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The 'Tax Cliff' Is Here: Why Your LLC Just Became 20% More Expensive

• Leon Consulting • Calculating...
TCJA Expiration Tax Cliff 2026 QBI Deduction Section 199A S-Corp vs C-Corp Alternative Minimum Tax Founder Finance

Happy New Year. The Tax Cuts and Jobs Act (TCJA) expired at midnight. Here is how the death of the QBI Deduction and the return of the AMT will destroy your 2026 margins.

The "Sale" Is Over. Welcome Back to the Old Tax Code.

You are probably nursing a hangover right now. But your CPA is having a heart attack. At midnight last night, the Tax Cuts and Jobs Act (TCJA) of 2017 expired. For the last 8 years, you have been living in a "Low Tax Fantasy Land." Today, reality crashed back in.

If you run a profitable bootstrapped startup, an Agency, or a Consulting firm (LLC/S-Corp), your effective tax rate likely just jumped by 10-15% overnight. Here are the three specific provisions that died at midnight and why your current corporate structure is now a liability.

1. The Death of "QBI" (The 20% Free Money)

This is the big one. Since 2018, Section 199A gave Pass-Through entities (LLCs, S-Corps) a 20% deduction on Qualified Business Income.

  • 2025 Math: You made $200k. You were taxed on $160k.
  • 2026 Math: You make $200k. You are taxed on $200k.

That deduction is gone. If you are an S-Corp owner paying yourself a "Reasonable Salary" to optimize taxes, that strategy just lost its superpower. You are now paying full income tax on every dollar of profit, just like it’s 2016.

(Note: If you rely on contractors to keep that profit margin high, make sure you aren't walking into the 1099 Misclassification Trap while fixing your taxes.)

2. The Return of the "AMT" (Tech Worker Nightmare)

The Alternative Minimum Tax (AMT) was defanged in 2017. The exemption was high enough that most tech workers didn't hit it. Today, the exemption dropped back to 2017 levels.

  • The Trap: If you exercise Incentive Stock Options (ISOs) this year, you are in the kill zone.
  • The Math: You buy stock for $1. It’s worth $10. You don't sell it.
  • The Tax: Under AMT, the IRS treats that "Paper Profit" as income now.

In 2025, you were safe. In 2026, you could owe $100,000 in cash for stock you haven't sold. This is even riskier if your company has aggressive Equity Clawback clauses, where you could pay the tax and still lose the stock if you quit.

3. The "G-Wagon" Loophole Is Dead (Bonus Depreciation)

You know the "Hummer Tax Loophole"? "Buy a car over 6,000 lbs and write off 100% of it!" That was called Bonus Depreciation. It has been phasing out for years.

  • 2023: 80% write-off.
  • 2024: 60%.
  • 2025: 40%.
  • 2026: 20%.

If you buy a $100,000 company car today, you can only write off $20,000. The days of buying a luxury SUV to lower your tax bill are mathematically over. If your "Tax Strategy" was buying equipment you didn't need, find a new strategy.

The Pivot: What to Do in Q1 2026

Since the laws changed, your structure must change.

  1. Re-Evaluate C-Corp Status:
    • The C-Corp tax rate is still 21% (it was permanent in TCJA).
    • Individual rates just went up (Top bracket is now 39.6%).
    • The Move: It might finally make sense to convert your high-profit LLC to a C-Corp, pay the flat 21%, and reinvest the profit. Plus, if you hold the stock for 5 years, you might qualify for the QSBS Tax Exemption ($10M tax-free exit), which is far better than the old QBI deduction anyway.
  2. Stop "Exercising and Holding" ISOs:
    • Do not touch your stock options until you speak to a CPA about the new AMT limits. You could bankrupt yourself by clicking a button in Carta.
  3. Max Out the 401k (Again):
    • With the Standard Deduction halved, "Itemizing" is back.
    • You need every deduction you can get. The "Solo 401k" is no longer optional; it is your only shield against the 39.6% bracket.

Frequently Asked Questions (That You Are Too Scared to Ask)

Will Congress fix this?

Don't count on it. They had 8 years to extend it. They didn't. Gridlock in DC means this "Sunset" is likely the law of the land for at least 2026. Plan for the worst.

Does this affect my Crypto?

Indirectly, Yes. Higher Ordinary Income rates mean Short-Term Capital Gains (Crypto trading) are taxed higher. If you are trading heavily, ensure you aren't also triggering foreign reporting requirements. See our guide on the FBAR Crypto Trap to ensure you don't get hit with penalties on top of the tax hike.

I'm a Freelancer (1099). Am I screwed?

Yes. You lost the QBI deduction too. You are now paying 15.3% Self-Employment Tax + Higher Income Tax. Your effective tax rate is likely approaching 50% (State + Federal). Consider raising your rates by 20% immediately to offset the "Tax Inflation."

Leon Consulting connects founders with "Post-TCJA" Tax Strategists. The playbook from 2025 is illegal or stupid in 2026. Get a new strategy here.

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