Preparing for the 2026 Filing Season: Key Income Tax Considerations for Financial Institutions 

Early-year tax planning is always important for financial institutions, but the 2026 filing season brings added complexity. Regulatory expectations continue to sharpen, the effects of 2025 transactions carry through to the return, and examination priorities from federal and state regulators increasingly intersect with tax reporting, documentation, and internal controls. 

A focused tax strategy in January helps institutions get ahead of year-end adjustments, strengthen compliance, and reduce surprises later in the filing season. 

Section 163(j) and Interest Expense Limitation Review 

Financial institutions continue to monitor the impact of Section 163(j). While most institutions are not directly limited by the interest expense rules, certain subsidiaries, holding company structures, or diversified activities may still fall within the scope of the provision. A January review helps ensure proper classification and documentation, reducing the risk of late recharacterizations that could delay filings or raise examiner questions. 

Evaluating Bonus Depreciation and Cost Recovery Options 

Recent tax legislation reinstated 100 percent bonus depreciation and increased Section 179 expensing thresholds retroactive to 2025. These changes significantly expand accelerated cost recovery opportunities related to property additions, branch improvements, cybersecurity infrastructure, and technology investments. Reviewing 2025 capital expenditures and evaluating assets eligible for bonus depreciation, Section 179 expensing, or cost segregation can create meaningful timing benefits and support capital planning strategies as institutions prepare for the 2026 filing season. 

Reviewing Loan Loss Reserve Activity and Tax Treatment 

Provision activity in 2025 directly affects the 2026 tax position. Financial institutions should revisit reserve methodologies, validate conforming schedules, and confirm that tax reporting aligns with current rules. With regulators continuing to emphasize credit risk, particularly in commercial real estate and consumer portfolios, this review also supports consistency between tax filings, financial reporting, and examination expectations. 

Compliance Checks for Executive Compensation and Fringe Benefits 

IRS scrutiny of compensation structures remains steady, and compensation governance continues to draw attention from regulators focused on risk management and transparency. January is an ideal time to confirm that incentive plans, deferred compensation arrangements, and fringe benefits comply with Sections 162(m), 280G, 409A, and related requirements. Early reviews reduce the likelihood of restatements or amended returns and support stronger documentation for both tax and examination purposes. 

State Tax Planning for Multi-State Financial Institutions 

As financial institutions expand operations, digital services, and vendor relationships across state lines, state tax exposure continues to grow more complex. Changes in nexus standards and apportionment rules may be influenced by where technology, data, and third-party services are located. A January diagnostic can help identify expanding filing obligations and evaluate whether operational changes affect state tax outcomes. 

Preparing for Information Reporting Requirements 

The start of the year is a critical checkpoint for Forms 1099, 3921, 3922, W-2, and other required filings. Errors in information reporting often lead to avoidable penalties and increased scrutiny. Given heightened regulatory focus on cybersecurity, third-party risk, and operational resilience, institutions should also confirm that data feeds, vendor files, and system integrations supporting tax reporting are accurate, secure, and well documented before filing deadlines. 

How Brady Martz Supports Financial Institutions 

Financial institutions operate in a fast-moving regulatory environment that demands accuracy, foresight, and adaptability. Our team works with financial institutions throughout the region to navigate income tax requirements, plan for legislative changes, and strengthen compliance efforts. We provide tax planning and preparation, cost segregation studies, payroll tax support, and strategic guidance tailored to institutions balancing growth, risk management, and regulatory expectations. 

If you want to prepare more effectively for the 2026 filing season, we can help you identify opportunities, manage risk, and stay aligned with changing tax and regulatory requirements.