Tax & Financial Insights Newsletter | Private Tax Solutions

When people are investing, taxes are often the last thing on their minds. The process feels simple: you buy a stock, it grows, and you start imagining how you’ll use the money once you sell your shares.

However, when the day finally comes to sell, reality hits and so do taxes.

Does this sound familiar? And makes you feel worried that a portion of your profits will go toward paying a tax bill? You are not alone. Most of us only start thinking about taxes after we’ve already made gains.

In this case, understanding capital gains tax brackets can make a meaningful difference. Capital gains taxes are not random. They follow a structured system, and once you understand how that system works, you can plan ahead and potentially save your money over time. 

First, let’s understand what a capital gain is. 

Capital gain is the amount of profit you gain after selling your asset. That asset could be anything: stocks, mutual funds, property, or even digital investments. If you bought something at a lower price and sold it at a higher price, the difference is your gain. One important thing to remember here is that you don’t pay tax while your investment is growing. The tax only applies when you actually sell it for the gains.  

How Capital Gains Tax Brackets Actually Function One common misconception about capital gains is that they are taxed separately from your other income. In reality, that’s not how it works.

Your long-term capital gains profits from investments held for more than a year are added on top of your total taxable income. In other words, they are layered over your existing income, such as salary, business income, or other earnings, and then taxed according to the applicable capital gains tax brackets.

Because of this, the amount of tax you pay on your gains depends not just on the profit itself, but also on your overall income level.

The ordinary income pensions, IRA withdrawals, and a portion of Social Security income, on the other hand, do not add that much burden to your tax bracket. 

2026 Long-Term Capital Gains Tax Brackets

The long-term capital gains tax brackets for the year 2026 are:

• Zero percent tax bracket: Income from $0 to $98,900 for joint filers; $0 to $49,450 for singles; and $0 to $66,200 for head of household taxpayers.
• Fifteen percent tax bracket: Income exceeding the zero percent tax bracket but not exceeding around $613,700 for joint filers or about $545,500 for single taxpayers.
• Twenty percent tax bracket: Income exceeding the fifteen percent tax bracket.

Also remember that these tax brackets are adjusted and rearranged annually for inflation. 

What about the short-term capital gains? 

So far, we have been talking about only the long-term capital gains, but what happens if you sell the investment in a short time?  

Taxation for short-term capital gains works very differently. A short-term gain is generally considered ordinary income and is taxed on the basis of your applicable income tax slab rates. Why have capital gains tax brackets become more tricky for retirement?

This is usually where the stacking of income becomes problematic for people. Rather than coming solely from wages, your income becomes sourced in multiple places simultaneously:

• Distributions from traditional IRAs and 401(k)s
• Payments from pensions
• Social Security benefits (85% of which may be subject to taxation)
• Required minimum distributions (RMDs), which starts around the age of 70 
• Interest and dividends from taxable accounts

All this ordinary income will fill up the lowest brackets first, meaning less room remains for zero percent capital gains rates. A single large sale in stocks in a year where you start collecting Social Security and increased amounts of RMDs will definitely push you into the 15 percent bracket and cause many other headaches as well.

Two additional hidden taxes that retirees fail to account for:

Income-Related Monthly Adjustment Amount IRMAA Surcharge: Your income in the previous two-year period is too high, resulting in much higher premiums for Medicare parts B and D.

Net Investment Income Tax (NIIT): This applies an additional 3.8 percent on any capital gains or other forms of investment income earned above modified adjusted gross incomes of $250,000 (married filing joint) and $200,000 (single). Unlike brackets, this threshold amount does not have an inflation adjustment each year.

Effective Ways to Minimize Your Capital Gains Tax

Here’s the silver lining: you have multiple ways to handle your capital gains tax brackets effectively. 

• Don’t concentrate all sales in one year; spread them out throughout the years.
• Sell specific shares (start with shares having the highest cost basis) to maximize the tax savings from capital losses.
• Harvest losses to balance capital gains.
• Convert your retirement accounts strategically to Roth accounts in years when your income is low to decrease ordinary income in the future.
• Sequence your withdrawals; withdraw first from taxable accounts, then the IRA or 401(k) accounts, and finally, Roth accounts.
• Donate appreciated assets to charity, allowing you to donate without paying any taxes and receiving a deduction in return.

Final Thoughts

Most people don’t think about taxes when they are investing, but understanding the 2026 capital gains tax brackets and how they interact with your overall retirement income can save you thousands of dollars.

By planning ahead, modeling your income each year, and making thoughtful decisions about when and how you sell, you can keep more of your hard-earned profits and enjoy the retirement you’ve worked so hard for.

Don’t wait until tax season to discover an unpleasant surprise. Start reviewing your situation today. A little knowledge and planning now will make a big difference tomorrow.

Professional help can make the difference
Understanding capital gains tax is not only about knowing the rules and regulations but also about how to effectively implement them in your own financial circumstances. Every investment made has tax implications, and if you don’t take the right steps, you could be taxed more than you’re entitled to pay.

At Private Tax Solutions, professional financial and tax advisors are here to assist you in achieving your financial goals with clarity and confidence. We understand that taxes can be overwhelming for most individuals, and not everyone has the time to understand and evaluate their tax situation; that is why taking professional help is the most suitable option.

Contact Private Tax Solutions, and you will feel completely confident that you will have your tax matters well in hand.

FAQ: Frequently Asked Questions

Question 1. Can I avoid capital gains tax by donating stock or gifting it?

Answer. Yes. Donating appreciated stock to charity is one of the best ways you avoid capital gains tax and get a tax deduction. however, gifting to family shifts the tax to them.

Question 2. Do retirees need to worry more about capital gains taxes than working individuals?

Answer. Surprisingly, yes. Retirees often have multiple income sources such as pensions, Social Security, and required minimum distributions, which can fill up lower tax brackets quickly. This leaves less room for capital gains to be taxed at lower rates, making tax planning even more important during retirement.

Question 3. Are there extra taxes retirees should worry about on capital gains?

Answer. Yes, the 3.8% Net Investment Income Tax (NIIT) and higher Medicare premiums (IRMAA). Both can be triggered by large stock sales or withdrawals.

Question 4. What are the long-term capital gains tax rates for 2026?

Answer.

1. 0% if your taxable income is up to $49,450 (single) or $98,900 (married filing jointly).
2. 2. 15% for income above the 0% bracket up to roughly $545k (single) / $613k (joint).
3. 20% above that. Brackets are adjusted for inflation each year.

Planning for your future is overwhelming, we know it. especially when you’re trying to choose the right investment strategy. With so many options available, it’s easy to feel unsure about where to begin.  

The reality is, not everyone wants, or has the time, to manage their own portfolio full-time. That is why target-date funds, also known as TDFs, have become very popular. 

What exactly are target date funds? And how does it work?

Target date funds are a single mutual fund that is professionally managed and holds a mix of stocks, bonds, and cash. The key feature of target date funds is that they change over time depending on a set “target date,” which is usually when you retire. 

For example, if you expect to retire in about 2048, you could buy a Target Date 2050 fund or any fund that is near it. And it will grow in three stages, first, the early stage in which the funds focus heavily on stocks to pursue higher growth. And because stocks can be a little risky, it is done at the early stages of the plan. 

Then the middle stage: as you begin to get closer to retirement, the fund gradually shifts the balance. It starts reducing stocks and adding more bonds and cash equivalents. This helps lower risk and protect the money you’ve already saved.

And then the final stage: around or after the target date. At this stage, the portfolio is structured

towards capital conservation with the focus on income. A lot of funds follow a “through retirement” model, which continues to move and grow even after you retire. 

This overall process of movement is called the fund’s “glide path.”

What are the key benefits of target date funds

One of the main advantages of target date funds that has made them popular is that they make investing easy but without sacrificing organizational structure.

1. Expert Management: There is no hassle in the allocation of capital in the various asset categories. The experts involved with the fund continuously review the composition of the fund and keep modifying it in response to changes in market conditions and future plans. Hence, this kind of fund suits even an ordinary individual who cannot spend time on investment matters himself. 
2. Diversification: The target date fund contains a variety of securities from all over the world. These include equities as well as debts. This diversification helps in preventing the risk. 
3. Automatic Rebalancing: Markets never stand still, and over time your holdings can move out of alignment. Target date funds automatically rebalance at predetermined times to make sure your investments are in line with the glide path. You won’t have to do any of the adjusting yourself.
4. Minimize Emotional Decision-Making: One of the biggest errors investors make is making decisions completely based on emotion, selling after the market dips or jumping into hot performance trends when markets are rising. Target-date funds have a plan already in place so that you stick to your investment plan long-term.
5. Age-Adjusted Risk: The portfolio gradually shifts from growth-oriented investments to more conservative assets over time, aligning with your life stage and reducing risk as you approach retirement, which helps you preserve the wealth you’ve built. 
6. Convenience: Instead of having a large number of mutual funds to manage, it’s a single investment that does the work for you. 

What are the risks of target date funds?

Although target-date funds have numerous advantages, there is still some drawbacks you should be aware of. 

• There is still market risk: Target date funds are not risk-free. Even though they become more conservative over time, they still maintain exposure to stocks and other market-linked assets. This means the value of your investment can fluctuate, especially during periods of market volatility. If markets decline close to your retirement, it can impact your savings. 

• Not all target-date funds are the same: Although the name on the target year funds may indicate that all of them invest in the same way, it does not always mean that this is true. There may be differences in their glide paths, allocation percentages, and amount of risk between funds. Some funds will be more aggressive than others. For this reason, it is better to know where your money is going and what the target date funds will be doing.

• Limited flexibility: When we talk about target date funds, automation is one of their biggest advantages. But it can also act as a limitation for many. Because it follows a fixed strategy that might not be suitable for everyone, you have little control over how your money is allocated. If your financial goals or risk tolerance differ from the fund’s approach, it may not fully align with your needs. 

• Charges may apply: Some target date funds, especially those that are actively managed, are more expensive and are associated with a higher expense ratio. Those fees add up quickly and could affect your entire return on investment over time. Make sure to examine these costs carefully. 

How to choose the right target date fund 

• Firstly, select the right target year: choose the right fund whose target date is closest to your retirement year. For example, if you plan to retire in 2048, then choose the target date of 2050. 

• Understand the glide path: The glide paths of different target date funds are not the same. Some tend to reduce stock allocation more aggressively, while others stick to a higher allocation of equity even as you get closer to retirement. Checking this will provide insight into the fund’s approach to risk. 

• Compare costs: Small differences in fees can add up to significant amounts in the long run due to the effects of compounding. Picking a fund that doesn’t overcharge could potentially enhance long-term gains.
• Examine investment strategy: Look at how the fund invests, whether it uses index funds or actively managed strategies. This can influence both performance and cost. 

Final thought

Not everyone has time to constantly research and monitor their invested funds. And that is okay; that’s what makes target date funds so appealing.  
They give you a simplified structure to invest in, where most of the heavy lifting is handled by the professionals. From asset allocation to rebalancing and risk adjustment over time, everything is designed to align with your long-term goals.

While target-date funds do provide simplicity, that does not mean there is no risk involved. Target date funds are still subject to market risks, and not all target date funds function the same way. So taking some time to familiarize yourself with how a specific target date fund operates will create a clear picture of how this type of investment works.

FAQs: Frequently asked questions

Question 1. Could I lose money investing in a target-date fund?

Answer. Yes, chances are that you could lose money. While a target-date fund will get more conservative, it will still hold market-tied assets such as bonds and stocks and therefore may lose value when markets decline.

Question 2. How do I choose the right target date fund for me?

Answer. The best approach to select a target date fund is by aligning it with your expected retirement year; choose the funds that are in accordance with your risk tolerance. And finally make sure that you review the fund’s glide path, fees, and overall strategy before making a decision.
If you are still unsure, Private Tax Solutions has qualified financial advisors who can guide you through the process and help you make informed investment decisions aligned with your long-term goals. 

Question 3. Do target date funds stop growing after retirement?

Answer. Not necessarily. Many target date funds follow a “through retirement” approach, meaning they continue to adjust and remain invested even after the target date. They typically play safe after the target date, like shifting toward income generation and capital preservation but still aiming for some level of growth.

Question 4. Should I put all my retirement savings into a single target date fund?

Answer. It depends on your financial goals and preferences. Target date funds are designed to be an all-in-one solution, so many investors choose to invest most or all of their retirement savings in a single fund. However, if you want more control or customization, you may prefer to diversify beyond just one fund. 

Many people think of Health Savings Accounts (HSAs) as one of the best financial options

Available today because of triple tax benefits offered by HSAs, people can save money on healthcare costs effectively and accumulate wealth.

However, there is an important aspect of HSAs that is often ignored by so many people.

The way your HSA works while you are alive and how your HSA works after you die can be very different. Without good planning, there is a possibility that your family or other heirs may end up with a huge tax liability with your HSA. 

This is commonly referenced by financial professionals as a “tax bomb.” 

Understanding the Basics of an HSA

A health savings account (HSA) is a special type of savings account to help people with high-deductible health insurance plans (HDHPs) pay for their out-of-pocket medical expenses by offering them tax incentives related to how much they are allowed to put into the account. The major benefits associated with having an HSA are: 

• Tax-free contributions: The IRS allows you to make contributions into an HSA without paying tax on those contributions; this means that the amount of taxable income you report for the annual filing is reduced by the amount of your HSA contributions. In 2026, individual contributors can make up to $4,300 in contributions, and married couples filing joint returns may contribute as much as $8,550, and those who are at least 55 years old may contribute an additional “catch-up” amount.
• Tax-Free Growth/Interest: All interest, dividends, or gains from investments held in HSAs are not taxed as long as the funds remain in the account.
• Tax-Free Withdrawals: You can withdraw funds from an HSA whenever you wish, provided you are using these funds for qualified medical expenses, without incurring either taxes or penalties for such a withdrawal. Qualified medical expenses include expenses incurred due to a visit to a doctor, incurred as a hospital bill, incurred from prescription medications, expenses incurred while seeking dental care, expenses incurred while seeking vision services, the purchase of certain medical devices, and expenses incurred for long-term care.  

What Happens If You Leave the HSA to Your Spouse?

If your wife or husband is named as a beneficiary, the transition is relatively easy and  straightforward. The spouse can now use these funds as if they belonged to the spouse. Also  maintain the entire benefit of the triple tax benefit of the account and do not need to immediately pay taxes on any distributions that come from it.  

What if the HSA goes to a non-spouse beneficiary?

If the HSA beneficiary is not the spouse but, instead, the account holder’s child, parent, sibling, or other relation:   

• The HSA immediately breaks its tax-sheltered nature. It ceases to be a Health Savings Account. 
• All its current value is taxable income for the beneficiary for the year it is received.
• There is no tax deferral to future years.

This is where you encounter the “tax bomb.” For example, a beneficiary could receive an HSA with an exceedingly large balance, which would severely increase their taxable income, and their total tax bracket would become higher. This would turn a perceived advantage into a liability. 

What if there is no named beneficiary?

Most people overlook this, but it is truly very necessary to name a beneficiary for your HSA. 

When you don’t designate a beneficiary for your HSA, that account typically will be included in your probate estate. The assets in your HSA will pass according to your last will and testament. 

As a result, the tax consequences of having your HSA pass through probate as opposed to having an actual designated beneficiary are worse. The accounts in your HSA will still incur taxes; however, due to the time involved with going through probate, your family will not be able to access the funds in your HSA until after the probate process has been completed. This means that your family will incur legal fees/expenses, delays, and unnecessary involvement from the court while taxes continue to accrue.

It is always best to designate a beneficiary for your HSA account. In fact, even if you are designating a non-spouse as your beneficiary, it is still better for you and your family to have a clearly designated beneficiary than to force them to go through the probate process. 

Planning Strategies to Avoid the HSA “Tax Bomb”

Given these implications. Proactive solutions become very essential. Here’s a practical way for this problem: 

1. Use the HSA While You’re Alive: Because all withdrawals for qualified medical purposes are tax-free, using the money during your life means you get the most benefit out of it.
2. Name your spouse as your beneficiary if possible: When your spouse is your beneficiary, the HSA is passed to your spouse tax-free, making it one of the best account types to transfer without taxation at the time of your death.
3. Include the HSA in your estate planning: It’s an account that’s often forgotten but should not be an account separate from your estate plan; it should be an integral part of it.
4. Use the HSA not as the sole or main wealth transfer tool: It’s a good account to pass to beneficiaries who are not your spouse, but the immediate taxation makes it less of a good tool for transferring assets than it may appear at first glance.

How can private Tax solutions Help?

Planning for an HSA isn’t just about saving money today; it’s about making sure your savings don’t create problems for your family tomorrow. At Private Tax Solutions, we help you look beyond the immediate tax benefits and focus on long-term outcomes. Our qualified financial advisors work with you to integrate your HSA into a well-structured financial and estate plan, so you can avoid unnecessary tax burdens for your loved ones. 

Here’s how we support you:

• Personalized HSA Strategy: We help you decide how and when to use your HSA funds to maximize tax-free benefits during your lifetime.
• Managing “Delayed” Reimbursement: An advisor can help you properly document current medical expenses and keep records to reimburse yourself years or decades later, tax-free 
• Beneficiary Planning: We guide you in selecting the right beneficiary structure to reduce the tax impact. 
• Estate Plan Integration: Your HSA is aligned with your overall financial and estate plan; we ensure that nothing is overlooked. So you don’t face any problem later. 

Bottom Line: An HSA is arguably one of the most tax-advantaged financial vehicles. It will provide significant long-term savings for medical expenses and lower your overall tax liability. But just as there are major advantages in utilizing the account during your life, so there are serious implications upon your death that cannot be ignored.

The problem isn’t the HSA but the absence of thoughtful planning. Many people take the time to build their HSA balance but neglect to plan for its distribution. And as stated above, leaving a non-spouse beneficiary will most likely leave the individual with an additional tax liability. 

That is why it is important to strike a balance. Take full advantage of your HSA during your life and integrate it into your overall financial plan. Carefully review your beneficiaries. 

FAQs: Frequently Asked Questions

Question 1. What if my child inherits my HSA but is in a low tax bracket that year?

Answer. That does help reduce the damage, but it does not eliminate the tax. For example, if your child is a student with little other income, a $50,000 HSA inheritance might be taxed at only 10% or 12%. However, most working-age adults already have moderate to high income from their jobs. Adding a large HSA inheritance on top of their salary typically pushes them into much higher brackets. The tax bomb is most dangerous if your children are working adults. 

Question 2. Can I name a trust as the beneficiary of my HSA? 

Answer. The answer is yes, but this can be a little complicated. Naming a trust may not avoid the immediate tax bill for heirs and could create additional complications. Speak with a tax planning financial advisor doing this.

Question 3. Should I stop investing in an HSA because of this tax bomb issue?

Answer. Not at all. HSAs are still highly valuable. The key is to use them strategically to maximize their benefits during your lifetime and plan carefully for how they will be passed on.

Question 4. Should I use my HSA benefits before passing them on?

Answer. The answer is typically yes. Because you do not pay tax on HSA withdrawals for qualified medical expenses during your lifetime. 

Most people think tax planning is something that you do only once a year. People collect their reports, submit their returns, and keep going. However, the effects of taxes continue to build up slowly throughout the year, and this is where tax planning becomes relevant.

Tax planning is much more than saving money today; it is about ensuring that your money continues to grow without taking away from it through unavoidable deductions. As an example, even a small amount of modification in how you invest, save, or manage income can create a noticeable long-lasting effect. 

What is tax planning and why is it so important?

In simple terms, tax planning is the process of arranging your financial resources in such a manner so you minimize your tax liability legally. With tax planning you don’t avoid taxes altogether, but rather create an efficient way of utilizing your income and investments so that you do not end up paying more taxes than necessary. 

There is a strong connection between how much you pay in taxes and how quickly your net wealth will grow. Each year, a portion of your earnings will be allocated to pay taxes on the income and investment returns you generate; if you do not properly manage the tax component of your overall financial situation, that will gradually hinder your finances in future. 

This gradual reduction of your wealth due to taxes creates a phenomenon known as tax drag. Tax drag effects are an ever-present force that has a quiet impact on your financial returns each and every year. On the surface, you may not notice the tax drag effect, but over the long haul it will create a substantial impact. 

How does tax impact your investment

When you invest, your goal is to grow your money. But different types of earnings are taxed differently, such as: 

• Interest income
• Capital gains, and
• Dividends.

Because of this, the amount that will be left in your pocket (after tax) from a total return may not be that high relative to what you expected. For example, if two investments offer the same return on paper, the one with better tax treatment will leave you with more money in hand. This is why it’s important to look beyond just returns and consider how those returns are taxed. 

Key tax planning strategies to reduce the tax and grow the wealth

1. Long-Short Tax-Loss Harvesting: With years of growth in the stock markets, many individuals find themselves holding unrealized capital gains. And that capital gain can lead to higher taxes, and you won’t even realize it. So, one of the best ways to do this is by long-short tax-loss harvesting. Simply sell investments that have declined in value to offset gains from profitable investments. This helps reduce your taxable income. Many high-net-worth individuals use this method instead of simply harvesting their losses; they use long-short techniques in which they create losses while maintaining their market position.

2. Bonus Depreciation for Business Purposes: Bonus depreciation can be a powerful tax-saving tool for businesses and real estate investors. It allows you to deduct the cost of certain assets such as equipment, machinery, vehicles, or improvements right when they are purchased and put to use, instead of spreading the deduction over several years. This helps businesses make smart investments, like upgrading technology or buying new equipment, while also reducing their tax burden in the same year. For real estate investors, a method called cost segregation can be used to break down a property into different parts (like parking areas or fixtures) that can be depreciated faster than the building itself. Overall, this approach can improve cash flow and lead to meaningful tax savings.

3. Tax Domicile Change (State Tax Strategies): Many states are implementing higher taxes for wealthy individuals to compensate for the diminished federal aid. Hence, there is an increase in the number of people looking to relocate to states that do not impose any income tax, including Florida, Texas, Nevada, and New Hampshire. Moving your legal domicile means you have to establish yourself in that location through actions such as registering to vote, registering your vehicle, and changing your physician. Some individuals utilize trusts that are created within states that have favorable tax laws, such as Delaware, to lower their state income taxes without actually moving.

4. Bunching charitable gifts: The new tax rules have made charitable giving a bit less generous for top earners. Starting in 2026, you can only deduct donations that exceed 0.5% of your adjusted gross income, and those in the highest bracket see a slight reduction in the value of their deduction. Because of these limits, many people are bunching their donations, giving larger amounts in a single year rather than spreading small amounts. This allows them to surpass the threshold once and maximize the deduction. Donor-advised funds and private foundations are popular tools for managing these bunched gifts.

5. Opportunity Zones: The Opportunity Zone Program has been made permanent, with enhancements to assist rural areas. The Opportunity Zone Program provides the taxpayer with the ability to delay paying capital gains taxes as long as the taxpayer reinvests that money into qualified Opportunity Zone funds. These funds must be used to support low-income communities. 

Rural Opportunity Zones will provide some additional incentives to investors; for example, the ability to obtain a 30% reduction in the amount of taxable gain if held for five years. Timing is important with the program; generally, there is a 180-day time frame to roll over gains. The new benefits under the Opportunity Zone Program will not be available until 2027.

Don’t let an investor’s incentive to take advantage of the Opportunity Zone Program affect your investment decisions. Investors need to make sound financial decisions independent of tax savings. 

Why Consistent Tax Planning Matters:

The strategies show that tax planning is more about you being purposeful in using the current tax code than it is about finding some hidden loophole. No matter if you are a small business owner, investor, or high-income earner, utilize things such as retirement contributions, loss harvesting, timing of income, and other tools to maximize your tax efficiency.

If you do not fall into the ultra-wealthy category, that’s okay! Many of these concepts will be helpful for you too (tax-loss harvesting, retirement planning, making charitable gifts, etc.). 

Final thought 

Tax planning is not limited only to people with large earnings or running their own businesses; it is also for any person whose income involves saving and investing. It is clear that taxes are not only the concern of one day per year, so it is important that you strategically plan taxes.

Even small, steady actions, such as the right choice of investments or deductions or the optimal transaction moment, make a significant impact on your taxes. It does not mean that it is necessary to implement all the methods immediately; starting from simple measures is quite useful in order to preserve your earnings.

FAQs: Frequently Asked Questions

Question 1. When is the right time to start tax planning at the end of the year or earlier?

Answer. The best time is at the beginning of the financial year. Waiting until the last moment often leads to rushed decisions and missed opportunities. Early planning gives you more control and better results.

Question 2. Why do I still end up paying extra tax even after investing?

Answer. This usually happens when investments are not aligned properly with your tax strategy. It could also be due to overlooking things like capital gains, interest income, or timing of transactions. Tax planning needs a complete view, not just one or two investments.

Question 3. Is tax-loss harvesting really worth it if I’m not a millionaire?

Answer. Yes, it can be surprisingly worthwhile! Even if you have just a regular taxable brokerage account, selling some of your losing investments can offset your gains and potentially save you so much money in taxes in a single year. 

The COVID-19 pandemic has triggered unprecedented economic disruption of the country. In response, the federal government introduced several relief measures to support individuals, business owners, and the broader economy.

The basis for this lies in the legal understanding of how tax deadlines were treated amid the pandemic. As per the U.S. Tax Code, legally declared that disasters allow for relief in both the deadline for filing tax returns and making tax payments. So the ongoing pandemic of COVID-19 was also declared a disaster by federal authorities, effective from January 2020 till May 2023.

But even during the extended period of this pandemic, many people found themselves facing penalty fees due to late payment and late filing. This was done based on the usual procedure by the IRS at the time. However, recent legal analysis suggests that this approach may not have fully aligned with the intent of disaster relief provisions embedded in the tax code.

Understanding the legal background
The issue of tax penalties and interest during the COVID-19 pandemic came into focus after two key court cases: Abdo v. Commissioner (2024) and Kwong v. United States (2025). Both rulings found that the IRS may have applied tax deadline rules incorrectly during this period.

According to the courts, tax deadlines could have been suspended for the entire COVID-19 disaster period, which means penalties and interest charged during that time may not have been valid.

Who is eligible for this refund
People who paid some type of IRS penalty during the pandemic. According to the National Taxpayer Advocate’s office, this decision will apply to many different groups of taxpayers, including individuals, small and large businesses, estates, and trusts. So if the IRS has charged you with any of the following during the pandemic era, then you are eligible for the refund. What kind of penalties might you have paid:

Late File Penalty: If you did not file your tax return on time, the IRS assesses a late file penalty, or failure-to-file penalty, equal to 5% of any taxes due for each month the return is not filed.

Late Pay Penalty: If you also did not pay your taxes on time, the IRS assesses a late payment or failure to pay penalty that equals 0.5% of any taxes due for each month the tax was not paid.

Estimated Tax Penalties: If you did not make estimated quarterly tax payments and you are self-employed, had significant investment income, or had to file Form 2210, you have likely been assessed a penalty.

Pre-Interest Charges: For prematurely imposed interest charges, every interest charge made before December 2019 was properly treated as an interest charge, but because of this ruling, the interest incurred before the beginning of your liability may be refunded.

How to Claim an IRS Refund

Taxpayers must file an official claim with the IRS to receive a refund. By filling out IRS Form 843,
The process follows:

1. Review your tax returns and IRS account transcript(s) to ensure that you have correctly claimed all applicable tax benefits.
2. Determine whether you were charged any penalties and/or interest during the COVID-19 disaster period and whether you are entitled to receive a refund or abatement of those charges;
3. Complete and submit the appropriate claim form
4. Provide any missing supporting documentation as required.

Things to keep in mind before filing

Before you apply for your IRS refund, here are a few simple things to remember:

• Not every taxpayer will qualify, so you need to check your own records carefully
• Only penalties and interest are refundable, not the main tax amount
• The process may take time, so patience is important
• You may need professional help if your tax situation is complex

What are the deadlines?

Tax refund claims usually have a time limit. In this case, most taxpayers will need to file their claim by July 10, 2026
This date is very important. If you miss it, you may lose your chance to get your refund, even if you are eligible.

Because of this, it is always better to review your records and take action early rather than wait until the last moment.

Strategic Considerations for Taxpayers
For taxpayers weighing this option, some important factors must be considered:

• Examine past tax records in detail: Small fees or interest charges could qualify for a refund
• Don’t wait until the last minute: Be proactive and submit your claim well before deadlines
• Consult an expert if needed: Some claims might need an in-depth examination
• Keep informed of the latest news: Watch out for any changes that might affect your case

Final Thought:

The coronavirus outbreak was a tough period in many respects, including finance, health, and family life, along with tax payments. Now, recent court decisions have opened up a real opportunity for taxpayers to recover penalties and interest that may have been unfairly charged during the COVID period.
This is not just about taxes. It is all about justice for common taxpayers. The National Taxpayer Advocate, Erin Collins, has appealed to the IRS to simplify the process further and alert more taxpayers to it.

Spend a little time this week checking your IRS account. If there are any penalty charges imposed during the COVID years in your account transcript, file a Form 843 prior to the deadline date of July 10, 2026.

FAQs: Frequently Asked Questions

Question 1. When can I expect a refund once I’ve filed?
Answer. Paper claims can take anywhere from 6-12 months (or longer), depending on when they’re submitted. Patience is key; what’s most important is getting your claim in before the due date.

Question 2. What is Form 843, and why do I need it?
Answer. Form 843 is the official IRS form used to request a refund or removal of penalties and interest. You must fill out and submit this form to claim your refund.

Question 3. How do I know if I actually qualify for this refund?
Answer. Check your IRS tax transcripts for 2019–2023. If you see any Failure to File, Failure to Pay, Estimated Tax Penalty, or interest charges from 2020 to mid-2023, you likely qualify. Even small amounts are worth claiming.

Question 4. What are the deadlines to claim these IRS refunds?
Answer. You can file your claim using IRS Form 843 by July 10, 2026. Missing this deadline could mean losing your chance to receive the refund.

Question 5. Do I need a tax professional to claim the IRS refund?
Answer. It depends on your situation. If your refund amount is large or your case is complicated, getting help from a tax professional can be a good idea. But if the amount is small and your case is simple, you may be able to file the claim yourself. Just keep in mind that professional fees could reduce the benefit of a smaller refund.