.
How to Save Money on Taxes in 2026
If You’re an Employee
- Check your withholding — make sure you’re withholding based on true tax estimates
- Contribute to:
- 401(k) – As an accountant, this is one of my favorites because most plans allow borrowing and you pay yourself back with interest
- IRA
- HSA – Deducted from gross income, rolls over year after year
Many people think: “If I put money in a 401(k), I won’t have access to it.”
Yes, you do — you can borrow against it and pay yourself back, while ALSO reducing taxable income.
If You’re Self-Employed
- Calculate your estimated quarterly tax payments
- But ALSO factor in contributions to:
- 401(k)
- SEP IRA
- HSA
- This could reduce your estimated payments or change your cash strategy
Charitable Donations
Charitable giving also carries special tax value. Example:
- You bought an item for $10
- You donate it, and its fair market value is now $1,500
You may deduct $1,500 — NOT $10 — as long as the value is documented by a licensed professional (such as an appraiser).
Final Thoughts
Now you understand:
- Why tax brackets go up each year
- How your actual rate is NOT the percent shown on the tables
- What financial moves can help you save on taxes in 2026
If you have any questions, give us a call. We would love to help.