Rev. Proc. 2026-35 and the 2027 inflation adjustments: Project Each Client's Year-End Bracket, QBI, and Section 179 Position From the Books Before December

The IRS released Revenue Procedure 2026-35 on November 5, 2026, and the 2027 inflation adjustments move every bracket edge, the 199A threshold, and the Section 179 cap up roughly 3%. Don't hand clients a table. Project each client's 2026 taxable income from the October books, find who sits near an edge, and decide what shifts into 2027.

Why this matters now

The Internal Revenue Service issued IR-2026-133 on 2026-11-05, announcing the tax year 2027 annual inflation adjustments for almost 70 provisions and pointing to Revenue Procedure 2026-35 for the detail. The standard deduction for joint filers rises to $33,200 from $32,200. The 32% bracket for joint filers now begins above $416,650 rather than $403,550. The top 37% rate starts above $793,650 for joint filers and $661,375 for single filers. These figures apply to tax year 2027, the returns filed in 2028.

The business figures sit deeper in the document. Current Federal Tax Developments indexed them by section on November 5: the Section 199A threshold is $416,600 for joint returns and $208,300 for all other returns, with the phase-in range ending at $566,600 and $283,300; the Section 179 limit is $2,640,000 with the phase-out beginning at $4,230,000; and the Section 448(c) gross receipts test is $33,000,000. Trade coverage from CPA Practice Advisor and others reports the headline amounts as reference tables, which is what they are.

What the coverage doesn't do is turn those tables into a November workflow for a firm with 60 business clients. The planning window is the six weeks between the October close and the last December payroll, and the 2027 thresholds are the other half of every defer-or-accelerate decision made in that window. A client who crosses an edge in 2026 may land comfortably under it in 2027 simply because the edge moved. This article is the projection procedure, run from the books, with three clients worked through.

What moved for business owners: 2026 to 2027

Most of the almost 70 provisions don't touch a business client's planning. These do. The 2026 figures come from Rev. Proc. 2025-32 and the 2027 figures from Rev. Proc. 2026-35, and the last column says which client in the worked example each one reaches.

Three things are not in this revenue procedure, and the register should say so rather than leave a blank that someone fills from a projection. The qualified tips deduction, the qualified overtime deduction, the senior deduction, and the SALT cap follow their own statutory schedules. Retirement plan contribution limits arrive in a separate IRS notice. The 2027 standard mileage rate is also a separate notice.

One firm worked through, client by client

Call the firm Harbor Ledger CPAs: 60 business clients on QuickBooks Online, the October close tied out for every client by November 15, and planning calls booked from the week after Thanksgiving through mid-December. The figures are illustrative. Harbor budgets 20 minutes per client for the projection when the close is already tied out, because the time goes into the book-to-tax bridge, not into pulling numbers.

Step one: project 2026 taxable income from the October books

The projection starts from the ledger, not from last year's return. For each client: year-to-date book net income through October, plus two months of run-rate using the average of August through October (seasonal clients use last year's November and December share of annual income instead), plus a book-to-tax bridge for the items that always differ: the 50% meals disallowance, officer life insurance, penalties, and the gap between book depreciation and the tax method. Add the owner's W-2 wages and other household income from the prior-year return, subtract the standard or itemized deduction, and the register has two numbers per client: projected taxable income before the qualified business income deduction, and projected QBI.

The first control is a tie-out, not a calculation. The year-to-date net income on the register must equal the profit and loss through October in the ledger at the moment the register is built. If anyone posts into October after that, the register is stale, which is why Harbor's close standard locks October before planning begins.

Step two: flag who sits near an edge

Three edges matter for business clients: the next bracket threshold, the 199A threshold and its phase-in range, and a Section 179 or bonus depreciation purchase whose placed-in-service date can fall on either side of December 31. Harbor flags any client within $25,000 of an edge in either direction, under both the 2026 and the 2027 figures. Of 60 clients, 11 are flagged. Those 11 get a 45-minute planning call. The other 49 get a one-page summary and no meeting, which is where the firm's time comes back.

Client A: the bracket edge

Mendez Plumbing is an S corporation whose owners file jointly. Projected 2026 taxable income after the QBI deduction is $412,000. The 32% bracket for joint filers begins above $403,550 in 2026, so $8,450 sits in the 32% band. In 2027 the same bracket begins above $416,650, which is $13,100 more room at 24% before anything else changes.

Mendez is on the cash method, so the lever is timing. Paying January's $9,000 shop insurance premium in December is deductible in 2026 under the 12-month rule. On the books it is a prepaid asset at December 31, a point-in-time balance, debit prepaid insurance and credit cash. On the cash-basis return it is a 2026 deduction, so the bridge carries a negative $9,000 adjustment in 2026 that reverses in 2027. Taxable income lands at $403,000, under the edge. The saving is $8,450 at the 8-point difference between 32% and 24%, or $676, and the rest is timing. Small, but it took five minutes once the register existed.

The register also records why the 199A threshold is harmless for Mendez. Taxable income before the QBI deduction is $472,400, which is $68,900 past the $403,500 joint threshold and 46% through the $150,000 phase-in range. Plumbing is not a specified service trade, so what phases in is the W-2 wage and property limit, not a loss of the deduction. Mendez pays $540,000 of W-2 wages. Half of that is $270,000, far above 20% of its $302,000 of QBI, so the limit never binds. Writing that down means the reviewer doesn't re-derive it.

Client B: the 199A threshold

Patel Advisory is a single-member consulting LLC, a specified service trade, and Dr. Patel files single. Projected 2026 taxable income before the QBI deduction is $214,000 and projected QBI is $180,000. The 2026 threshold for other returns is $201,750 with a $75,000 phase-in range, so the deduction is gone at $276,750. She is $12,250 into the range, 16.3% of the way, so she loses 16.3% of her tentative $36,000 deduction, which is $5,880.

Patel is cash basis. Sending December's invoices on January 2 instead of December 20 moves $12,250 of collections into 2027 and puts her 2026 taxable income at $201,750, exactly at the threshold. The full $36,000 deduction is restored, worth $1,411 at her 24% rate, and the $12,250 itself is taxed in 2027 rather than 2026. The 2027 threshold for other returns is $208,300, so if her 2027 income is otherwise flat, the deferred amount pushes her $5,700 into next year's range instead of $12,250 into this year's. The hit is smaller, not zero, and the register says so.

If Patel were on the accrual method, moving the invoice date would move nothing. Revenue is earned when the service is performed, and the receivable at December 31 is income whether or not the cash has arrived. For accrual clients the levers sit on the expense side, and the planning call is a different conversation.

Client C: Section 179 and the placed-in-service date

Ridge Fabrication, an S corporation, has a $2,700,000 CNC line on order with delivery scheduled for December 18 and installation sign-off expected December 29. Other 2026 additions total $300,000, so total property placed in service is $3,000,000, under the $4,090,000 point where the 2026 Section 179 limit starts to shrink. The 2026 cap of $2,560,000 doesn't cover the whole order and the 2027 cap of $2,640,000 wouldn't either. Federally the excess falls to bonus depreciation, so the cap matters mostly for state returns, and which states follow the federal Section 179 limit and which follow bonus is a state-by-state column on the register, not an assumption.

What the firm controls is evidence of the date. Section 179 and bonus depreciation both turn on when the asset is placed in service, meaning installed and ready for its intended use. The fixed asset addition posts on that date, debit equipment and credit cash or the equipment loan, and the invoice date and the payment date don't change the answer. If the install slips to January 4, the deduction belongs to 2027 under the 2027 cap, and the 2026 projection loses $2,700,000 of deductions it was counting on. Harbor's register carries a column for the installer's sign-off as the placed-in-service evidence, and the planning call tells Ridge's owner that the sign-off date is the number that matters.

Ridge also sits near the 448(c) test. Gross receipts were $30,500,000 in 2024 and $32,400,000 in 2025, and the projection says $35,000,000 for 2026. The three-year average is $32,633,333, under the $33,000,000 that applies to tax years beginning in 2027, so Ridge keeps the small business exemptions from inventory capitalization and the business interest limitation for one more year. The 2028 test will average 2025 through 2027, and at Ridge's growth rate it likely crosses, which goes on the planning calendar now so the method change isn't a surprise.

Step three: the firm-wide items

Two caps change on the first January payroll for every client with a cafeteria plan or a commuter benefit: the health FSA salary reduction cap moves to $3,500 with a $700 carryover, and the qualified transportation fringe moves to $350 a month. Harbor adds them to the same January checklist that carries the 2027 Social Security wage base. The annual gift exclusion rises to $20,000, which matters for the four clients gifting S corporation shares to the next generation on a schedule.

Accounting controls for the 2027 inflation adjustments

Source data: the profit and loss through October by client as tied out at the close; the trial balance supporting it; the prior-year return for household income, filing status, and the book-to-tax bridge items; the fixed asset register and purchase orders for any 2026 addition over the firm's materiality line; the three prior years of gross receipts for 448(c); and the two revenue procedures, 2025-32 for 2026 and 2026-35 for 2027, read from the IRS documents rather than from a projection article.

Calculation: a fixed sequence anyone can rerun. Year-to-date book net income plus two months of run-rate, plus the bridge, plus household income, less the deduction, gives taxable income before the QBI deduction. Compare it to the 199A threshold and compute the phase-in percentage and the wage limit where it applies. Subtract the QBI deduction to get the bracket position and compare it to the 2026 and 2027 edges. Book income is a flow for the period; the prepaid asset, the receivable, and the fixed asset addition are point-in-time balances at December 31, and the bridge is what reconciles the two views. An accelerated payment is a debit to the expense or prepaid account and a credit to cash; a deferred invoice is no entry at all for a cash-basis client and a receivable with income recognized for an accrual client. Those are different postings, not different opinions.

Review: a second preparer reruns the register from the same closed ledger and lands on the same taxable income for every client; the register's year-to-date net income agrees to the profit and loss through October to the dollar; every 2027 figure traces to a section of Rev. Proc. 2026-35; the 199A test uses taxable income before the QBI deduction and the bracket test uses taxable income after it; every placed-in-service date on the register has evidence attached; and the retirement limit column is blank until the IRS notice is out.

Decision: the engagement partner owns the projection method and the materiality line for flagging clients. The client owns every defer-or-accelerate decision and the cash it requires, and the planning call ends with a written list of what the client chose. The preparer owns the bridge and the tie-out. Nobody at the firm decides when Ridge's CNC line is installed, which is exactly why the register carries the evidence.

Limits and common mistakes

A projection is a flow estimate frozen at a point in time. November and December actuals will replace the run-rate, so the register is rerun after the November close and the flagged list can change. Build the rerun into the calendar rather than treating the October version as the plan.

Deferral is timing, not elimination. The $12,250 Patel moves into 2027 is taxed in 2027, and the right comparison is her marginal rate and 199A position in both years, not the 2026 saving alone. A client expecting a much higher 2027 should sometimes accelerate income instead.

Rev. Proc. 2026-35 applies to tax years beginning in 2027. The 2026 returns prepared this spring use Rev. Proc. 2025-32. The most common error in a two-year register is a 2027 figure pasted into a 2026 column.

The 199A threshold is tested on taxable income before the QBI deduction, and the owner's S corporation wages count in that taxable income but not in QBI. A register that tests the threshold against business profit alone will flag the wrong clients.

Retirement plan limits, the standard mileage rate, and health savings account limits come in separate IRS notices. Leave those columns blank until the notices are published; a projection that was right about the brackets can still be wrong about a deferral limit.

Harbor Ledger, Mendez, Patel, and Ridge are illustrative. The thresholds are from IR-2026-133 and Rev. Proc. 2026-35 as released on November 5, 2026, and any later correction to the revenue procedure supersedes the figures here.

Frequently Asked Questions

What are the 2027 inflation adjustments in Rev. Proc. 2026-35?

They are the annual cost-of-living changes to almost 70 tax provisions for tax year 2027, announced by the IRS on November 5, 2026. The standard deduction rises to $33,200 for joint filers and $16,600 for single filers, the 32% bracket begins above $416,650 joint and $208,325 single, the Section 199A threshold rises to $416,600 joint and $208,300 for other returns, and the Section 179 limit rises to $2,640,000.

Do the 2027 figures apply to the return filed in April 2027?

No. Rev. Proc. 2026-35 applies to tax years beginning in 2027, which are the returns filed in 2028. The 2026 returns filed in spring 2027 use the figures in Rev. Proc. 2025-32. Year-end planning in late 2026 uses both: the 2026 figures to measure where a client is now and the 2027 figures to measure where deferred income will land.

What is the Section 199A threshold for 2027?

The threshold amount is $416,600 for married filing jointly and $208,300 for all other returns, with the phase-in range ending at $566,600 and $283,300. The test uses taxable income before the qualified business income deduction, so an S corporation owner's wages count toward it even though they are not qualified business income.

What is the Section 179 limit for 2027?

The maximum Section 179 deduction for tax years beginning in 2027 is $2,640,000, reduced dollar for dollar once total Section 179 property placed in service in the year exceeds $4,230,000. The year the deduction belongs to is decided by the placed-in-service date, meaning when the asset is installed and ready for use, not by the invoice or payment date.

Are the 2027 401(k) contribution limits in this revenue procedure?

No. The IRS announces retirement plan contribution limits in a separate notice, and Rev. Proc. 2026-35 does not contain them. A firm's year-end register should leave the retirement limit column blank until that notice is published rather than filling it from a projection.

Once the year-end projection is built from the closed October ledger for every client rather than reconstructed in tax software one client at a time, the 2027 numbers stop being a table to forward and become a flagged list the firm can act on in the six weeks it has. FinBoard reads every client's QuickBooks file into one view, so a firm can see year-to-date net income and run-rate by client on a single page, spot who is within reach of a bracket or 199A edge, and drill from the projection to the postings behind it. See how FinBoard puts every client's year-end position on one page.