The results of the 2026 midterm elections have brought significant changes to Washington, along with a positive reaction from financial markets. Following the Democratic Party’s victory in both chambers of Congress, stocks rallied as investors responded to reduced political uncertainty.
While market movements often receive the most attention following an election, there is another important consideration for individuals and businesses: How could these changes affect your taxes?
With the end of 2026 approaching, now is a good time to review your financial situation and consider potential tax-planning opportunities.
1. Stock Market Gains and Capital Gains Taxes
A rising stock market can be good news for investors, but it can also create tax consequences.
When investments increase in value, those gains generally aren’t taxable until the investments are sold. However, selling stocks or other assets at a profit may result in capital gains taxes.
The tax treatment depends on several factors, including how long the investment was held.
- Short-term capital gains: Generally apply to investments held for one year or less and are taxed at ordinary income tax rates.
- Long-term capital gains: Generally apply to investments held for more than one year and may qualify for lower federal tax rates of 0%, 15%, or 20%, depending on taxable income.
Investors who experienced gains during 2026 may want to evaluate whether selling certain investments before year-end makes financial and tax sense.
2. Tax-Loss Harvesting Before December 31
Market fluctuations can also present opportunities to reduce taxable gains.
Tax-loss harvesting involves selling investments that have declined in value to realize losses that may offset capital gains from other investments.
If total capital losses exceed capital gains, individuals may generally deduct up to $3,000 of the remaining net loss against other income annually, with unused losses carried forward to future tax years.
However, investors should be mindful of the IRS wash-sale rules, which can disallow losses when substantially identical securities are purchased within 30 days before or after a loss sale.
Reviewing investment activity before December 31 can help identify potential tax-saving opportunities.
3. Bond Investments and Interest Income
The recent movement in bond markets also highlights the importance of understanding how investment income is taxed.
Different types of bonds receive different tax treatment:
- Corporate bonds: Interest is generally subject to federal and applicable state income taxes.
- U.S. Treasury bonds: Interest is subject to federal income tax but exempt from state and local income taxes.
- Municipal bonds: Interest is often exempt from federal income taxes, although exceptions may apply.
Investors receiving significant interest or dividend income should also consider whether their tax withholding or estimated payments remain sufficient.
4. Will the Election Change Tax Laws?
The election results could influence future tax legislation, but they do not automatically change existing tax laws.
The One Big Beautiful Bill Act, enacted in 2025, introduced several important tax provisions affecting individuals and businesses.
With Democrats gaining control of Congress in January 2027, future discussions may focus on federal spending, healthcare programs, business incentives, and potential tax policy adjustments.
However, any changes to federal tax legislation would still need to move through the legislative process.
For now, taxpayers should continue planning under current law rather than making financial decisions based on speculation about future changes.
5. Year-End Tax Planning for Individuals and Businesses
Regardless of which party controls Congress, proactive tax planning remains important.
As 2026 comes to a close, individuals and business owners should consider reviewing:
- Investment gains and losses realized during the year.
- Interest, dividends, and other investment income.
- Retirement account contributions and required distributions.
- Estimated tax payments and potential underpayment penalties.
- Business income, expenses, and eligible deductions.
- Opportunities to reduce taxable income before December 31.
For business owners, year-end planning may also involve reviewing equipment purchases, depreciation deductions, and the timing of certain income and expenses.
Taking action before year-end can provide more flexibility than waiting until tax filing season.
Final Thoughts
Elections may influence financial markets and future economic policies, but successful tax planning should focus on each taxpayer’s individual circumstances rather than short-term political developments.
A strong stock market does not necessarily mean a higher tax bill, just as market losses do not automatically result in tax savings.
At David Miller CPA LLC, we encourage clients to review their tax situation before the end of the year to identify planning opportunities and avoid unnecessary surprises when filing their 2026 tax returns.
If you have experienced significant investment gains, changes in income, or major financial transactions this year, contact our office to discuss how these developments may affect your tax situation.
David Miller CPA LLC
Tax Preparation | Tax Planning | Accounting & Bookkeeping
www.davemillercpa.com
This article is intended for general informational purposes and should not be considered individualized tax or investment advice.