Taxes Then and Now: Making Sense of the Tax Code
February 2026
Letter to Our Clients
"In this world, nothing can be said to be certain, except death and taxes." - Benjamin Franklin
From the very beginning, organized societies have had taxes. Shepherds once paid rulers based on the size of their flocks. In ancient Egypt, taxes were tied to farmland and the height of the Nile’s annual flood. In Athens, special wartime taxes were imposed and, in rare cases, refunded after victory.
The United States was in-born from a movement resistance to taxation without representation, and early leaders believed a permanent income tax violated the Constitution. Abraham Lincoln supported a temporary income tax to fund the Civil War. The Revenue Acts of 1861 and 1862 introduced a graduated tax ranging from 3 percent to 5 percent on income above $600. When the war ended, the tax did too.
In 1913, the Sixteenth Amendment granted Congress the authority to tax income from whatever source derived. The highest marginal rate that year was 7 percent. Just five years later, it rose to 77 percent.
Today, the federal tax code spans roughly four million words. When regulations and guidance are included, it exceeds ten million. For perspective, the Bible contains fewer than 800,000 words. The complexity in our tax code did not arrive all at once, it accumulated. New rules continually get layered on top of old ones and it is rare that anything is removed.
Tax Brackets
One of the most common points of confusion is how tax brackets actually work. Consider a single filer in 2026 earning $202,000, with no dependents and taking the standard deduction. The standard deduction of $16,100 reduces taxable income to $185,900. That places the highest marginal rate at 24 percent, not 32 percent.
More importantly, that top rate applies only to the last dollars earned. The first $12,400 is taxed at 10 percent. The next $38,000 at 12 percent. The next $55,300 at 22 percent. Only the remaining portion is taxed at 24 percent. When added together, the total federal income tax bill comes in around $36,000, not the $60,000 or $65,000 figure people often fear when they hear the words “higher bracket.”
Alternative Minimum Tax
Another quirk of the system appears through the Alternative Minimum Tax. The AMT does not replace the regular tax system. It runs alongside it. Some taxpayers must calculate their taxes twice, once under the regular rules and once under the AMT, and then pay whichever amount is higher. Certain deductions that are perfectly acceptable under the regular system are limited or eliminated under AMT. That is why it often appears after a strong income year, the exercise of incentive stock options, or the accumulation of deductions.
Gifting
Gifting is another area where misunderstanding often leads to hesitation. In 2026, an individual may gift $19,000 per recipient per year without any reporting requirement. A married couple may gift $38,000 per recipient. Gifts above those amounts do not automatically result in tax. In most cases, the excess is simply reported and applied against the lifetime estate and gift exemption, currently $15 million per person. Only after that exemption is exhausted does gift tax apply, at a federal rate of 40 percent. In practice, actual gift tax is rare, but uncertainty around the rules often causes families to delay thoughtful gifting altogether.
While we do not provide tax or legal advice, we are always happy to help bring clarity. We can walk through these concepts with you, help you frame questions, or coordinate conversations with your tax professional.
Franklin was right, taxes are inevitable. Confusion does not have to be.
As always, please let us know if you have any questions or if we can help you think through anything further.
In abundance,
Brandon Hatton
CEO, Chief Investment Officer
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Letter to Our Clients
"In this world, nothing can be said to be certain, except death and taxes." - Benjamin Franklin
From the very beginning, organized societies have had taxes. Shepherds once paid rulers based on the size of their flocks. In ancient Egypt, taxes were tied to farmland and the height of the Nile’s annual flood. In Athens, special wartime taxes were imposed and, in rare cases, refunded after victory.
The United States was in-born from a movement resistance to taxation without representation, and early leaders believed a permanent income tax violated the Constitution. Abraham Lincoln supported a temporary income tax to fund the Civil War. The Revenue Acts of 1861 and 1862 introduced a graduated tax ranging from 3 percent to 5 percent on income above $600. When the war ended, the tax did too.
In 1913, the Sixteenth Amendment granted Congress the authority to tax income from whatever source derived. The highest marginal rate that year was 7 percent. Just five years later, it rose to 77 percent.
Today, the federal tax code spans roughly four million words. When regulations and guidance are included, it exceeds ten million. For perspective, the Bible contains fewer than 800,000 words. The complexity in our tax code did not arrive all at once, it accumulated. New rules continually get layered on top of old ones and it is rare that anything is removed.
Tax Brackets
One of the most common points of confusion is how tax brackets actually work. Consider a single filer in 2026 earning $202,000, with no dependents and taking the standard deduction. The standard deduction of $16,100 reduces taxable income to $185,900. That places the highest marginal rate at 24 percent, not 32 percent.
More importantly, that top rate applies only to the last dollars earned. The first $12,400 is taxed at 10 percent. The next $38,000 at 12 percent. The next $55,300 at 22 percent. Only the remaining portion is taxed at 24 percent. When added together, the total federal income tax bill comes in around $36,000, not the $60,000 or $65,000 figure people often fear when they hear the words “higher bracket.”
Alternative Minimum Tax
Another quirk of the system appears through the Alternative Minimum Tax. The AMT does not replace the regular tax system. It runs alongside it. Some taxpayers must calculate their taxes twice, once under the regular rules and once under the AMT, and then pay whichever amount is higher. Certain deductions that are perfectly acceptable under the regular system are limited or eliminated under AMT. That is why it often appears after a strong income year, the exercise of incentive stock options, or the accumulation of deductions.
Gifting
Gifting is another area where misunderstanding often leads to hesitation. In 2026, an individual may gift $19,000 per recipient per year without any reporting requirement. A married couple may gift $38,000 per recipient. Gifts above those amounts do not automatically result in tax. In most cases, the excess is simply reported and applied against the lifetime estate and gift exemption, currently $15 million per person. Only after that exemption is exhausted does gift tax apply, at a federal rate of 40 percent. In practice, actual gift tax is rare, but uncertainty around the rules often causes families to delay thoughtful gifting altogether.
While we do not provide tax or legal advice, we are always happy to help bring clarity. We can walk through these concepts with you, help you frame questions, or coordinate conversations with your tax professional.
Franklin was right, taxes are inevitable. Confusion does not have to be.
As always, please let us know if you have any questions or if we can help you think through anything further.
In abundance,
Brandon Hatton
CEO, Chief Investment Officer
