State taxation impacts how much of your nest egg is truly yours. It shapes your monthly budget during your golden years and can give you a clearer sense of your long-term financial security.

And depending on where you live, your state may not tax retiree income at all. This can save you thousands on Social Security benefits taxes, pension payouts, and 401(k) withdrawals in retirement.

So check out these five quick questions to test your knowledge and see if your state makes the cut.

Good luck!

Remember that no matter where you live, federal income tax still applies. You may want to consult a tax professional for advice tailored to your specific financial situation.

Explore More

• How All 50 States Tax Retirees
• Test Your Knowledge of IRS Retirement Tax Rules
• States That Don't Tax Retirement Income in 2026
• Tax Breaks for Veterans: Retirement Pay, Disability and State Tax Exemptions

1. Extended tax relief for an uninsured car

Question: I live in the Midwest, and my car was totaled by a tornado earlier this year. I didn't have insurance. Can I deduct the damage to my car on my Form 1040?

Joy Taylor: Yes, you should be able to. Individuals can deduct personal casualty losses that are not reimbursed by insurance to the extent those uninsured losses are attributable to federally declared disasters which affect a wide area. Your loss is equal to the smaller of the damaged property's adjusted basis or decline in value, less any insurance proceeds you receive or expect to receive.

Before the Senate left for its August recess, it approved a House-passed bill that extends tax relief that was given to victims of disasters that occurred in 2020 to mid-2025. The legislation applies to disasters beginning before January 1, 2027. We expect President Trump to sign this bill within the next few weeks.

It allows individuals to deduct uninsured personal losses in excess of a $500 threshold without regard to the offset —10% of adjusted gross income (AGI) — that generally applies. This tax break is available for taxpayers who claim the standard deduction and filers who itemize on Schedule A. The IRS refers to these losses as "qualified disaster losses."

2. Deducting disaster losses in a prior year

Question: My home suffered damage in a federally declared disaster a couple of months ago. I heard I can deduct the loss on my 2025 Form 1040, even though the disaster occurred in 2026. Is this true?

Joy Taylor: Yes. Individuals can opt to take a loss for the disaster year or the year immediately preceding the disaster. Since the disaster damaged your home this year, you can claim the loss on your 2026 return or your 2025 return, which gives you flexibility to claim the loss in the year that delivers the greatest benefit.

If you decide to claim it for 2025 and you have already filed your 2025 return, you can amend your tax return by filing Form 1040-X. Note: For this purpose, the filing due date for a 2025 amended return is six months after the normal due date for filing your return (without extensions) for the year in which the loss took place. So for 2026 disaster losses, you would need to file an amended 2025 return by October 15, 2027.

3. IRS safe harbors for calculating the disaster loss

Question: A wildfire damaged my home and lots of personal items earlier this year. Does the IRS provide any help for taxpayers who are trying to figure out what losses they can deduct on their Form 1040?

Joy Taylor: Yes. Computing the amount of loss to your home or belongings can be difficult. Luckily, the IRS has multiple safe harbors to help you with this calculation.

For example, one method lets a homeowner with casualty losses of $20,000 or less take the lesser of two repair estimates to determine the decrease in the home's value. Another has a table to compute the replacement cost of personal belongings destroyed in the federally declared disaster.

You can find out more about these safe harbors in IRS Publication 547 and IRS Revenue Procedure 2018-08.

4. Lost tax returns and calling the IRS

Question: My house was destroyed in a wildfire. I lost all of my prior-year tax returns. How can I replace them?

Joy Taylor: Individuals who lost prior-year tax returns in a hurricane, fire or other disaster have multiple ways to get a tax transcript, which is a summary of key tax information.

• You can view, print or download your tax transcript in your IRS individual online account if you have one.
• You can call the IRS’s automated phone transcript line at 800-908-9946 and follow the prompts or mail Form 4506-T to the IRS.
• You can get a paper copy of your full return by mailing Form 4506 to the IRS, but that would take much longer.

The IRS has a dedicated phone line for disaster-related questions. That number is 866-562-5227. The agency also has FAQs for disaster victims on its website.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Estimated Tax Payments and Withholding
• Ask the Editor: Questions on Selling a Home
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Tax Rules for Landlords

The high cost of living is part of the problem, but President Donald Trump's second administration has also introduced major student loan repayment changes, including the new Repayment Assistance Plan.

While attention usually focuses on monthly payments, important student loan tax consequences can be overlooked. Some can work in your favor, like the student loan interest deduction, while others, surrounding tax filing status or employer benefits, can be complex.

If that weren't enough to worry about, 2026 marks the return of federal taxes on some forgiven student loan debt. Here's more to know about that shift and navigating other student loan "tax traps."

Student loan repayment changes

Before we dive into student loan tax issues, it helps to look at how much the student loan landscape has changed in recent years.

New repayment options took effect on July 1, 2026, including the Repayment Assistance Plan (RAP) and Tiered Standard Plan. Other repayment plans have been restricted, and various rules governing which loans qualify for which plans have also changed.

The Trump administration has also pursued changes involving student loan forgiveness while tightening loan limits for some graduate and professional degree programs and adjusting collections processes.

Those shifts all matter, especially with average student loan monthly payments reportedly hovering around $430.

Avoiding student loan tax traps in 2026

It's important to note that this is not an all-inclusive list of potential tax issues and concerns surrounding federal student loans. It highlights some key concerns merely for educational purposes.

And because every borrower's situation is different, it's important to consult a tax or financial advisor familiar with your situation to determine the best course of action to potentially reduce your tax liability and student loan payment amounts.

1. The student loan “marriage penalty”

If you’re married with student loans, your tax filing status can affect both your student loan payment calculation and your tax bill. This is especially important this year because of the new federal student loan Repayment Assistance Plan (RAP).

• RAP uses a borrower's income and family information to determine the federal student loan monthly payment.
• For married borrowers, tax filing status can affect whether the calculation includes a spouse's income.

That creates a potentially significant trade-off for some couples.

Consider a married couple with $100,000 of combined adjusted gross income (AGI), split evenly between the two spouses. If only one spouse has federal student loans, filing jointly would put the couple's full $100,000 of income into the RAP calculation.

Under RAP's payment schedule, that could translate to a base payment of roughly $750 a month. If the borrower instead files separately, only the borrower's $50,000 in income would be used, potentially resulting in a base payment of about $167 per month. That's a difference of roughly $583 a month — or nearly $7,000 a year.

But that lower student loan payment comes with a glitch: Filing separately can increase a couple's income tax bill and generally makes them ineligible for the student loan interest deduction and/or other potentially valuable tax deductions or credits.

So the couple would need to compare the potential $7,000 in annual student loan savings with the additional taxes and lost tax benefits of filing separately.

Disclaimer: This is a fictional illustrative calculation, not a prediction of what every borrower of $50,000 or $100,000 will pay. RAP also reduces payments for borrowers with dependents.

Remember:

• Married taxpayers who file separately generally cannot claim the student loan interest deduction.
• Other federal tax credits and deductions can also be limited or unavailable to married couples filing separately.
• That means borrowers shouldn't decide on filing status just by looking only at their student loan payment.

It’s good to consult with a trusted tax professional who can help you select the best filing status for you.

2. Taxes on student loan forgiveness

The idea of having the federal government forgive your student loan debt can be exciting. But if you anticipate having your loan debt forgiven in 2026, that relief could come with tax liability.

Why? A little history: During the pandemic, the American Rescue Plan Act (ARPA) temporarily excluded certain student loan debt discharged between 2021 and 2025 from federal taxable income.

• However, that broad temporary exclusion expired at the end of 2025.
• As a result, some borrowers whose student debt is forgiven or discharged this year (2026) could face federal income tax on the canceled amount.

Keep in mind: Whether forgiven student debt is taxable at the federal level depends on when and why the debt was discharged and whether a specific exception or exclusion applies.

• For example, the IRS says certain types of forgiveness and discharge remain excluded from federal taxable income, including Public Service Loan Forgiveness, Teacher Loan Forgiveness, and certain discharges due to death or total and permanent disability.
• Borrowers who are insolvent when debt is canceled may also be able to exclude some or all of the canceled amount under general cancellation-of-debt rules.

But…state taxes can add a wrinkle. States don't necessarily follow the federal tax treatment of forgiven student debt. So whether your state will tax your forgiven student loan amount may depend on the type of forgiveness and whether your state conforms to federal tax law.

If you expect a significant amount of debt to be discharged this year, try to understand the tax treatment before the forgiveness takes place. That might give you time to set aside money, adjust withholding, or make estimated tax payments rather than being surprised when tax season rolls around.

3. Overlooking the student loan interest deduction

Student loans aren't all negative for your taxes. One commonly overlooked benefit is the federal student loan interest deduction.

• Eligible borrowers can deduct up to $2,500 of interest paid on qualified student loans during the year.
• The deduction is available even if you don't itemize deductions, although income limitations and other eligibility requirements apply.

The student loan interest tax deduction can be easy to miss because it doesn't reduce your tax bill dollar-for-dollar. Instead, it reduces the amount of income subject to federal income tax.

Your loan servicer generally reports qualifying interest payments on Form 1098-E, Student Loan Interest Statement. But receiving the form isn't enough to establish eligibility for the tax break. Your income, filing status, and other circumstances come into play.

The student loan deduction can also interact with the filing-status decision some married borrowers face.

• As mentioned, married taxpayers who file separately generally cannot claim the student loan interest deduction.
• If you're a couple considering filing separately to reduce an income-driven student loan payment, you should carefully consider the tax trade-offs.

4. Missing out on tax-free employer student loan assistance

Under federal educational assistance rules, employers can provide up to $5,250 a year in tax-free educational assistance, including qualifying payments toward an employee's student loans.

The 2025 Trump/GOP tax law made this student loan provision permanent.

• But there is an important distinction: This isn't a tax deduction an individual borrower can claim on their own.
• The employer has to offer a qualifying educational assistance program.

It’s also important to note that employer educational assistance and tuition reimbursement are different.

Educational assistance programs can cover a broader range of expenses, including tuition, fees, books, supplies, and student loan repayments. Tuition reimbursement programs, on the other hand, typically cover only tuition and related expenses for courses taken while employed.

Check with your employer if you’re unsure about education-related benefits they do or don’t offer.

5. Skipping retirement contributions while paying student loans

Student loan payments can also affect your retirement savings even if your employer doesn't directly help pay the loans.

Under the SECURE 2.0 Act, employers can treat certain qualified student loan payments as elective deferrals for purposes of making matching contributions to a workplace retirement plan.

That means some borrowers can receive an employer retirement match based on their student loan payments even if they're not making equivalent contributions to the retirement account themselves.

• To qualify, you must be making student loan payments and have a direct legal obligation to repay the loan (guarantors do not qualify).
• Parents paying installments on Parent PLUS loans* taken out for their children's education are also eligible.
• Total matched loan payments and direct 401(k) contributions combined cannot exceed the annual federal IRS deferral limit ($24,500 for 2026, excluding catch-up contributions).

The provision could help address an increasingly common financial dilemma: Some people with student loan debt might not have enough money to make student loan payments and, at the same time, contribute enough to a 401(k) to receive an employer match.

As Kiplinger recently reported: "According to the American Institute of CPAs (AICPA), over half (53%) of personal and parent borrowers say student debt directly hinders their ability to save for retirement. For these households, the default reaction may be to reduce or even pause monthly 401(k) contributions."

But this is optional for employers. Not every workplace retirement plan offers student loan matching, and the workplace plan's specific rules determine which payments qualify and how the match is calculated.

*Also keep in mind that Parent PLUS loans (and consolidation loans containing Parent PLUS loans) are excluded from the Repayment Assistance Plan (RAP). These loans are now generally at $20,000 per year per student (with a $65,000 lifetime limit).

Check your employer retirement plan documents or ask your benefits administrator whether student loan payments qualify for matching contributions.

Related

• A Little-Known Tax-Free Way to Help Pay Your Student Loan
• Don't Miss the $2,500 Student Loan Tax Break
• What's in the 2025 Trump Tax Bill?
• The Silent 401(k) Drain Costing Thousands in Retirement Growth

1. Is there still an EV credit?

Question: I am planning to buy an electric vehicle for personal use. Can I get a federal income tax credit for buying the car?

Joy Taylor: No. Unfortunately, the electric vehicle tax credit has expired. The up-to-$7,500 tax credit for buying a new EV and up-to-$4,000 tax credit for buying a used EV expired for vehicles bought after September 30, 2025. Last year's One Big Beautiful Bill repealed this popular tax break.

2. What's the IRS's standard mileage rate?

Question: I am a self-employed real estate agent, and I use my car in my business. Each year, on Schedule C of Form 1040, I claim the IRS's standard mileage allowance as a deduction for my business driving. What is the standard mileage rate for 2026?

Joy Taylor: This year, calculating your mileage expense using the IRS's standard mileage rate is a bit more complicated than normal. For your business driving from January 1 through June 30, the rate is 72.5¢ per mile. The rate increases to 76¢ a mile for business driving from July 1 through December 31. The IRS opted to increase the standard mileage allowance due to higher gas prices at the pump caused by the U.S. war with Iran.

Note that the IRS also increased the standard mileage rate for medical travel to 23.5¢ a mile for the last six months of 2026. The rate is 20.5¢ a mile for January 1 through June 30, 2026.

3. Bonus depreciation for buying a new business vehicle

Question: I am self-employed and am planning to buy a new vehicle this year that I will use 100% in my business. Can you please tell me what tax breaks I might be eligible for by purchasing the auto?

Joy Taylor: Buyers of business vehicles get generous tax breaks, such as the following:

• If you buy a heavy SUV used for business and place it in service after January 19, 2025, then you can write off the full cost of the vehicle because of 100% first-year bonus depreciation.
• If you buy a big truck and put it into use this year, you can expense up to 100% of the cost (subject to the limit that the total amount expensed cannot exceed the taxable income from your business).
• For other passenger automobiles bought and placed in service this year, you can take annual depreciation deductions. With bonus depreciation, you can deduct up to $20,300 in 2026, $19,800 in 2027, $11,900 in 2028, and $7,160 in each year thereafter. Absent bonus depreciation, you can deduct up to $12,300 in 2026, $19,800 in 2027, $11,900 in 2028 and $7,160 in each succeeding year.
• If you finance the purchase of your business vehicle, you can deduct the interest that you pay each year on Schedule C.
  
  Read more: Tax breaks for the self-employed.

4. Deductions when buying an auto for personal use

Question: I bought a car earlier this year for personal use. I took out a loan from the auto dealership to finance the car. Can I take a tax deduction for the interest that I pay each year on the loan?

Joy Taylor: It depends. Last year's One Big Beautiful Bill gave individuals a temporary deduction of up to $10,000 a year for interest paid on loans to buy a new vehicle for personal use. This break kicked in for 2025 tax returns filed this year and ends after 2028, unless lawmakers agree to extend it. It is available to people who itemize on Schedule A of Form 1040 and to those who claim standard deductions. Filers use Part VI of Schedule 1-A to figure the deduction. There are several requirements to take this deduction:

• Only interest paid on the purchase of a new qualified passenger vehicle is eligible for the deduction. A qualified passenger vehicle is a car, minivan, van, SUV, motorcycle, or pickup truck with a gross vehicle weight rating of less than 14,000 pounds.
• Final assembly of the vehicle must take place in the U.S.
• The vehicle must be bought for personal use.
• You must purchase the vehicle in 2025 or later. So, for example, if you financed the cost of a vehicle that you bought in 2024 for personal use, you cannot deduct the interest that you pay on the car loan.
• You cannot deduct interest paid on a loan to buy a used vehicle.
• The tax write-off begins to phase out at modified adjusted gross income (AGI) over $200,000 on joint returns and $100,000 on other returns and ends at modified AGI above $250,000 on joint returns and $150,000 on others. Modified AGI is AGI shown on line 11 of the Form 1040 plus any foreign earned income exclusion, foreign housing exclusion, and certain income excluded because it was received from sources in Puerto Rico, Guam, American Samoa or the Northern Mariana Islands.
• The lender must file an information return with the IRS reporting the amount of interest received from the buyer of the vehicle and send a copy of that return to the purchaser. Note that the IRS provided some transitional relief on this requirement for 2025.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: Estimated Tax Payments and Withholding
• Ask the Editor: Questions on Selling a Home
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Tax Rules for Landlords

The SALT deduction is larger than before 2025, and this year's limit gets another increase due to scheduled inflation adjustments. These changes could allow some taxpayers to deduct substantially more of their property and state income taxes than they could under the $10,000 cap that had been in place for years.

Here's more to know.

New SALT tax deduction 2026 limit

The SALT deduction allows taxpayers who itemize to subtract certain state and local taxes from their federal taxable income.

For the 2026 tax year, taxpayers who itemize can deduct up to $40,400 in qualifying state and local taxes. The limit is $20,200 for married couples filing separately

That's a $400 increase from the $40,000 limit that applied for the 2025 tax year.

• The deduction can include qualifying state and local income taxes, sales taxes and property taxes, subject to the overall limit.
• Taxpayers generally can deduct either state and local income taxes or sales taxes, but not both.

The expanded limit is particularly notable for homeowners because property taxes can account for a significant portion of the annual cost of owning a home. Under the old rules, taxpayers could be limited to a $10,000 SALT deduction even if they paid far more in state and local taxes.

Higher-income SALT deduction phaseout

But…keep in mind that the $40,400 deduction isn't available in full to every taxpayer.

• For 2026, the expanded SALT deduction begins to phase down when modified adjusted gross income (MAGI) exceeds $505,000, or $252,500 for married couples filing separately.
• The deduction is reduced by 30% of the amount by which income exceeds the applicable threshold.
• The reduction can't push the SALT deduction below $10,000, or $5,000 for married couples filing separately.

That means some higher-income taxpayers can still claim a SALT deduction, even after the expanded portion of the benefit has phased out.

Yes, you still have to itemize

The higher SALT cap doesn't mean every homeowner gets a $40,400 tax deduction. (SALT is an itemized deduction, so taxpayers need to compare their itemized deductions with the standard deduction.)

For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.

For some homeowners, property taxes, combined with state income taxes, mortgage interest, and other deductible expenses, could make itemizing worthwhile. For others, the standard deduction may still provide the larger tax benefit.

And remember: A tax deduction isn't a dollar-for-dollar reduction in taxes. It reduces the amount of income subject to tax.

The big SALT change came in 2025

The 2026 $40,400 SALT cap is part of a temporary expansion created by the Trump/GOP 2025 tax law overhaul.

First, a little background: Before 2018, there was no limit on the amount that could be deducted. But the 2017 Tax Cuts and Jobs Act (TCJA), also known as the "Trump tax cuts," imposed a $10,000 SALT deduction cap ($5,000 for married individuals filing separately) from 2018 through 2025.

In his second term as president and amid political debate over the cap being too low, Donald Trump called for increasing the SALT deduction limit. So, the SALT cap increased from $10,000 to $40,000 for 2025 and is scheduled to increase by 1% each year through 2029. The income threshold for the phaseout also increases by 1% annually.

Under current law, the SALT cap is scheduled to be:

2025: $40,000

2026: $40,400

2027: $40,804

2028: $41,212

2029: $41,624

2030: $10,000

*Income phase-outs for each of those years will also adjust accordingly.

Beginning in 2030, if Congress doesn't act with new legislation, the SALT deduction cap is scheduled to return to $10,000 for most taxpayers and to $5,000 for married couples filing separately.

Other homeowner tax breaks to know

SALT isn't the only federal tax break that may help offset some of the costs of owning a home.

Mortgage Interest: Homeowners who itemize generally can deduct interest paid on qualifying mortgage debt, subject to federal limits. Interest on a home equity loan or line of credit can also qualify when the money is used to buy, build, or substantially improve the home.

Mortgage Points: Points paid on a mortgage used to buy or substantially improve a primary residence may be deductible, subject to IRS requirements.

Home Sale Gains: Homeowners who sell a primary residence at a profit may be able to exclude up to $250,000 of the gain, or up to $500,000 for married couples filing jointly, if they meet the ownership and use requirements.

Homeowner tax breaks that don't carry into 2026 are the federal credits for energy-efficient home improvements. The 2025 tax law ended the Energy Efficient Home Improvement Credit and Residential Clean Energy Credit for qualifying activity after Dec. 31, 2025.

Related

• Federal Tax Brackets 2026 and Marginal Rates
• Capital Gains Tax Exclusion for Homeowners: How It Works
• The Mortgage Interest Deduction: What to Know
• New Bill Proposes $1 Million Capital Gains Exclusion for Homeowners 65-Plus

One of the costliest compromises is saving less for later in life.

According to the American Institute of CPAs (AICPA), over half (53%) of personal and parent borrowers say student debt directly hinders their ability to save for retirement. For these households, the default reaction may be to reduce or even pause monthly 401(k) contributions.

However, scaling back 401(k) savings may trigger a higher income tax bill and forfeit compounding growth — all while causing taxpayers to miss out on federal relief. Here's what you can do.

The hidden tax penalty of pausing 401(k) contributions

AICPA data shows that over 70% of parent and personal student loan recipients are worried about their ability to keep up with payments. To cope with this financial pressure, many borrowers may be quietly cutting back on long-term retirement savings.

But reducing pre-tax 401(k) contributions doesn't just free up cash; it can immediately raise your federal tax bill.

What does that look like in practice?

Suppose a family pauses their $8,000 annual pre-tax 401(k) contribution to pay down student loans.

Because 401(k) contributions lower their adjusted gross income (AGI) dollar-for-dollar, pausing them exposes $8,000 to the following potential tax traps:*

• Tax bracket creep: a higher AGI can push a portion of that income into a higher federal marginal tax bracket (e.g., jumping from 22% to 24%).
• Shrinking loan deductions: the student loan interest deduction (worth up to $2,500) phases out at higher income levels, meaning your tax break shrinks just as your taxable income rises.
• Loss of credits and Roth eligibility: a higher AGI can reduce your eligibility for child tax credits, education credits, and direct Roth IRA contribution limits.

*Note: The exact impact depends on your filing status and overall income.

In short, cutting retirement savings to cover student loans may improve cash flow today, but create a financial headache at tax time.

The SECURE 2.0 solution: the 'student loan match'

While it may feel like an all-or-nothing choice: pay off student debt or capture workplace retirement matching funds, you can actually use federal tax law to achieve both.

Thanks to the SECURE 2.0 Act, some employers now provide matching contributions to 401(k), 403(b), governmental 457(b), and SIMPLE IRA plans based on your qualified student loan payments (QSLPs).

How the rule works:

• To qualify, you must be making student loan payments and have a direct legal obligation to repay the loan (guarantors do not qualify).
• Parents paying installments on Parent PLUS loans taken out for their children's education are also eligible for this match (which may provide much-needed relief, as new caps of $20,000 per year and a $65,000 lifetime limit per student went into effect under the 2025 Trump tax bill).
• Total matched loan payments and direct 401(k) contributions combined cannot exceed the annual federal IRS deferral limit ($24,500 for 2026, excluding catch-up contributions).

Here's an example. Say your employer offers a 4% match on your 401(k), and you contribute at least 4% of your salary toward eligible student loans. Your employer can deposit the full match into your 401(k).

You also don't need to send every bank receipt to HR to qualify. Under IRS guidelines, you only need to provide a simple annual certification confirming your payment amounts and loan details.

The bottom line. You receive 100% of your employer's free retirement match money without putting a single new dollar directly into the 401(k) plan yourself. For more information, check out Kiplinger's report on the SECURE 2.0 Act.

How to find out if your employer offers a student loan match

However, not all companies offer student loan matching. So follow these steps to check your options and protect your budget:

1. Ask HR about "QSLP matching": Review your company's 401(k) plan documents to see whether student loan matching is enabled. Because employer adoption is optional, companies must proactively add this feature to their plan.
2. Scale back to a "micro-contribution" (if unsupported): If your employer doesn't offer student loan matching yet and you can't afford the full match amount, try contributing a small amount to your 401(k). Even contributing just 1% or 2% to a tax-advantaged account is better than nothing.
3. See if you're eligible for the $2,500 interest deduction: Check if you qualify for the federal student loan interest deduction. This tax break helps claw back some of the interest you pay to your loan servicer — and best of all, you can still claim the standard deduction.

Strategies for borrowers to protect retirement funds

If your employer hasn't adopted a 401(k) student loan match, here are some further ideas to help balance retirement savings with your monthly budget.

• Look into income-driven repayment (IDR) plans: An IDR plan bases your federal student loan payments on your income and family size instead of your total debt. This lowers monthly payments for some and may free up extra cash to put toward your 401(k). (Keep in mind: Parent PLUS loans have special rules and may need to be combined into a single direct-consolidation loan first.)
• Explore other tax-free employer assistance: Under Section 127 of the tax code, employers can provide up to $5,250 annually in tax-free student loan repayment assistance directly to employees. Ask your benefits department if this student loan benefit is available.
• Time extra payments wisely: If you have extra cash to save, prioritize capturing your full employer 401(k) match before making accelerated principal payments on low-interest student debt. An employer match represents an immediate 50% to 100% return on your investment, a rate that typically outperforms the interest saved by paying down low-rate loans early.

Managing student debt shouldn't force you to sacrifice your long-term financial security. By taking advantage of federal tax law, you may be able to pay down loans today without putting your retirement on hold.

Read More

• Does Your College Student Really Have to File Taxes This Year?
• Don't Overpay the IRS: 6 Mistakes That Could Be Raising Your Tax Bill
• SECURE 2.0 Act Summary: New Retirement Savings Changes to Know

1. Hobby income and expenses

Question: I like to knit hats. Lately, I have started selling some of the hats that I knit at craft shows. I have a full-time job, and my hat knitting is just a fun extracurricular activity that I engage in sporadically. It's not a business. Do I have to report the sales proceeds I get from selling my hats on my Form 1040? And can I deduct my expenses?

Joy Taylor: You will have to report the sales proceeds on your Form 1040. Since you said your hat knitting activity is not a business, but a fun activity that you engage in sporadically, the activity is likely considered a hobby. You would report your hobby revenue as other income on Schedule 1 of the 1040.

Unfortunately, you will not be able to deduct your expenses. The 2017 Tax Cuts and Jobs Act temporarily eliminated, through 2025, all miscellaneous itemized deductions previously subject to the 2%-of-adjusted-gross-income threshold. That includes hobby expenses. Last year's One Big Beautiful Bill permanently ended this tax write-off.

2. Hobby versus business

Question: My spouse and I both work full-time. I also have a dog-breeding activity that I run in my spare time. Can I deduct the losses from my dog-breeding activity on Schedule C of my Form 1040?

Joy Taylor: It depends. You can deduct the loss on Schedule C only if your dog-breeding activity is a business. The activity must be conducted with continuity and regularity in a businesslike manner, and you must have a reasonable, good-faith objective of making a profit from it.

If your activity rises to the level of a business, then yes, you can deduct the losses on Schedule C. If not, then you would report revenues from the activity on Schedule 1 of your Form 1040, and you cannot deduct your expenses.

3. Hobby-versus-business factors

Question: What factors does the IRS look at in determining whether losses reported on Schedule C are from a business or a hobby?

Joy Taylor: The IRS and the courts look at many factors in determining whether the reported Schedule C activity is a hobby or instead rises to the level of a business/for-profit activity.

IRS regulations provide a safe harbor. If your activity generates a profit in three out of five consecutive years, or two out of seven years for horse breeding, the law presumes you're in business to make a profit unless the IRS establishes otherwise.

The hobby-business analysis is trickier if you can't meet the safe harbor. That's because the determination of whether an activity is properly categorized as a hobby or a business is then based on each taxpayer's facts and circumstances, with the IRS and the courts generally looking at the following nine factors:

• Expertise of the taxpayer and advisers
• Manner in which one carries on the activity
• Time and effort devoted to the venture
• Expectation that assets from the activity may appreciate
• History of income and losses (the more years of large consecutive losses, the harder it is to show a profit motive, unless the activity is still in its start-up stage)
• The amount of occasional profits
• Success in carrying out other activities
• Elements of personal pleasure or recreation
• Whether the taxpayer has substantial income from other sources, such as wages or investment income

4. Audit red flag

Question: I keep reading that claiming losses on Schedule C from an activity that sounds like a hobby is an IRS audit red flag. Is this true?

Joy Taylor: Yes. Claiming large hobby losses on Schedule C is a perennial audit red flag. The IRS is on the hunt for taxpayers who year after year report large losses from hobby-sounding activities on Schedule C or F of the 1040 to help offset wages, business or investment earnings, or other income.

The hobby loss rules are often litigated in the Tax Court. When people think of hobby losses, horse, cattle and/or dog breeding generally comes to mind. Of course, the Tax Court has addressed those ventures. But other cases involve activities as varied as ecotourism, rodeo events, acting, writing and researching, flying antique fighter jets, poker playing, collecting law enforcement badges, donkey breeding and restoring old cars. The IRS usually wins these cases, partly because it tends to settle cases in which it doesn't believe it can prevail. But taxpayers have also pulled off a victory in a number of cases.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

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• Ask the Editor: Estimated Tax Payments and Withholding
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• Ask the Editor: Tax Questions on Roth IRA Conversions
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One way is through your federal tax return. By utilizing the medical expense deduction, you can deduct qualifying, unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). While this strategy requires electing to itemize rather than claiming the standard deduction, heavy medical bills might justify the extra paperwork.

Plus, more than just standard doctor visits or hospital stays may qualify for the deduction. For instance, you might be able to deduct the cost of your weight-loss program or service animal on your federal return.

But because the IRS heavily scrutinizes unconventional claims, navigating these deductions requires ample preparation. So carefully consider whether or not you are eligible for these five unusual write-offs before claiming them on your 2026 federal return.

This list focuses exclusively on federal tax deductions. You may qualify for other tax breaks on your state income taxes. Also, the article does not constitute legal or financial advice. Always consult a qualified tax professional before filing.

The medical expense deduction: Ground rules

To be eligible to claim any of the medical tax deductions listed below, you must first meet the specific criteria for the medical expense deduction. This includes:

1. Itemizing your deductions on Schedule A (Form 1040) instead of claiming the standard deduction.
2. Filing your itemized deductions under the medical expense deduction (which is technically available to taxpayers of any age, but is heavily utilized by older adults).
3. Exceeding the adjusted gross income (AGI) threshold. You can only deduct the portion of your total qualifying medical expenses that exceeds 7.5% of your AGI. (For example, if your AGI is $100,000, the first $7,500 of your medical expenses won't count; only the amounts above that are deductible.)

Also, you can't deduct an expense on your federal return if it was already covered by your insurance, health savings account (HSA), or flexible spending account (FSA).

Additionally, the IRS recommends that you maintain all applicable tax records for qualifying medical expenses for at least three years (though most tax experts advise six or more years). This covers the IRS's tax audit period.

1. Home modifications for medical care

If you have a home improvement project planned to accommodate a medical condition or physical disability, the net cost may qualify for a medical expense deduction. These are the requirements:

• What qualifies. The modification must directly treat or accommodate a diagnosed condition. A formal letter of medical necessity from a doctor is typically necessary.
• Documentation needed. Keep your doctor's letter, a home appraisal from before and after the project (to document changes in property value), all itemized contractor receipts, and any other applicable tax records.
• Value calculation. You can only deduct the amount by which the cost of the improvement exceeds the increase in your home's market value.

The last bullet point might sound confusing. But here's an example:

• Say you install a home elevator for $35,000 to accommodate a mobility issue.
• A licensed appraiser determines that it increases your home's total property value by $25,000.
• Thus, your potentially deductible medical expense is the difference between the two: $10,000.

(Note: If an upgrade increases your home's value by more than it costs to build, the potential deduction drops to $0).

The IRS also explicitly states in its Medical and Dental Expenses Guide that certain standard accessibility modifications are presumed not to increase a home's market value, and are thus 100% potentially deductible. These include adding ramps, widening doorways, modifying stairways, etc.

For more information, check out Kiplinger's report, Tax-Deductible Home Improvements for Retirement.

2. Guide dogs and service animals

Service animals trained to assist with physical disabilities (like visual impairments or mobility limitations) or medical alerts may qualify for the medical expense deduction. Typical qualifying expenses include the total cost of purchasing, training, and maintaining the animal.

• What qualifies. The animal must be individually trained to perform tasks for a person with a disability. Emotional support animals (ESAs) or general family pets are not tax-deductible and do not qualify.
• Documentation needed. You must retain training invoices, veterinary bills, grocery/supply receipts, and other applicable tax records.
• Value calculation. You may write off the vet care, grooming, food, and specialized training supplies associated with your service animal.

3. Prescribed swimming pools

This is a highly scrutinized deduction by the IRS, but it may be medically necessary under special circumstances.

If a doctor explicitly prescribes hydrotherapy to treat a severe, specific medical condition (like advanced arthritis), the cost of installing and operating a home pool might be eligible for a medical expense deduction.

• What qualifies. You can deduct not only the qualifying home pool installation fees but also the ongoing operational costs — like heating, chemicals, and electricity — only for the portion of the year the pool is used strictly for medical treatment.
• Documentation needed. You will need a letter of medical necessity, appraisal documents, and utility bills to prove your operation costs.
• Value calculation. Like home modifications, the installation cost is deductible only to the extent it exceeds the value the pool adds to your real estate. So, if a pool costs $50,000 to build but adds $20,000 to your home's equity, you can potentially claim only $30,000 as a medical expense.

Special note: Because the IRS looks closely at pool deductions, it is very rare to claim this home improvement as a tax deduction. However, if a pool is medically necessary, you can consult with a tax professional to see if it would qualify for a potential write-off.

4. Prescription weight-loss programs

If you're enrolled in a weight-loss program to manage or mitigate a specific diagnosed health condition — like type 2 diabetes, heart disease, or severe hypertension — the enrollment and attendance fees may be tax-deductible as a medical expense deduction.

• What qualifies. Only fees related to your prescribed diagnosis. The IRS strictly prohibits deductions for programs designed for general health, well-being, or cosmetic appearance.
• Documentation needed. A written diagnosis from your physician stating the specific disease being treated, along with itemized monthly statement receipts from the program.
• Value calculation. You generally cannot deduct the cost of specialty diet foods, nutritional supplements, or standard gym memberships. All qualifying healthcare expenses related to your program are potentially deductible under the medical expense deduction.

5. Oral and facial physical therapy

In a landmark IRS ruling, a parent successfully argued that clarinet lessons for their child were deductible because an orthodontist formally prescribed them to correct a severe overbite.

For older adults, the equivalent is specialized physical therapy for the mouth and jaw muscles, like treatment for Temporomandibular Joint (TMJ) disorders or myofunctional therapy.

• What qualifies. As with other qualifying expenses on this list, you can only claim out-of-pocket expenses that were not otherwise covered or reimbursed by your insurance, HSA, or FSA.
• Documentation needed. A formal referral and script from a dentist, orthodontist, or primary physician, alongside detailed treatment logs specifying the dates of service and itemized payment receipts.
• Value calculation. Any qualifying medical expenses above the 7.5% AGI limit may be potentially deductible under this federal tax deduction.

For more information on what qualifies as AGI, check out Kiplinger's report, How to Calculate Your Adjusted Gross Income — and What It Means.

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A study by the Teachers Insurance and Annuity Association of America (TIAA) Institute, a financial research organization, and the Global Financial Literacy Excellence Center (GFLEC) recently highlighted this knowledge gap.

The study revealed that Generation Z (those born between 1997 and 2007) scored an average of just 29% on a "retirement fluency" test. By comparison, Baby Boomers (those born between 1946 and 1964) answered only 44% of the questions correctly.

Inspired by this finding, we decided to look at a specific, crucial piece of the retiree puzzle: retirement taxes. Can retirement-aged individuals prove their experience, or will a younger worker surprise us?

To find out, we tested a Gen Z working professional (28 years old) outside the financial sector with five retirement tax questions.

That person scored a 40%. Now, it's your turn. Good luck!

Hint: This quiz covers federal retirement tax rules and doesn't include how states tax retirees.

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But while the nation was founded on a rebellion against unfair taxes, tossing your computer into the nearest harbor probably wouldn't work when it comes time to pay the IRS; December 31st is the final deadline for most 2026 tax year money moves.

Instead, you might just want to look to the wisdom of founding father and financial thinker, Benjamin Franklin, this planning season.

Franklin famously noted that, "nothing can be said to be certain except death and taxes." And though you can't escape either, you can control how much you overpay the government.

By applying Ben Franklin's wisdom to midyear tax planning today, you could help secure your retirement nest egg, fund intergenerational wealth, and potentially lower your tax bill in 2026. Here's how.

1. "The Doors of Wisdom are never shut."

Popularized in the 1755 edition of the Almanac, Franklin quoted this proverb to challenge the status quo in how we do things; it's easy to fall into a routine of wash, rinse, and repeat.

But routinely doing your taxes the same way every year can cost you. Gain a little midyear tax wisdom through the following ways:

• Learn midyear strategy. You don't have to wait until April to learn a new tax strategy. Platforms like the IRS Video Learning Portal and tax software academy portals offer free, year-round webinars to help you spot planning opportunities before the year-end deadline strikes.
• Revitalize your filing plan. Your revenue streams may change, and so should your taxes. For instance, if your financial situation has simplified, you might no longer need an expensive tax professional anymore. Alternatively, if you've bought property or started a business, doing taxes yourself might cause you to overlook certain tax deductions and credits.
• Save with free tax tools. There are several ways to file your taxes for free each year. For example, the IRS reports that millions of taxpayers have saved over a billion dollars collectively using IRS Free File alone. Evaluate free filing tools available to you now, while you're outside of the chaotic tax season stress.

2. "Beware of little expenses; a small Leak will sink a great Ship."

In the Almanac, Poor Richard warns that "a little punch" or extra tea now and then might seem like "no great Matter," but accumulated tiny expenses can sink your long-term financial ship.

In terms of midyear tax planning, the lesson is simple: Don't miss the small stuff. Now is the perfect time to audit your tax records before the end-of-year holiday chaos.

• Audit your health accounts. Check your Flexible Spending Account (FSA) or Health Savings Account (HSA) balances. Ensure your medical procedures, prescriptions, and qualifying purchases are properly documented with clean receipts (no matter how small), and budget out your remaining FSA funds if your plan has a strict year-end deadline.
• Track new tax provisions. If you plan on claiming provisions from the 2025 Trump tax bill, tracking documentation is key. For example, the car loan interest deduction allows you to deduct up to $10,000 in interest, but only if the vehicle was bought new, is used primarily for personal use, and had its final assembly in the U.S. Make sure you qualify for all the tax deductions and credits you plan on claiming.
• Organize the paper trail. Start digging through your kitchen junk drawer or email folders. You'll want to make sure you have your tax mileage log on file if you're, say, a ride-share driver, or have your gambling tax documentation if you've placed a bet this year. Start the family's designated "tax folder" now to avoid unnecessary stress later.

3. "Early to Bed and early to rise, makes a Man healthy, wealthy, and wise."

Printed in the 1735 edition of the Almanac, this phrase originally praised the discipline of an industrious lifestyle. Let's modernize that approach and polish it into a midyear tax mantra:

"Early to check and early to optimize makes you more planned, less stressed, and energized."

Corny, sure.

But a midyear checkup ensures you aren't accidentally giving Uncle Sam an interest-free loan — or worse, setting yourself up for an IRS underpayment fee or penalty. Here's the phrase broken down:

For more information on how to plan your tax payments and optimize your withholdings, check out Kiplinger's reports on Estimated Tax Payments and 13 Things Every Worker Needs to Know About Withholding.

4. "Having been poor is no Shame, but being ashamed of it is."

Printed in 1749, this quote reminds us that financial struggle is often a consequence of shifting circumstances, not a lack of virtue. In tax planning, knowing how to handle these financial pivots — and leveraging the IRS code to protect your downside — can be a key tool in your tax toolbelt.

Here's how we can relate that to our midyear tax planning strategy:

• Harvest your investment losses. Know when a position isn't working out. Through tax-loss harvesting, you can sell underperforming equities to counteract your capital gains. If your losses exceed your gains, you can use them to offset up to $3,000 of ordinary income, carrying the rest over to future years.
• Strategize charitable giving. If you want to support a cause close to your heart, plan those donations now rather than scrambling in December. Strategizing early helps you maximize itemized charitable deductions and navigate the new 2026 rules on charitable giving.
• Utilize a QCD. If you're age 70½ or older, you can make a qualified charitable distribution (QCD) directly from your IRA to an eligible charity. This counts toward your required minimum distribution (RMD), the minimum annual amount you must withdraw after reaching a certain age, and also helps keep that money out of your AGI, potentially lowering your tax bill.

5. "Money can beget Money, and its Offspring can beget more."

Moving away from the Almanac, this quote comes from Franklin's 1748 essay, "Advice to a Young Tradesman." Franklin was explaining compound interest, noting that money is of a "prolific generating nature."

Retirement accounts and legacy planning are perfect examples of compounding wealth while avoiding high taxes. And midyear is a great time to double-check that your savings vehicles are on track.

• Maximize pre-tax contributions. If you're currently working and in a higher tax bracket than you expect to be in retirement, maximize your traditional 401(k) or other traditional IRA contributions now. It lowers your taxable income today and gives you more immediate cash flow to save or invest. Later, when your federal tax bracket is (hopefully) a little lower, you'll be taxed on the contributions when you withdraw them.
• Plan the "perfect" Roth conversion window. If you anticipate an upcoming low-income year — maybe you're freshly retired but haven't started drawing Social Security or reaching your RMD age yet — plan a potential Roth IRA conversion ahead of time. Converting traditional retirement funds into a Roth during a low-income year allows you to pay a low tax rate on the conversion, but while there are six reasons to convert to a Roth, there are reasons not to.
• Evaluate your estate tax plan. Check in with your financial advisor about your new estate tax exemption amount. Are you optimizing for the stepped-up basis of inherited assets, leaving appreciated equity without capital gains after death? Also, review whether you should use the annual gift tax exclusion to pass tax-free assets to children or grandchildren in 2026.

From shifting brackets to new legislative bills, tax planning is typically a moving target that requires at least a bi-annual checkup.

While a great financial professional can help you tailor these moves to your specific roadmap, keeping these five pieces of financial wisdom in mind may help you avoid being caught off guard and keep you focused on what matters most this summer — celebrating.

Happy planning!

This article is for informational purposes only and does not constitute professional tax or financial advice. Tax laws (including state taxes) are subject to change and vary by individual circumstances. Consult with a qualified tax professional regarding your specific situation.

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But every year, questions loom about how much gifting results in IRS scrutiny.

The good news? The annual gift tax exclusion currently sits at $19,000 per person. But what actually happens if you exceed that threshold? And does the federal government even track these things?

Take this quick quiz to see if you can outsmart common gift tax misunderstandings and earn a perfect score.

Please note that this quiz has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or financial advice.

Navigating the complexities of the lifetime estate exemption and annul gift exclusion often requires a personalized approach. That's why it's important to consult your own tax and financial advisors with questions or concerns about any transactions.

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When President Donald Trump and Republicans in Congress passed the so-called "big beautiful bill" last year, one of the most talked-about provisions was a new, but temporary, bonus deduction for older adults.

The $6,000 tax break, available to eligible taxpayers age 65 or older from 2025 through 2028, can be stacked on top of the standard deduction and the extra standard deduction for those over 65 and is available to those who itemize deductions. Yes, there are income phaseouts.

Still, the Trump administration has pointed to the deduction as a windfall for seniors, effectively eliminating taxes on Social Security. (No, the 2025 Trump tax bill doesn't change Social Security tax law and doesn't necessarily eliminate SS taxes. However, in many cases, the deduction can reduce taxable income enough for some to effectively exempt Social Security income from tax.)

But…what if that benefit could weaken Social Security's finances?

That's an emerging concern: a policy marketed as eliminating taxes on Social Security could worsen the system's long-term funding gap and perhaps affect the timing of future benefit reductions.

Curious? Here's more of what you need to know.

How the $6K senior deduction interacts with Social Security taxes

Let's start with some facts.

• The $6,000 senior deduction doesn’t affect the payroll tax (12.4% levy split between workers and their employers) that funds Social Security.
• Neither the 2025 tax bill nor the new over-65 bonus deduction changes the rule that allows the IRS to tax up to 85% of Social Security benefits depending on income.

However, the senior bonus deduction can lower taxable income for millions of older adults. That can, in turn, push some retirees below the thresholds at which their Social Security benefits become taxable, reducing the amount of tax paid by those who remain above them.

So, what's the big deal? Well, federal income taxes on Social Security benefits are credited to the Social Security trust funds. That revenue stream is small compared with the amount that comes from payroll taxes, but it is part of the program’s long-term financing picture.

Why Social Security solvency concerns are resurfacing now

Concern about the potential impacts of the senior bonus deduction on Social Security is surfacing against a backdrop of projections from the Social Security Administration’s Office of the Chief Actuary.

• Current estimates are that the Old-Age and Survivors Insurance (OASI) trust fund will be depleted around 2033.
• At that point, incoming payroll taxes would cover roughly 77% to 80% of scheduled benefits, depending on assumptions.
• So, even before any new tax policy impacts are considered, that implies a potential across-the-board benefit reduction of about 20% to 23% unless Congress intervenes.

From a tax perspective, the Joint Committee on Taxation (JCT) has estimated that the $6,000 senior tax break could initially (through 2029) reduce federal revenues by roughly $91 billion. The 10-year costs could fall in the $125 to $220 billion range by 2034, depending on whether the provision is extended.

That figure includes several moving parts, but part of the revenue loss stems from reducing the tax treatment of retirement income, including Social Security benefits.

Because federal taxes paid on Social Security benefits are credited to the program’s trust funds, lower taxable income can also mean less money flowing into the system over time.

Important to note: Social Security’s financial challenges are driven primarily by demographics, not this new deduction. The system’s long-term funding gap already existed well before the Trump/GOP reconciliation tax package became law.

But that’s also why some analysts are paying attention to even relatively modest revenue changes around the edges. In a program already facing long-term fiscal pressure, policies that reduce money flowing into the trust fund — even indirectly — can affect projections at the margins.

And that’s where some irony comes in: a policy promoted as delivering tax relief tied to Social Security could potentially slightly weaken one of the revenue streams tied to the program’s long-term finances.

How much could the $6,000 deduction shift the Social Security depletion timeline?

In situations where revenue tied to benefit taxation is reduced, some long-range projections suggest the depletion date could move sooner by a matter of months to roughly a year. How much earlier depends on various assumptions about economic growth, payroll tax receipts, and behavioral responses.

That doesn't necessarily change the trajectory of Social Security’s finances. And it doesn't create insolvency on its own or replace the structural drivers of the system’s funding imbalance.

But it highlights how even seemingly small changes in related revenue sources (like reduced tax collections resulting from a new $6,000 tax break for millions of older adults) can affect the timing of trust fund exhaustion in models that already show a narrow runway.

What this means for retirees now

For many older adults, the senior bonus deduction is a relatively straightforward tax cut:

Taxpayers age 65 or older can stack the $6,000 deduction on top of the standard deduction and the existing extra standard deduction for those 65-plus. Eligible taxpayers who itemize can also claim the bonus deduction.

• You must be 65 or older by the end of the given tax year.
• The bonus amount tops out at $6,000 for individuals and $12,000 for married couples, when both spouses are 65 or older.
• This deduction phases out above a certain income level: Modified Adjusted Gross Income (MAGI) of $75,000 for singles and $150,000 for those married, filing jointly. It phases out completely for MAGI above $175,000 and $250,000, respectively.
• The IRS says you must "include the Social Security Number of the qualifying individual(s) on the return, and file jointly if married, to claim the deduction."

For some middle- and upper-middle-income retirees, the new deduction can reduce or even eliminate taxes on Social Security benefits by lowering taxable income. For lower-income retirees who already pay little or no federal income tax, the impact is often much smaller.

• Middle- and upper-middle-income seniors will likely account for roughly three-quarters of the total tax relief under the measure, according to the Tax Policy Center.
• In 2026, average savings are projected at about $220 for middle-income households and around $300 for those in the upper-middle income tier.

Keep in mind: Despite how the Trump administration has framed the policy, the deduction does not change Social Security tax law or permanently eliminate taxes on benefits. Instead, it works indirectly by reducing the amount of income exposed to taxation in the first place. So keeping an eye on your taxable income and existing SS tax thresholds remains important.

What's next? Funding conversations for Congressional lawmakers.

Potential ways to address the Social Security funding issues floated by policymakers in recent years include raising payroll taxes, lifting or eliminating the income cap, gradually increasing the retirement age, reducing cost-of-living adjustments, and means-testing benefits for higher-income retirees.

But...no specific bipartisan proposal seems to be on deck yet, so as always, stay tuned.

Learn More

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• What You Need to Know About Taxes on Social Security Benefits
• College Towns Are Becoming Retirement Destinations in 2026: Does the Tax Math Add Up for Retirees?
• The Extra Standard Deduction for Those Age 65 and Older

Health savings accounts (HSAs) offer a rare triple tax advantage: Contributions are tax-deductible, investments grow tax-free and withdrawals for qualified medical expenses are tax-free.

Those tax benefits come with an important responsibility, though. If you take tax-free withdrawals from your HSA, you should be able to document that the money was used for qualified medical expenses.

While IRS audits involving HSAs are relatively uncommon, they do happen. And when they do, many account holders struggle to locate receipts or remember which expenses they reimbursed themselves for earlier. Creating a simple system to save and organize HSA receipts can help protect your tax benefits and make it much easier to respond if questions ever arise.

What records HSA account holders should keep

Many people don't realize that the IRS requires you to keep records supporting HSA withdrawals. The following documents can help substantiate qualified medical expenses and reimbursements.

• Itemized receipts: Receipts for qualifying medical expenses need to include details specifying the type of item or service purchased, the date, the cost and any taxes or discounts.
• Proof of payment: Keep proof of payment for each purchase, such as a credit card statement or a canceled check. To stay organized, pair the proof of payment with the corresponding itemized receipt.
• Explanation of benefits (EOB): Your insurance provider’s EOB details the services provided and the amount that insurance covers. It also outlines what you may owe and helps prove that a service qualifies for HSA reimbursement.
• Detailed notes: Take notes on who each expense was for and whether your health insurance reimbursed you for the expense.

The easiest ways to organize HSA receipts

Keeping your HSA receipts organized can make tax time easier and help you respond quickly if you're ever audited. Whether you prefer digital storage, spreadsheets or dedicated tracking tools, several methods can help you keep your records in order.

Cloud folders: Storing receipts digitally in the cloud can reduce clutter and make records easier to retrieve if you need them later. Scan receipts and organize them in folders by year, using clear file names so specific expenses are easy to find. Popular cloud storage services, including Google Drive, Microsoft OneDrive and Dropbox, can make it easy to access records from multiple devices and create backups.

Budgeting apps: Many budgeting apps can also serve as receipt-storage tools. Apps like Monarch, YNAB and Quicken allow users to attach receipts, notes and other documents to transactions. Storing receipts alongside the corresponding expense can make HSA recordkeeping easier and help ensure supporting documentation is readily available if you choose to reimburse yourself years later.

Spreadsheet tracking systems: A spreadsheet can help you track key details such as the expense type, date and amount paid. You can create your own tracker or start with a template from platforms like Canva. Tools such as Google Sheets work well if you don't have Microsoft Excel, and you can access them from multiple devices. Just remember that you'll still need a separate system for storing copies of receipts.

Apps designed for HSA management: Apps designed for HSA management can help you store receipts, track expenses and identify HSA-eligible purchases. Popular options include Reimbursable, which is available for Apple devices, and TrackHSA.

Save PDFs from providers: Many healthcare providers make receipts and statements available online. Downloading and saving PDFs directly from provider portals can help you maintain a paperless recordkeeping system.

Use HSA provider tools: Some HSA administrators offer receipt storage, expense tracking or mobile apps as part of their accounts. These built-in tools can be a convenient way to keep your records organized in one place. If you change jobs, transfer your HSA or switch providers, make sure you know how to download and retain your records so you don't lose access to important documentation.

Keep security in mind when using digital tools to store and track receipts. Look for tools that allow you to create backups, and be sure that you create a secure password and keep it safe to protect your data and privacy.

Why some people delay HSA reimbursements for years

HSAs allow you to delay reimbursement for qualified medical expenses for years, provided you keep accurate records. Some account holders intentionally pay medical expenses out of pocket and leave their HSA funds invested, giving the account more time to grow tax-free.

While this strategy can be appealing, it can also backfire. If you lose receipts or other documentation, you may not be able to prove those expenses were eligible for reimbursement years later. If you're considering delayed reimbursement, it's important to create a reliable system for storing and tracking receipts and other supporting documents.

Common HSA paperwork mistakes that can create tax problems

HSA holders sometimes make paperwork mistakes that can create tax issues, especially during an audit. If you lose receipts, you may not be able to prove or claim HSA reimbursement for that expense.

When you use your HSA, be careful about double-dipping with insurance or tax deductions. If an expense is covered by or reimbursed by insurance, you can’t claim it as an HSA reimbursement. And if an expense is reimbursed by your HSA, you can’t claim it as a medical tax deduction.

Reimbursing nonqualified expenses with your HSA is another potential issue. The IRS provides specific guidance about what qualifies as a qualified medical expense, which includes expenses medically necessary for the "diagnosis, cure, mitigation, treatment or prevention of disease." Cosmetic procedures, spa treatments, unprescribed massages and more are nonqualified expenses.

Don’t forget to document over-the-counter purchases or medical necessity letters, too. This documentation is key to proving that your expenses qualified for HSA reimbursement, so gather these documents at the time of the expense and keep them organized and safe.

A simple annual HSA cleanup checklist

At the end of each year and before tax season, take some time and clean up your HSA documentation. Doing so will help keep you organized and will make filing taxes and navigating a potential audit much easier.

The following steps can help ensure you have your HSA receipts and documents organized:

• Download annual statements
• Reconcile reimbursements
• Back up receipts digitally
• Review qualified expense lists
• Store records with tax documents

Your HSA is only as good as your records

Keeping good records can help protect your HSA tax benefits and give you peace of mind. By creating a simple system now, you'll make it easier to track expenses, document reimbursements and stay prepared if the IRS ever asks questions.

The best recordkeeping system is one you'll use consistently. Whether you prefer cloud storage, spreadsheets or an expense-tracking app, a little organization today can help safeguard your tax savings for years to come.

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Nearly 40% of self-employed workers are baby boomers, according to a 2024 survey by Guidant Financial, and the number of older entrepreneurs has increased significantly in the past 25 years. Working for yourself in retirement, either full or part-time, makes a lot of sense: You can supplement your savings, stay engaged in your profession or try something new.

But if you're new to self-employment, you may not be prepared for the tax consequences of going solo.

In addition to income taxes, you'll also be responsible for paying the employee and employer portions of your Social Security and Medicare tax, which totals 15.3% of 92.35% of your net earnings. This often comes as a surprise to individuals who have spent their careers working for someone else, because employees who receive a W-2 only pay half of the payroll tax. Their employer picks up the rest. And since the employees' portion is usually withheld from paychecks, it may go unnoticed.

Fortunately, you can deduct half of your self-employment tax. You may also be eligible to deduct your Medicare premiums — a tax break many self-employed retirees overlook, financial planners say.

If you have self-employment income and are enrolled in Medicare, you can deduct premiums for Medicare Part B, Part D, Medicare Advantage, or a Medigap supplemental policy.

You can also deduct your spouse's Medicare premiums, even if your spouse doesn't work for you.

A portion of premiums for long-term care insurance is also deductible, as long as the policy is deemed tax-qualified by the IRS.

The amount you can deduct will vary depending on your age; in 2026, individuals between 61 and 70 can deduct up to $4,960 in long-term care insurance premiums. If you're 71 or older, you can deduct up to $6,200.

David Haas, a certified financial planner with Cereus Financial Advisors in Franklin Lakes, N.J., says he recently met with a self-employed client whose accountant failed to deduct thousands of dollars in premiums for Part B, D, Medigap and long-term care insurance. Fortunately, he caught the mistake before the client filed his tax return.

One possible reason for the confusion is that taxpayers who don't work for themselves are limited in the amount of medical expenses they can deduct. If you claim the standard deduction — which is the case for most retirees — you can't deduct any of your unreimbursed medical expenses. And even if you have enough deductions to itemize, you can only deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. That usually limits the deduction to taxpayers who have very high medical expenses and low income, Haas says.

But if you work for yourself, you can deduct your health insurance expenses — including Medicare — from your self-employment income even if you claim the standard deduction. For self-employed taxpayers who file a Schedule C, health insurance is an “above-the-line” deduction, which will lower adjusted gross income.

This could make you eligible for other tax credits or benefits that are tied to your AGI, says Catherine Valega, a financial planner and enrolled agent with Green Bee Advisory in Burlington, Mass. It could help you avoid a high-income surtax on your Part B Medicare premiums, which is tied to your modified adjusted gross income (that's your AGI with a few adjustments).

There are some limits to this deduction. It can't exceed your self-employment income.

• For example, if your net self-employment income for the year was $5,000, your deduction can't exceed that amount.
• In addition, you can't deduct your Medicare expenses for any months you were eligible to enroll in an employer-subsidized health care plan.
• And, if you or your spouse are working for an employer that offers health insurance, you can't deduct your Medicare premiums, even if you opt not to enroll in the plan.

Nor can you double dip: If you itemize and deduct unreimbursed medical expenses, you can't deduct them from your self-employment income.

To get the most from this deduction, keep good records of Medicare and long-term care insurance premiums and any other expenses, such as traveling to clients, part of your internet service, and office supplies.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that's right on the money.

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1. Medicare premiums

Question: I am 72 years old, and I pay monthly Medicare premiums. I retired from my full-time job four years ago. I am now a part-time consultant and file Schedule C, reporting my income and deductions from my part-time gig, with my federal tax return. My financial advisor said I can deduct my Medicare premiums that I pay, even though I don't itemize on Schedule A. Is that true?

Joy Taylor: Yes. As a general rule, medical expenses, including premiums paid for medical insurance and Medicare premiums, are deductible only by itemizers on Schedule A, and only to the extent that total medical expenses exceed 7.5% of adjusted gross income. There is an exception for self-employed individuals who file Schedule C. They can deduct premiums that they pay for medical and dental insurance and qualified long-term-care insurance without itemizing on Schedule A. They claim the self-employed health insurance deduction on Form 1040, Schedule 1, part II, line 17. Parts A, B and D Medicare premiums that you pay for insurance in your name are part of that deduction.

2. Business driving

out expenseQuestion: I retired from my full-time job a few years ago and receive a pension. I decided this year to take on part-time work as a dog walker. I work for myself, and I drive to my clients' homes to walk their dogs. I plan to file Schedule C with my 2026 Form 1040. Can I deduct the standard mileage rate for my business driving?

Joy Taylor: Yes. The cost of business driving for self-employed individuals is a deductible business expenses. You can claim either your actual expenses, including gas, repairs and depreciation on your car, or the IRS's standard mileage allowance. For 2026, the standard mileage rate for business driving is 72.5 cents per mile. If you use the IRS's standard mileage rate, you can also deduct the cost of any tolls or parking fees that you pay.

Be sure to keep a contemporaneous mileage log detailing each of your dog-walking trips. It will make it much easier for you to figure your total business mileage when you are preparing your tax return. It will also help you if you are ever audited by the IRS. Sloppy recordkeeping makes it easy for an IRS revenue agent to disallow your deduction.

3. Qualified business income deduction

Question: I recently retired from my full-time job, and I am now an independent freelance writer. I plan to file Schedule C with my 2026 Form 1040. Can I claim the 20% qualified business income deduction?

Joy Taylor: Generally, yes. Self-employed people, independent contractors and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their qualified business income (QBI), subject to limitations for individuals with taxable income in 2026 of more than $403,500 for joint filers and $201,750 for single filers and head-of-household filers. This tax break, first enacted in the 2017 Tax Cuts and Jobs Act, was slated to end at the end of 2025. But last summer's "One Big Beautiful Bill" permanently extended the QBI write-off.

Note that you don't claim the QBI deduction on Schedule C. Instead, you would attach Form 8995 or 8995-A to your return and take the write-off on line 13a of Form 1040.

4. Home office

Question: I am a lawyer. I retired five years ago from my law firm. Even though I'm retired, I still do legal work for some clients on a part-time basis. I am an independent contractor now and file Schedule C with my tax return. I recently turned one of the bedrooms in my house into a home office where I can do my work. Can I claim the home office deduction on Schedule C?

Joy Taylor: Yes, if you meet all of the rules for claiming the write-off. Even though employees can't take a deduction for home office expenses, the write-off is available to self-employed people or independent contractors who file Schedule C with their 1040 and use a room or space in their home or apartment exclusively and regularly as their principal place of business. If you qualify for the write-off, there are two ways to figure the deduction. You can allocate your actual costs on Form 8829. Or you can use a simplified option by deducting $5 per square foot of space used exclusively for business, up to 300 square feet, resulting in a $1,500 maximum write-off.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

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The online survey of just over 3,000 adult U.S. respondents highlights an interesting trend. People across the country are making strategic (though often small) adjustments to fine-tune their spending and hopefully save money in the long run.

Yet the real "win" may not be just saving $5 on a pickup order; it's leveraging those good (or bad) frugal habits to create a tax-advantaged strategy.

For instance, you can reinvest your savings from a delivery into a health savings account (HSA) or maximize your contributions to a 529 plan for your kid's education. Lowering your tax bill can also help cover increased expenses and grow wealth in other areas, like retirement.

So here's how to turn "broke planning" habits into legitimate wealth-building in 2026.

1. Obsessively turning off lights

California, New York, and North Carolina are just a few states that lead the nation in saving on electricity by "obsessively" turning off lights, according to the Lenspricer survey.

Although switching off lights might save the annual household $25 to $172 per year (depending on bulb wattage, hours of operation, and utility rates), the "tax advantage" may be in your home's infrastructure.

How to turn "energy efficient" habits into potential tax savings:

• Electric vehicle (EV) charger installation. Installing a home charging station before June 30, 2026, could net you a tax credit of up to 30% of the cost (capped at $1,000), provided your addition is eligible.
• Adding insulation to walls and ceilings to improve energy efficiency. You may obtain cost savings by reducing "leakage" of hot air inside a cool house, or vice versa.

For the second bullet, if your home upgrades follow the IRS rules for "medically necessary," they may be deductible on next year's federal return. However, be sure the renovations meet the federal tax agency's strict eligibility requirements.

Related: What to Know About Medical Expenses and Your Tax Deductions.

2. Reusing something you probably shouldn't have

Residents in high-tax state Massachusetts reportedly admitted to reusing items they probably shouldn't.

While this may include innocuous items like washing and reusing plastic containers or cutlery, it can also extend to potentially dangerous behaviors, like wearing prescription contacts past expiration.

But in the tax world, "recycling" can be a high-pay-off plan.

How to "reuse, recycle" in a tax strategy:

• Roth conversions. Early retirement years (between retirement and age 73) are typically lower-income, making them perhaps ideal to "reuse" lower federal tax brackets to convert traditional IRA funds to a Roth IRA.
• Tax-loss harvesting. "Recycle" your investment losses by netting them against capital gains to lower your taxable income. However, you'll want to watch the wash sale rule if you plan on repurchasing any securities.

3. Waiting weeks for a sale

Maryland and Iowa residents are more likely to practice the "wait-and-see" purchase method, according to the Lenspricer survey. This means they're waiting days, even weeks, to see if an item will go on sale before making a purchase. You can use a similar practice for deductions on federal income taxes.

How to turn "waiting for the sale" habits into a tax strategy:

• Bunching deductions. Between new rules for 2026 charitable deductions and a higher standard deduction, next year's return might be harder to itemize compared to years past.
• You can potentially navigate around this obstacle by "waiting" and stacking two years' worth of charitable donations or medical expenses into a single tax year, thus perhaps surpassing the thresholds.

4. 'Doomscrolling' your bank app

New Jersey, Florida, and Tennessee residents — to name a few — may check their banking apps like they're social media, according to the Lenspricer survey.

Even though staying on top of your finances is prudent, "financial doomscrolling" to the point of obsession can increase feelings of anxiety and stress and even impair decision-making.

Fortunately, in 2026, you can hand over that anxiety to a well-planned tax strategy.

How to help minimize the "doomscrolling" habit for your taxes:

• Use the IRS tax withholding estimator. If you faced an underpayment penalty (or abnormally high tax refund) during the 2026 tax season, you can use the withholding estimator to maximize your tax home pay this year. That can give you more funds in your pocket (or save you from a large surprise tax bill later), without anxiously wondering whether you're paying the "right" amount of tax throughout the year.
• Leverage automated investment platforms to handle decisions like tax-loss harvesting for you. Look for platforms that offer investment oversight and tax planning, which could free you from manual daily tracking of tax-oriented goals.

5. Skipping delivery fees

With the rise in popularity of apps like DoorDash and grocery delivery services, it may come as a surprise that residents in states like Washington and Colorado skip the delivery fees.

However, you may be able to save at least $654 per year by picking up your favorite pizza instead of paying a delivery premium. So, how do you reinvest those savings for a tax-optimal strategy?

How to reinvest your savings from a "skip the delivery" habit into a tax strategy:

• Maximize your retirement contributions (401(k) or IRA). For 2026, the 401(k) contribution limit has risen to $24,500. Investing that "delivery money" could lead to a six-figure difference by retirement.
• Or, put the $650 saved into your HSA. If you have a big medical exam coming up, it can lower your adjusted gross income (AGI) and grow tax-free for when you must go to the doctor.

6. Taking extra sauce packets

We've all been there: Taking a few extra ketchup packets for home, napkins for the car, or maybe salt and pepper "just in case." That's what residents of Vermont, Montana, and Minnesota admitted to doing in the Lenspricer survey.

Savings-wise, this practice is probably nominal, but you can adapt the "putting away for later" mentality when it comes to your taxes.

How to turn "a little extra" habits into a tax strategy:

• Put a little extra toward your mortgage. By paying off your mortgage sooner, you can save on interest without worrying whether you're missing the itemized mortgage interest deduction, since 90% of people use the standard deduction anyway, according to the IRS.
• Just as those sauce packets add up, small, automated contributions to a 529 college savings plan grow tax-free. You can put a little extra toward your child's or grandchild's education and save for their future. Plus, many states also offer a tax deduction or credit for these contributions. (See also: Coverdell vs. 529 plan: What's the Difference?)

7. Ordering water at restaurants (and cheap items for entrees)

Alaska and Nebraska residents are no strangers to dining out, yet what's interesting is what they order: the cheapest item on the menu and just water for the thirst quencher.

The tax equivalent may be a high-savings rate, tax-advantaged investing strategy that prioritizes long-term growth over immediate comfort.

How to turn "bare minimum buyer" habits into a tax plan:

• Investing in low-cost index funds. Instead of buying "premium" managed funds, you might buy low-fee index funds or ETFs, which could provide better net returns over time.
• Investing in municipal bonds. Avoiding the "extra tax" on investments may give you a steady, consistent stream of returns over time compared to taxable bonds.
• Using the standard deduction. Just as you only eat what is necessary, claiming the standard deduction may be the simplest, lowest-effort, and most standard path for your income taxes, rather than overcomplicating your return with maybe inefficient deductions.

8. Calculating 'cost-per-use' on items

Nevada residents are calculating the return on investment (ROI) of small purchases, according to the Lenspricer survey. Socks, laundry packs, and video games are all examples of "smaller priced" items that could have a big payoff if you use them multiple times.

Here's how you can adapt that strategy for your taxes.

How to turn "ROI" habits into a tax strategy:

• Before selling an asset, calculate your "hold time." Selling at 366 days instead of 364 can drop your tax rate from your ordinary federal income bracket (up to 37%) to the long-term capital gains rate (0%, 15%, or 20%).
• Include tax in your cost-per-use analysis. Be sure to multiply the item price (1 + tax rate) to get the true price before dividing by usage; this is particularly useful for larger purchases, like home renovations, cars, boats, etc.

9. Bringing snacks into movies

Residents in states like North Dakota and South Dakota admit to bringing their own snacks to a movie theater. However, this technique is usually disallowed at most movie theaters nationwide. So what should you do instead?

How to turn "do it yourself (DIY)" habits into a tax strategy:

• Save on your taxes through DIY. Adopting the do-it-yourself mentality for things that you might ordinarily hire a professional for (like taxes) could save you money.
• Gift your wealth tax-free to heirs through the annual gift tax exclusion ($19,000 per recipient in 2026). This may help you avoid the federal estate tax rates.

10. Taking office supplies

Residents of Texas and Missouri have admitted to taking pens and paper, which is technically theft if used for personal reasons. Similarly, certain tax evasion techniques are cleverly disguised as "tax hacks" that can trick you into doing something wrong.

How to avoid "tax abuse" habits in your tax strategy:

• Review the IRS's 2026 "Dirty Dozen" list, which warns against "tax hacks" like abusive undistributed long-term capital gains claims and AI-driven phone scams. Stick to more legitimate "broke planning" techniques (like doing your own taxes) and avoid the ghost preparers who won't sign your return.
• If you fall for a tax scam — whether by following bad advice from a "ghost' preparer or using fraudulent "tax hacks" — know that you can open yourself up to an IRS tax audit as well as various fees and fines.

The 2026 tax landscape is especially complex due to the recently enacted 2025 Trump tax bill. So when necessary, consult with a qualified tax professional to see how these "frugal flips" apply to your specific tax situation.

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But while new fans may be studying brackets, a different kind of scoreboard lurks off the field: shifts in federal tax law. Under the newly enacted 90% limit on gambling loss deductions, even fans who finish the tournament break-even could face an unexpected bill from the IRS.

Here is how the new "phantom income" tax works, how a surge of casual players will shift the betting lines, and what you need to track to protect your bankroll.

How first-time bettors shift World Cup odds

Favorable match times for the North American audience, a new 48-team format (up from 32), and unprecedented expansion of legal mobile betting platforms have led to a surge in casual U.S. World Cup bettors for 2026.

According to a survey commissioned by the global payment platform Paysafe, 29% of U.S. bettors are gambling for the first time, and about 60% of global fans plan to wager on the World Cup (where betting is legal).

The influx of new bettors is expected to shift World Cup odds as casual fans usually bet on popular, well-known teams. To protect themselves from losing too much money on favored team wins, sportsbooks will employ various methods, like making these favorite bets less rewarding.

So if you are placing your first wagers, keep your eye on three distinct market trends driven by fellow casual fans:

• Overpriced favorites. New bettors love to wager on household names like France and Spain, which can shorten the odds. This means you have to risk more to win less. Evaluate whether those odds offer actual value compared to the team's true probability of winning.
• The "over" bias. Casual fans tend to bet on high-scoring games because rooting for goals is more fun than rooting for a defensive match. This bias artificially drives up the line for the total number of goals expected, making "under" bets a potential value area. Look for defensive matchups or games with poor weather conditions where total points or goals have been driven up.
• Platform slowdowns. High volumes of bettors could lead to slowdowns in online sports betting performances, including app downtime. If you're placing a time-sensitive bet, try using cellular data, force-closing background apps, or switching to a desktop browser for optimal operational efficiency.

Data was aggregated from online sportsbooks like DraftKings and FanDuel as of June 2026. Check the websites for the most up-to-date information.

New tax rules: The 'phantom income' trap

In addition to more bettors than ever, the next biggest danger for a casual 2026 World Cup bet might just be the newly updated IRS rule governing gambling losses.

That's because historical bets allowed you to deduct your losses against your winnings to owe $0 in federal taxes (assuming you itemized).

In the 2026 tax year, however, federal law caps gambling loss deductions at just 90% of your total winnings, creating what tax experts call taxable "phantom income."

How does it work? Let's say you have a rollercoaster World Cup: you win $3,800 on the group stages but lose $4,000 on the finals.

• Winnings: $3,800
• Deductible losses: $3,600 (90% of your $4,000 loss)
• This creates a net taxable income of $200 or "phantom income" (the amount you can't deduct).

So even though you're down $200 in cash, the IRS sees $200 in "phantom income." This means you're losing out on deducting part of your losses and paying the government for the privilege of losing that money.

Here's the real kicker: If you take the standard deduction — like roughly 90% of Americans do — you can't deduct any losses. You would be legally required to report and pay taxes on the full $3,800 in winnings, and swallow the $4,000 loss out of pocket.

Reporting rules and the $2,000 threshold

It's also a common misconception among first-time bettors that if you don't receive an official tax form from a sportsbook, you don't owe taxes.

That's not true. Although the IRS recently raised the automatic reporting threshold for sportsbooks from $600 to $2,000 (provided the winnings are at least 300 times the wager), federal law still requires you to self-report every dollar of gambling income, regardless of the amount.

So help protect yourself from a tax audit red flag this season by:

1. Tracking every wager. Maintain a clear, chronological log of every single slip, date, stake, and payout.
2. Separating your sessions. The IRS calculates wins and losses by individual betting "sessions," not your total net account balance at the end of the summer.
3. Keeping digital receipts. Do not rely on your sports betting app to keep your records forever; download your detailed betting history statements monthly.

Also, keep in mind state tax rules. Even though the federal threshold is $2,000, states like Connecticut or Ohio often trigger reporting at just $600. At the same time, if you're betting in "income tax-free" states like Tennessee, you'll likely dodge the state gambling taxes (though rules governing what counts as "legal sports betting" may apply).

And in some states, like California and Alabama, online gambling is illegal. So check your local rules before placing a bet.

Do I have to pay tax on away bets?

If you place an "away bet" — whether in a different state or abroad — you're generally subject to the gambling and tax laws of the location where your wager is physically processed. This can look different depending on where you are, for example:

• Traveling state-to-state: New Jersey (host of the World Cup Final at MetLife Stadium) is highly sports-bet-friendly, but it taxes all forms of mobile and in-person betting. Meanwhile, Washington state does not tax gambling winnings at all, but state law completely bans mobile sports betting, meaning you can only wager in person at Tribal casinos.
• Crossing the border: If you are traveling to catch matches in Mexico or Canada, your U.S. mobile betting apps' "confirm bet" button probably won't work. State regulations require sportsbooks to use strict geolocation tracking, meaning your account will not allow a new bet the moment you cross the border. To wager internationally, you must follow that country's local rules and still report any winnings to the IRS.

The bottom line

Enjoying the 2026 World Cup tournament doesn't have to mean compromising your finances. By maintaining a clean log of your wagers and treating every betting slip as a financial document, you can safely navigate the IRS's new 2026 playbook and ensure an unexpected tax bill doesn't ruin your season.

So stay safe, have fun, and keep the drama on the field, not on your Form 1040.

The information provided in this article is for educational and informational purposes only and does not constitute legal, financial, or tax advice. Wagering decisions are made at the sole discretion of the reader. Consult a qualified tax advisor or certified professional before making financial commitments.

This article has been updated to correct a previous error.

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For instance, many free versions of distance-tracking apps cap the number of trips you can take, forcing you to record them later. But if you aren't logging your miles correctly at the time of the trip, the IRS can disallow your entire deduction under the contemporaneous record rule.

At the 2026 IRS business mileage rate of 72.5 cents per mile, those trips through Uber, DoorDash, real estate clients, and supply stores can quickly add up to a significant tax deduction.

By incorrectly recording miles, you could be leaving some serious cash on the table — or worse, raising an IRS audit red flag if you include inaccurate trips on your return.

Don't wait until tax season to discover your smartwatch logs are insufficient. Before you file your 2026 return, ensure your tracking meets these non-negotiable IRS standards.

IRS mileage rate and log requirements for 2026

The 2026 IRS mileage rate of 72.5 cents per mile has strict requirements for what constitutes a valid business mileage log. You must meet four specific data points for every single trip to be eligible for a deduction:

1. The date of the trip
2. The destination (address or city)
3. The business purpose (e.g., picking up an order for a delivery)
4. The total mileage logged

Additionally, to help support your claim to an IRS mileage deduction, you must follow these specific requirements:

• "Contemporaneous" logs. You must create your record at or near the time of your trip. ("Estimating" a log from memory or bank statements later is a major red flag for the IRS.)
• No commuting. Remember that driving from your home to your primary workplace (and back) is considered a personal expense and is not deductible. (For this reason, a Reddit user drives to a "central place in town" before starting their route.)
• Odometer readings. You should record your vehicle's odometer reading on January 1 and December 31 each year to establish the total distance driven for the year.

GPS 'dead zones', data gaps and bad reports — oh my!

Though many mileage apps offer "one-tap" tracking from a smartwatch, users should exercise caution when using them (pun intended). Not all convenient features meet the IRS's rigorous standards for a business expense deduction. For instance, GPS-based apps can:

• Lack specific "why" details. If you fail to categorize a trip in the app with a specific business purpose (e.g., dropped off a customer at 123 Main St.), the IRS might disallow the deduction.
• Have no exportable audit reports. Some free or "lite" versions of apps track distance but don't generate reports that might be helpful during an IRS audit. Paid versions of apps such as MileIQ or Stride are popular because they build these logs, but you must ensure you're using a version that exports full data.
• Experience technical "dead zones." GPS relies on satellite signals. In "concrete jungles" with high-rise buildings or rural dead zones, your smartwatch might lose the signal, resulting in inaccurate distance measurements or missed trips entirely.

To mitigate the risk of data gaps, look for mileage apps that offer offline functionality. Apps such as Timeero continue to track GPS coordinates even in "dead zones," syncing the data once your connection is restored.

Beyond live tracking, maintaining redundant digital backups of your logs is a critical — yet often overlooked — step. In the event of a smartwatch malfunction or a lost device, these backups can significantly bolster your contemporaneous records during an IRS inquiry.

Building an 'audit-proof' backup

GPS tracking is a powerful tool, but it shouldn't be your only line of defense in substantiating your IRS mileage deduction. Consider these two backup methods to supplement your smartwatch capabilities:

• The odometer snapshot. In addition to your mileage app, snap a photo of your odometer on January 1 and December 31. This helps ensure you aren't reporting business miles that exceed the number of possible miles in a given year.
• The "analog" backup. Although it feels old-fashioned, a simple notebook in your glovebox is still an IRS-sanctioned way to track mileage. If your smartwatch dies or hits a GPS "dead zone," a quick pen-and-paper entry ensures your contemporaneous log remains unbroken.

However, it's important to note that odometers can be inaccurate, as well, especially if you have worn tires, incorrect tire pressure or nonstandard tire sizes. Having two methods of recording each business trip promotes a complete record of your mileage.

The bottom line? Your smartwatch is a great tool, but like all tools, it can have flaws. If you use your watch to drive professionally and for personal fitness, the burden is on you to prove which specific miles were strictly for business. If your watch breaks, you might be out of luck.

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A new senior bonus deduction in the 2025 Trump/GOP tax and spending bill is one such opportunity. The tax break is designed to lighten the tax load for eligible taxpayers age 65 and older — at least for a few years.

The impact varies considerably by income level. Here's more of what you need to know.

The new senior bonus deduction for older adults

From 2025 through 2028, qualifying taxpayers can claim a bonus tax deduction of up to $6,000 per eligible older adult ($12,000 for eligible couples). This new benefit notably builds on top of existing tax deductions:

• It’s in addition to the standard deduction.
• It stacks with the existing extra standard deduction for those age 65 and older.
• It’s available even if you itemize.

However, the deduction phases out at higher incomes, meaning wealthier retirees might see it shrink or disappear.

Analysis from the Peterson Foundation finds that fewer than half of older adults will receive meaningful benefits from the senior bonus, with the largest gains going to middle and upper-middle-income retirees.

Overall, while it's in effect, this provision can lower taxable income for many middle-income retirees. In some cases, it's enough to eliminate their federal tax liability.

Let’s look at how it could play out in various situations.

Bonus deduction impact on retiree tax bills

Note: The following are fictional, simplified examples to help illustrate the potential impact of the senior bonus deduction. These scenarios are based on the 2025 IRS standard deduction and extra standard deduction amounts. The 2026 amounts from the IRS are slightly higher, but follow the same structure.

These examples also show only federal income tax effects and don't include state taxes on retirement income, which vary widely by state and can increase your overall tax bill.

For more information on state taxes, see our report: How All 50 States Tax Retirees.

How the deduction impacts your tax bill depends on your specific circumstances. Consult with a trusted tax professional to maximize your benefit.

Scenario 1: Senior deduction Social Security 65 and older, single filer with lower retirement income

Joan is 67 and relies on modest IRA withdrawals and Social Security to cover essentials. Her income is $10,000 from her IRA and $20,000 from Social Security.

Because her "combined income" ($10,000 from the IRA + $10,000 from half of her Social Security) is $20,000, below the $25,000 threshold, none of her Social Security benefits are taxed.

Note: Up to 85% of Social Security income can be subject to federal tax. The IRS uses a combined income formula of adjusted gross income (AGI) + nontaxable interest (e.g., municipal bond interest) + 50% of Social Security benefits to determine the taxable amount.

Details:

Result: Joan’s taxable income falls to zero.

It's worth noting that for retirees like Joan, the new deduction doesn’t change much. That's because they were already paying little or no tax. However, the senior bonus could add extra cushion against future income spikes.

Scenario 2: Senior deduction married filing jointly, retirees with moderate income

Jack and Diane, both in their late 60s, draw modest pensions and retirement savings. Their income is $30,000 (IRA) + $10,000 (pension) + $5,000 (bonus) = $45,000.

Details:

Result: Jack and Diane's taxable income drops to zero, since their $45,000 in income is fully offset by deductions, including the standard deduction, the 65-plus extra standard deduction and the $12,000 senior bonus deduction.

Scenario 3: Higher-income retirees, partial deduction benefit

Carolyn and Neil earn more, but can still benefit from the full senior bonus deduction. Their income is $130,000 combined from IRA withdrawals, a pension and part-time wages.

Details:

Result: Their $130,000 income is high enough that even after the full $46,700 in deductions (standard + age‑65+ + $12,000 senior bonus), about $83,300 remains taxable.

They still owe federal taxes and stay in a higher income tax bracket. The senior bonus reduces their bill, but doesn’t come close to eliminating it.

Scenario 4: High-income retirees, senior bonus phase-out

Edward and Maria have $370,000 in income. (Worth noting: Very few U.S. retirees reach $370,000 in annual income. Estimates suggest that well under 1% of Americans age 65-plus earn that much.)

Details:

Result: The senior bonus is fully phased out for high‑income couples such as Edward and Maria. The deduction phase-out begins at $150,000 of income (married filing jointly) and disappears entirely around $250,000, so they don't benefit from the bonus deduction.

Scenario 5: Married middle-income retirees with Social Security income

Linda and Greg’s situation mixes IRA income with Social Security benefits. Their income is $50,000 (IRA) + $20,000 (Social Security).

Result: Linda and Greg still owe some federal tax, but less than before the deduction.

Keep in mind, the bonus deduction doesn’t directly change how Social Security is taxed, despite what some advocates of the bill have asserted. Rather, the bonus reduces overall taxable income, which can indirectly cut total tax owed.

Senior bonus deduction: Bottom line

The senior bonus deduction offers the most value to middle-income households living on pensions, IRAs or modest savings. Older adults with very low-income, who already pay little or no federal income tax, gain only a small buffer. At the other end of the spectrum, high-income retirees see the deduction phase out completely.

While the tax break is a relatively generous add-on, its short lifespan means retirees who qualify should take full advantage while it lasts.

But eligibility matters, so consult a trusted tax adviser to determine what this and/or other deductions in the new tax bill could mean for your financial planning.

Read More

• How the Senior Bonus Deduction Works
• What's in the 2025 Trump Tax Bill?
• How the IRS Taxes Retirement Income
• The Extra Standard Deduction for People 65 and Older

Sen. Cory Booker (D-NJ) recently introduced a plan to almost triple the federal standard deduction to $75,000.

Regarding the proposal, Booker said in a release, "This tax cut would immediately put more money in your pocket every month to deal with the high price of everyday expenses, an unexpected emergency, or to plan for the future."

Meanwhile, Sen. Chris Van Hollen (D-MD) has co-sponsored a plan to exempt up to $92,000 from federal income taxes.

"Far too many Americans are working hard for their paychecks but still having trouble making ends meet," Van Hollen stated in a release about the proposal.

But who actually benefits from these tax-free income proposals, and who would ultimately pick up the tab? Here's what to know.

Cory Booker's no tax on income proposal

Sen. Booker proposed the "Keep Your Pay Act" earlier this month, which would significantly increase the federal standard deduction.

Under Booker's plan, married couples filing jointly would see their 2026 standard deduction rise from $32,200 to $75,000, while single filers would receive a $37,500 deduction (up from $16,100).

Beyond the deduction hike, Booker's plan targets family tax relief:

• Enhanced child tax credit (CTC): Worth up to $4,320 for children under age six and $3,600 for those aged 6 to 17 (up from the current CTC of $2,200).
• Newborn bonus: A new CTC boost of up to $2,400 for the year a child is born.
• Earned income tax credit (EITC) expansion: Tripling the EITC for childless workers (from about $660 to $1,500) by increasing the phase-in and phase-out rates. The proposal also expands the credit eligibility to those 19 and older (removing the age 25-64 restrictions).

To offset these cuts, the Booker proposal shifts the tax burden toward the highest earners and corporations. The plan would:

• Raise the top individual federal tax rates by increasing the 35% and 37% brackets to 41% and 43%, respectively.
• Increase the corporate income tax rate and the stock buyback excise tax rate (specifics have not been announced).

"Americans are working harder and harder, and they're making less and less relative to their parents and grandparents," Booker told NBC News. "....We need big ideas that could redeem the dream of America."

But Booker's proposal isn't the only "big idea" on the table. Another co-sponsored plan seeks to exempt up to $92,00 for the average American worker.

Chris Van Hollen tax plan

Sen. Van Hollen and Rep. Don Beyer (D-VA) have introduced a competing vision for tax relief: the "Working Americans' Tax Cut Act" (WATCA). Instead of creating a higher standard deduction, this plan proposes a new "alternative maximum tax" system.

Under WATCA, the first $46,000 of income for single filers ($92,000 for married couples filing jointly) would be entirely exempt from federal income tax. To qualify, a taxpayer's income would have to be 175% or less of the exemption amount (roughly $80,500 for individuals or $161,000 for couples, per the Penn Wharton Budget Model).

Qualified taxpayers would then calculate their tax bill in two ways and pay whichever is lower:

1. The current federal income tax code.
2. A flat 25.5% rate applied only to adjusted gross income (AGI) above the $46,000 or $92,000 threshold.

Van Hollen proposes a tiered surtax on high earners to ensure the legislation is "fully paid for."

• 5% surtax on incomes above $1 million (or $1.5 million for joint filers),
• 10% surtax on incomes above $2 million (or $3 million for joint filers),
• 12% surtax on incomes above $5 million ($7.5 million for joint filers).

"[The proposal] avoids raising the national debt," Hollen stated in a press release regarding the surtax, "by ensuring the wealthiest pay their fair share."

However, some argue that an enhanced standard deduction provides the most tax relief for middle- and upper-middle-class, since the poorest households often have little federal income tax liability to begin with. Plus, both proposals might be too expensive to implement.

Who would pay lower taxes on 'tax-free' income?

According to Sen. Booker's office, the "median American family would see their taxes cut by roughly 85%." However, a Tax Foundation analysis reveals a massive shift in the federal tax burden from lower-income families to high-net-worth individuals.

Under Booker's plan:

• The top 1% of earners would see an average federal tax increase of $23,050 to $196,183.
• The lowest-income earners (those earning $18,461 or less) would receive the largest tax savings percentage at 11.4%, or $1,257 in after-tax income.
• But those with income between $135,756 and $196,530 would see the largest dollar amount of tax savings, around $6,656.

Meanwhile, under the Van Hollen plan:

• The top 1% of earners could see up to 9.7% increase in their federal income tax bill, hiking taxes by as much as $688,773.
• The largest share of relief (dollar amount and percentage) would target those earning between $40,036 and $76,868, with an average tax savings of $2,273.
• The bottom 20% of earners would receive only a $12 increase in tax savings, or .10%.

While both plans target income tax relief, their differing potential impacts on the national debt have raised concerns over long-term fiscal stability, according to recent projections from The Budget Lab at Yale and the Institute on Taxation and Economic Policy (ITEP).

• The Van Hollen plan is projected to lose at least $100 billion in revenue annually, according to ITEP.
• The Booker plan could result in a $5.4 trillion loss over 10 years, or 540 billion per year, according to Yale.

Furthermore, the Tax Foundation warns that the high marginal rates required to fund these cuts could negatively impact long-run GDP by discouraging investment and reducing labor supply.

Bottom line: Tax-free income in 2026?

With a GOP-controlled Congress and a high price tag — particularly for Sen. Booker's plan — most analysts expect these proposals to stall before reaching a floor vote. However, with mid-term elections coming this November, these "tax-free income" platforms may offer an early look at future economic priorities.

So this may only be the beginning of debates to come. A flurry of competing tax proposals could emerge this spring when Congress reconvenes after spring break. Stay tuned.

Read More

• How to Lower Your Tax Bill Next Year
• Taxable Income: What It Is and How to Calculate It
• Trump Tax Bill 2025: What Changed and How It Affects Your Taxes

1. Charitable deduction for nonitemizers

Question: I generally claim the standard deduction when I file my Form 1040. I heard that next year I can deduct my charitable gifts even if I don't itemize on Schedule A. Is this true?

Joy Taylor: Yes, but there is a limit. Last July's "One Big Beautiful Bill" (OBBB) lets nonitemizers deduct up to $1,000 of charitable cash gifts, beginning with 2026 returns filed in 2027. The amount is $2,000 for joint filers.

2. Charitable deduction haircut for itemizers

Question: I make lots of charitable gifts during the year, and I usually itemize on Schedule A. Did the OBBB make any changes to the charitable deduction for itemizers?

Joy Taylor: Yes. Starting with 2026 returns filed next year, charitable deductions claimed by itemizers on Schedule A get a bit of a haircut. The Schedule A charitable write-off is deductible only to the extent that total charitable donations exceed 0.5% of adjusted gross income (AGI). This is similar to the rules for deducting medical expenses, in which total eligible medical costs are deductible only to the extent they exceed 7.5% of AGI.

Here's an example. Say your 2026 AGI is $232,000, and you donate $14,000 to charity in 2026. If you itemize, you can deduct $12,840 of charitable contributions on your 2026 tax return ($14,000-($232,000 x 0.005)).

3. Carryover of excess charitable donations

Question: Can excess charitable donations caught by the 0.5% haircut be carried forward to the succeeding year?

Joy Taylor: Generally, no. Take the example from Q&A 2, where you have a person with 2026 AGI of $232,000 and $14,000 in charitable contributions. The filer can deduct $12,840 of charitable contributions on his 2026 tax return. The excess $1,160 of donations generally cannot be carried forward to 2027 and is permanently lost.

There is one exception. If a taxpayer has charitable-contribution carryforwards for the year, for example, because total cash donations exceed 60% of AGI, then the amount disallowed because of the 0.5%-of-AGI floor will increase the carryforward. But if the taxpayer has no current-year carryforwards, then the amount nixed because of the 0.5% rule is permanently lost.

4. Reduction in itemized deductions of upper-income filers

Question: My spouse and I have lots of income that we pay tax on each year, at the highest federal income tax rate. We always itemize on Schedule A. Are there any other changes to itemized deductions beginning in 2026, aside from the change to charitable contributions?

Joy Taylor: Yes. Beginning with 2026 returns filed in 2027, upper-income taxpayers will see their total itemized deductions reduced. Total itemized deductions will be decreased by 2/37 of the lesser of the amount of itemized deductions or the taxable income that exceeds the 37% federal income tax rate bracket amount. Some tax professionals describe this rule as effectively limiting the tax benefit of itemized deductions to 35%.

5. More changes for 2026

Question: Other than itemized deductions, did the OBBB enact any other big changes for individual filers that begin in 2026?

Answer: Yes. There are several OBBB tax changes that first take effect in 2026, meaning on 2026 tax returns that you file in 2027. Here are some of them:

• The maximum child and dependent care credit for working parents increases to $1,500 for one dependent and $3,000 for two or more dependents.
• Working parents can contribute up to $7,500 to a dependent-care flexible spending account at their workplace (the cap was $5,000 for many years).
• More money can be taken out of 529 plans to fund K-12 education. Beginning this year, you can withdraw up to $20,000 per year for this type of schooling, an increase of $10,000 from the prior-year cap. And more K-12 expenses are covered. Note that there is no limit on the amount of tax-free 529 payouts to pay for college.
• Forgiven college debt in 2026 or later years are no longer nontaxable. For 2021-2025, most student-loan indebtedness, including parent PLUS loans, that was forgiven in those years was tax-free for federal income tax purposes. This was an exception to the general rule that cancellation of debt income is taxable. The OBBB didn't extend this relief, so college loans that are forgiven in 2026 or later are again generally taxable.
• Fewer people who buy health insurance on the marketplace will qualify for the health premium tax credit, and the credit will be lower for many than in past years.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Tax Breaks for Caregivers
• Ask the Editor: Modified Adjusted Gross Income
• Ask the Editor: QCDs and Tax-Planning
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on Inherited IRAs

Test your knowledge with this quiz and see how well you understand some of the most common tax errors involving key IRS rules and popular tax deductions and credits.

Each answer includes a brief explanation so you can learn the rule behind it.

Read More

• Avoid These Common Tax Filing Mistakes
• 8 Tax Season Changes to Know Before You File
• How Much Do You Know About Capital Gains Taxes?

1. How do I calculate MAGI?

Question: How do I calculate modified adjusted gross income (MAGI) to determine whether I owe an income-related monthly adjustment amount (IRMAA) on top of my basic monthly Medicare Part B and D premiums? Is the untaxed portion of Social Security benefits added back in for this purpose?

Joy Taylor: True to the complexity of the federal tax code, the definition of MAGI often differs, depending on what it is used for. MAGI for purposes of determining IRMAA for Medicare purposes is your adjusted gross income shown on line 11 of your Form 1040 or 1040-SR, plus any tax-exempt interest income. As a result, the untaxed portion of your Social Security benefits is not included in MAGI.

2. What tax return year is used for determining MAGI?

Question: I am confused about the calculation of MAGI for determining monthly Medicare premiums. What year's tax return do the Centers for Medicare and Medicaid Services (CMS) and the Social Security Administration (SSA) look to for figuring out the amount of my 2026 IRMAA?

Joy Taylor: For determining MAGI for purposes of whether a Medicare recipient must pay IRMAA, CMS and the SSA generally look at the most recently filed federal income tax return. MAGI from the 2024 tax returns was used for determining whether a Medicare recipient owes IRMAA for his or her 2026 monthly Medicare Parts B and D premiums. That's because most people filed the 2024 return in 2025, and Medicare released its 2026 premiums in late 2025.

MAGI on your 2025 federal tax return will determine whether your are subject to IRMAA in 2027. MAGI on your 2026 federal tax return will determine whether you are subject to IRMAA in 2028. And so forth.

3. What if my MAGI has gone down?

Question: I have Medicare and pay monthly premiums for Parts B and D. For many years, I have been subject to IRMAA, so my monthly Medicare premiums are high. My husband just retired this year, so we will be reporting much less income on our tax returns for 2026 and later years than we had in prior years. Can I get a waiver from IRMAA for next year's monthly Medicare premiums?

Joy Taylor: Possibly. Your 2026 IRMAA premium surcharges are based on MAGI from your 2024 Form 1040. And your 2027 IRMAA premium surcharges will be based on MAGI from your 2025 Form 1040. But since your income is lower because of your husband's retirement, the SSA may give you a waiver from IRMAA if you request it.

The SSA provides for a Medicare Part B and D premium-surcharge waiver. People whose financial circumstances have changed because of divorce, retirement, death of a spouse or other major life-changing event may apply for relief to lower their IRMAA payments. You can request this easing by filing Form SSA-44 with the SSA. I think you might also be able to request the relief through your online Social Security account, if you have one.

4. Are Medicare premiums tax-deductible medical expenses?

Question: My spouse and I each pay monthly premiums for our Medicare coverage. Are the premiums we pay deductible medical expenses?

Joy Taylor: Yes, but you must itemize and not claim the standard deduction. Taxpayers who itemize on Schedule A of Form 1040 can deduct qualifying medical expenses to the extent that the total amount exceeds 7.5% of adjusted gross income. You can claim medical expenses that are not reimbursed by insurance for yourself, your spouse and your dependents.

To qualify as a deduction, the expense must be incurred primarily to alleviate or prevent a physical or mental disability or illness. The broad list of eligible expenses includes out-of-pocket payments for medical services rendered by doctors, dentists, optometrists and other medical practitioners; mental health services; health insurance premiums (including Medicare Parts B and D); annual physicals; amounts paid for in vitro fertilization; prescription drugs and insulin (but not over-the-counter drugs); hearing aids; transportation to and from the doctor’s office; the unreimbursed costs of long-term care; and many home improvements to accommodate a disability or illness.

For more information about what qualifies, see IRS Publication 502, “Medical and Dental Expenses.”

5. Can a self-employed person deduct Medicare premiums without itemizing on Schedule A?

Question: I am self-employed and single. I recently enrolled in Medicare and am now paying monthly Medicare premiums. I heard that self-employed individuals can deduct their monthly Medicare premiums without having to itemize on Schedule A. Is this correct?

Answer: Yes. Although most people must itemize on Schedule A to deduct their medical expenses, there is an important exception for self-employed individuals who pay health insurance premiums (including monthly Medicare premiums). They can deduct the health insurance premiums they pay on line 17 of Schedule 1 of the Form 1040. And the 7.5%-of-AGI haircut doesn't apply.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Tax Breaks for Caregivers
• Ask the Editor: Modified Adjusted Gross Income
• Ask the Editor: QCDs and Tax-Planning
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on Inherited IRAs

From a larger standard deduction and new bonus deduction for older adults to lesser-known breaks tied to retirement income or age, several provisions can help older adults lower their federal tax bill.

To get you started, here are five tax strategies that can help you keep more of your hard-earned retirement income.

Key tax savings for seniors over 65

1. Claiming the Extra Standard Deduction and Senior Bonus Deduction

Taxpayers age 65 and older are eligible for an extra standard deduction on their federal return on top of the regular standard deduction amounts.

For 2025 federal returns (being filed now in this 2026 tax season), these deductions include:

The senior bonus deduction is different than the extra standard deduction for older adults. It is temporary and requires a valid Social Security number (SSN), but it can be claimed even if you itemize deductions, subject to income phase-outs.

Keep in mind: Claiming both the extra standard deduction and the senior bonus deduction can reduce your taxable income.

Learn More: How the $6,000 Senior Bonus Deduction Works

2. Deducting higher medical expenses

As retirees transition into retirement, they often face rising medical expenses.

To help manage these costs, the IRS offers a tax benefit for those who itemize deductions, allowing them to subtract eligible medical expenses that exceed 7.5% of their adjusted gross income (AGI).

Eligible expenses include:

• Medicare Part B and Part D premiums
• Medicare Advantage or supplemental insurance
• Long-term care insurance (deduction limited by age, see IRS Pub 502)
• Prescription drugs, doctor visits and hospital care
• Transportation for medical care

Keep in mind: Tracking all eligible medical costs throughout the year can help ensure you claim all available deductions and potentially lower your tax burden.

Learn More: What Medical Expenses Are Tax Deductible?

3. Making Qualified Charitable Distributions (QCDs)

At 70½ and older, you can donate up to $108,000 per year (for the 2025 tax year, $111,000 for the 2026 tax year) from a traditional IRA directly to a qualified charity through a Qualified Charitable Distribution (QCD). (The QCD limit is indexed for inflation.)

Benefits:

• Counts toward your Required Minimum Distribution (RMD)
• The amount of the QCD is excluded from taxable income

Keep in mind: QCDs must go directly from your IRA to the charity to qualify. Using QCDs can satisfy your RMD while keeping funds out of taxable income, which might also help reduce Medicare premiums (IRMAA surcharges) and taxes on your Social Security benefits.

Learn More: How Qualified Charitable Distributions Work

4. Managing Social Security taxes carefully

Social Security benefits may be taxable depending on your total income, which the IRS measures using provisional income. Depending on your provisional income, up to 85% of your Social Security benefits may be taxable.

"Provisional income" is calculated as: Adjusted Gross Income (AGI) + tax-exempt interest + ½ of your Social Security benefits

Where AGI includes:

• Wages, pensions, and traditional IRA/401(k) withdrawals
• Taxable investment income (interest, dividends, capital gains)

Keep in mind: Spreading taxable withdrawals from retirement accounts across multiple years or using Roth IRA withdrawals strategically can help minimize how much of your Social Security benefits are taxed, preserving more of your retirement income. Filing separately can trigger higher taxable amounts, so consider your filing status carefully.

Learn more: 6 Things to Know About Taxes on Social Security

5. Converting traditional IRA funds to a Roth IRA strategically

Converting part of a traditional IRA to a Roth IRA in lower-income years can provide long-term tax benefits:

• Pay taxes on the converted amount in the year of conversion
• Future qualified withdrawals from the Roth IRA are generally tax-free
• Reduces future Required Minimum Distributions (RMDs)

Keep in mind: Partial Roth conversions in years when income is lower can spread taxable income over time and potentially reduce future tax liabilities. Roth conversions can temporarily increase provisional income and affect taxes on Social Security in the conversion year.

Learn more: Reasons to Convert Your IRA to a Roth

Bonus Tip: Reviewing state tax breaks for seniors

Many states offer retirement-specific tax relief, like:

• Pension or retirement income exclusions
• Property tax reductions or freezes
• Higher eligibility thresholds for credits for older adults

Keep in mind: State-level tax relief is often overlooked by some taxpayers but can help save more than federal deductions alone. It's important to check eligibility or consult a local tax professional to claim all the tax benefits you're entitlted to.

Learn more: Retirement Taxes: How All 50 States Tax Retirees

Retirement tax planning: Bottom line

Being 65 or older opens the door to a variety of deductions, credits, and planning strategies that can reduce your taxes — but every retiree’s situation is different.

How much you can save depends on factors like your retirement income, Social Security benefits, state tax rules, and whether you itemize deductions.

Keep in mind: These tips can put more money back in your pocket, but other considerations, like Medicare premiums, investment income, and state-level tax breaks, can affect your overall tax picture.

In any case, strategic planning can help you maximize available tax savings opportunities while avoiding surprises. Consult a tax professional to tailor strategies to your circumstances.

Read More

• The Extra Standard Deduction for Those 65 and Older
• Overlooked Tax Deductions for Retirees
• How to Calculate Taxes on Social Security Benefits

Following the law's sunset last year, overtime earnings are once again fully subject to state income taxes, just as the cost of goods like groceries and utilities has surged 22% over the last five years in Alabama.

A new legislative push — House Bill 527 — aims to provide some state overtime relief through a proposed $1,000 tax deduction. But with Alabama workers facing a tightening economy, is a capped deduction enough to offset the loss of a total exemption?

We crunched the numbers to see how much this new bill actually puts back in your family's wallet.

New Alabama state tax overtime bill

Late last month, House Majority Whip Rep. James Lomax (R-Huntsville) introduced HB 527. The bill proposes an individual income tax deduction for Alabama overtime wages up to $1,000 per year. If passed, the tax break would be retroactive to January 1, 2025, and remain in effect through December 31, 2027.

The bill is designed to provide relief for working families facing affordability challenges.

"Affordability is the number one issue in our country," Lomax reportedly said, according to ABC 33/40. "...my legislation follows the lead President Trump set in the Big Beautiful Bill."

However, this isn't Alabama's first rodeo with overtime pay.

As Kiplinger reported, House Minority Leader Anthony Daniels (D-Huntsville) successfully passed a temporary Alabama law that exempted overtime pay from the state's 5% income tax.

While popular among supporters, the state's "no tax on overtime" law became a victim of its own success:

• Initially, estimated costs were projected to be around $34 million annually.
• In actuality, total costs came out to a staggering $350 million.
• Due to budget concerns, state lawmakers allowed the law to expire last year.

The proposed $1,000 cap seeks to balance worker relief while preventing the budget shortfalls seen under the state's former overtime policy. But a $1,000 overtime deduction might not be enough to hold water with Alabama's rising prices.

Alabama taxes on overtime and the cost of living

To understand the impact of the new $1,000 deduction on affordability, we looked at a "typical" Alabama overtime worker earning an average income of $52,400.

*Note: "Typical" in this sense was a worker with average overtime earnings of $52,400, according to ZipRecruiter. This simplified example assumes a single filer with overtime wages and a minimal state standard deduction and exemption. Actual financial situations may vary.

As shown above, a single overtime worker earning $52,400 receives just $50 in annual tax savings. In a state where costs like housing continue to climb, a $4.58 monthly savings may feel negligible.

For instance, consider just monthly rent and grocery data for a fictional Alabama family:

With combined rent and food costs averaging $2,142 per month, these two essentials alone account for about $25,700 annually, or 49% of the average overtime worker's take-home pay.

Is "no tax on overtime" in 2026 the best way forward?

The Institute on Taxation and Economic Policy (ITEP), a nonpartisan research organization, suggests another route to provide relief to Alabama overtime workers.

"Instead of exempting overtime pay from income tax, labor experts argue that increasing overtime rates beyond time-and-a-half and raising the annual income threshold for overtime pay (currently set at $35,685) is how to best support workers and boost wages."

By raising the federal salary threshold, state lawmakers could expand overtime eligibility to thousands of Alabamians who are currently classified as "exempt" despite working well over 40 hours per week.

The Economic Policy Institute states that raising the federal salary threshold could encourage employers to hire additional staff or increase hours for part-time staff.

In the meantime, the $1,000 overtime deduction proposal in Alabama moves to the state House Ways and Means Education Committee for further review. Stay tuned for more updates.

Read More

• Overtime Pay Deduction: What Workers Need to Know for Tax Season
• 10 Tax Breaks for Middle Class Families Claiming the Standard Deduction
• No Tax on Tips? How the New Tip Deduction Actually Works

1. What is the new $6,000 senior deduction?

Question: I heard that there is a new $6,000 tax deduction for seniors. Can you explain it?

Joy Taylor: Last July's "One Big Beautiful Bill" created a new senior deduction of $6,000 per filer age 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. This deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A of the Form 1040 or 1040-SR. This deduction is temporary, first taking effect on 2025 tax returns that you are filing this year, and ending after 2028.

Not every senior will qualify. The deduction begins to phase out at modified adjusted gross incomes (or modified AGIs) above $150,000 on joint returns and $75,000 on single and head-of-household returns. The deduction is fully phased out once modified AGI reaches $250,000 for joint filers and $175,000 for single and head-of-household filers. Also, each eligible spouse must have a Social Security number to claim this write-off. And if married, you must file a joint return to claim the deduction.

Modified AGI for this purpose is your adjusted gross income shown on line 11 of your federal tax return, plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income received from sources in Puerto Rico, American Samoa, Guam or the Northern Mariana Islands.

2. Is the senior deduction part of the standard deduction?

Question: My husband and I are both over 65 and we take the extra standard deduction for filers 65 and older. Is the new $6,000 senior deduction part of the standard deduction or is it a separate deduction?

Joy Taylor: The senior deduction is not part of the standard deduction. It is a brand-new deduction claimed on a new IRS schedule. As I mentioned above, the $6,000 senior deduction can be taken by filers who claim the standard deduction and by filers who itemize on Schedule A.

If you are 65 or older and claim the standard deduction, you would compute your standard deduction as normal and claim it on line 12e of your Form 1040. You would also complete new Schedule 1-A to see if you are eligible for the senior deduction and, if so, claim the amount on line 13b of your 1040.

3. How does the senior deduction work if we file separate tax returns?

Question: My husband and I are both over 65. We always file separate returns using the married filing separate status. Can each of us claim the $6,000 senior deduction on our separate tax returns?

Joy Taylor: No. Since you are married, you must file a joint return to claim the senior deduction. It is not available to married couples filing separate returns. If you do file a joint return, you can claim a $12,000 senior deduction, provided your modified adjusted gross income doesn't exceed the amount to qualify for the tax break.

4. How do I claim the senior deduction on my 2025 tax return?

Question: My wife and I are both over 65. How do we claim the new senior deduction on our Form 1040?

Joy Taylor: Taxpayers who qualify for the $6,000 senior deduction use new IRS Schedule 1-A to claim it. Fill out Part I of Schedule 1-A to calculate your modified AGI, and then complete Parts V and VI. Transfer the amount on line 38 of Schedule 1-A to line 13b of the 2025 Form 1040 (or line 13c of the 2025 Form 1040-SR). You can find the instructions for this Schedule in the Form 1040 instruction.

5. How is the modified AGI phaseout calculated?

Question: I know that the $6,000 senior deduction begins to phase out at modified AGIs over $150,000 on joint returns and $75,000 on single returns and head-of-household returns. But how is this phaseout calculated?

Answer: You are correct that the $6,000 senior deduction begins to phase out at modified AGIs over $150,000 on joint returns and $75,000 on single returns and head-of-household returns. The phaseout is calculated as follows: The $6,000 amount is reduced (but not below zero) by 6 percent of so much of a taxpayer’s modified AGI as exceeds $75,000 ($150,000 in the case of a joint return). The deduction is fully phased out once modified AGI reaches $175,000 for single and head-of-household filers and $250,000 for joint filers.

Schedule 1-A, which taxpayers will use to claim the senior deduction (as well as the new deductions for qualified tips, qualified overtime pay and interest paid on auto loans) will compute the phaseout for you.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Tax Breaks for Caregivers
• Ask the Editor: QCDs and Tax-Planning
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on the New Senior Deduction

1. Filing a joint return with a deceased spouse

Question: My husband died last year. Can I file a joint 2025 Form 1040 even though he's no longer with us?

Joy Taylor: When someone is deceased, the decedent's personal representative is generally required to file any final tax returns for the deceased person. That includes federal income tax returns that the decedent would have been required to file for the year of his or her death. A personal representative can be an executor, administrator, or anyone else who oversees the decedent’s property.

Since you were married in 2025, you would mark “married filing jointly” for the filing status and write your deceased spouse’s name and your name and address. If filing by paper, write “deceased” at the top of the 1040. If using tax preparation software, the software will automatically do this for you.

If there is a court-appointed representative, that person must also sign the 1040. If not, you would sign and write “filing as surviving spouse” in the decedent’s signature box.

If the return shows a refund due, there’s nothing you need to do to receive the refund.

2. Filing a return for a deceased sibling

Question: My brother died last year. He was not married. I am the executor of his estate. How do I file his final 2025 federal tax return?

Joy Taylor: Since your brother wasn't married, here are the rules for filing a tax return for an unmarried decedent. Mark his filing status as single or head of household. Write his name on the name line and your name and address in the remaining name and address field (since you are the executor of your brother's estate).

If filing a paper return, put “deceased” at the top of the Form 1040 and your brother's name and date of death. Tax preparation software will do this once you let it know the filer is deceased.

If you are a court-appointed or court-certified personal representative, then you should sign the return. As executor of your brother's estate, you would sign as the personal representative.

If your brother is due a refund, you may have to complete and attach Form 1310 to the return. This rule doesn't apply if you are a court-appointed or court-certified personal representative. Instead, you would have to attach to the return a copy of the court document showing the appointment.

3. Filing status after loss of a spouse

Question: My wife of 48 years died last September. When she was alive, we always filed joint returns. But now I want to file a separate return for 2025. Can I do this?

Joy Taylor: Yes. You, as the surviving spouse, can file your deceased wife's final return either as married filing joint or married filing separate. If you file a 2025 joint return with your deceased spouse, you would follow the instructions set forth in the answer to question 1 above. If you file a separate return for yourself for 2025, be sure to also file your deceased wife's separate 2025 return.

4. Filing a return for a widow with young kids

Question: My husband died suddenly last year. We have three young children under the age of 18. I know that I can file a joint tax return for 2025. But what about for 2026? What filing status should I use on my 2026 tax return?

Joy Taylor: You are correct that you can file a joint federal tax return for 2025. You would follow the instructions set forth in the answer to question 1.

For your 2026 return, it might benefit you to use the qualifying widow filing status. This lets surviving spouses with dependent children use the income tax brackets and standard deductions for joint filers for two years after the decedent’s death.

This means that if you remain unmarried, you can use the qualifying widow status on your 2026 and 2027 federal tax returns.

5. Other resources to find help

Question: A good friend of mine passed away last year. Are there any IRS resources I can turn to in figuring out how to file her final 2025 tax return?

Answer: Yes. The IRS has an online tool to help you file a deceased person's tax return. It's an interactive tax assistant. You will need to enter some basic information, and it will give you an answer. The tool is called "How do I file a deceased person's tax return?"

Note that the IRS's interactive tax assistant will also help answer questions on nearly 60 other topics, including who qualifies as a dependent, filing an amended return and much more. Go to www.irs.gov/help/ita to access the IRS tax assistant and to see a list of topics.

Additionally, you can find helpful information in IRS Publication 559, Survivors, Executors, and Administrators, and in the instructions to Form 1040.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Tax Breaks for Caregivers
• Ask the Editor: QCDs and Tax-Planning
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on the New Senior Deduction

1. Claiming a parent as a dependent

Question: I care for my elderly mom. Can I claim her as a dependent on my 2025 Form 1040?

Joy Taylor: You must meet two rules to claim your mom as a dependent on your federal tax return. First, you must provide over half of her support. Second, your mom's gross income from taxable sources can’t exceed $5,200 for 2025 tax returns (the amount is $5,300 for 2026). If your mom receives Social Security benefits, only the taxable portion of the benefits is included for this purpose. Your mom does not need to live with you for you to be able to claim her as a dependent.

If you meet the tests, you can claim the $500 credit for other dependents on your 2025 Form 1040. However, there is an income limit. The credit begins to phase out when your adjusted gross income (AGI) exceeds $200,000 ($400,000 for married filing jointly).

2. Claiming the dependent care credit for a parent

Question: I work and also take care of my elderly father. I pay for his care when I am at work. Can I take the dependent care credit for him?

Joy Taylor: The rules to claim the dependent care credit for an elderly parent are a bit more stringent than the rules for claiming the parent as a dependent. The $5,200 income test doesn’t apply, but the parent needs to have lived with you for at least six months during the year and be unable to care for themselves.

Other rules for the dependent credit must also be met. For example, expenses for the care must be incurred so you can work, and you must report the provider’s tax ID number on IRS Form 2441.

If your dad qualifies as a dependent for this purpose, you can claim a maximum dependent care credit of $1,050 for him on your 2025 Form 1040, depending on the amount of your income. Beginning this year, meaning for 2026 tax returns that you file next year, the maximum dependent care credit increases to $1,500 for one dependent.

3. Medical costs of an elderly parent

Question: My dad is 85 years old and has lots of medical issues. He doesn't live with me, but I pay all of his doctors' bills and other out-of-pocket costs that Medicare doesn't cover. Can I deduct those medical expenses if I itemize on Schedule A of Form 1040?

Joy Taylor: Taxpayers who itemize on Schedule A can deduct qualifying medical expenses to the extent that the total amount exceeds 7.5% of AGI. You can claim medical expenses that are not reimbursed by insurance for yourself, your spouse and your dependents. If your dad qualifies as your dependent, then you can deduct his eligible medical expenses that you pay for, subject to the 7.5%-of-AGI rule. Note that for purposes of the medical expense deduction, your dad can have income from taxable sources that exceeds $5,200 for 2025 ($5,300 for 2026).

To qualify as a deduction, the expense must be incurred primarily to alleviate or prevent a physical or mental disability or illness. The broad list of eligible expenses includes out-of-pocket payments for medical services rendered by doctors, dentists, optometrists and other medical practitioners; mental health services; health insurance premiums (including Medicare Parts B and D); annual physicals; amounts paid for in vitro fertilization; prescription drugs and insulin (but not over-the-counter drugs); hearing aids; transportation to and from the doctor’s office; the unreimbursed costs of long-term care; and many home improvements to accommodate a disability or illness. For more information about what qualifies, see IRS Publication 502, “Medical and Dental Expenses.”

4. Driving a parent to doctors' appointments

Question: I live in New Jersey, and my elderly mom, who has dementia, lives in Brooklyn in New York City. My mom has Medicare and Medicaid; however, I help out with her medical costs whenever I can and drive her to the doctor's office. Can I deduct the cost of taking my mom to all of her medical appointments?

Joy Taylor: It depends on whether your mom qualifies as your dependent for tax purposes (with the exception of the $5,200 taxable income requirement). If your mom does qualify as your dependent, then you should be able to deduct the cost of transporting her to her appointments and various other medical costs that you pay for as a medical expense on your Form 1040. Note, you must itemize on Schedule A and medical expenses are deductible only to the extent that total medical expenses exceed 7.5% of AGI.

You can use the IRS's standard mileage rates for medical driving. For 2025, the rate is 21 cents per mile. For 2026, it's 20.5 cents per mile. It seems that you would be able to deduct only the mileage from your mom's place to her doctors' offices. I don't think the cost of you driving from your home to your mom's place and vice versa qualifies as deductible medical transportation.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: IRAs, 401(k)s and RMDs
• Ask the Editor: QCDs and Tax-Planning
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on the New Senior Deduction

That said, the new “senior bonus” deduction in President Donald Trump’s 2025 tax overhaul law probably sounds like a welcome break. (It’s up to $6,000 in extra tax relief if you’re 65 or older and otherwise eligible.) And it makes sense that the next question might be: Will the new “senior deduction” also help you avoid higher Medicare premiums?

The answer is relatively simple, but the reasons behind it can feel complicated. Here’s more of what you need to know.

Will Trump’s new $6,000 senior bonus deduction lower your IRMAA?

First things first. The so-called senior bonus deduction can reduce your federal income tax bill. But it doesn't directly cut the income figure that the Social Security Administration (SSA) uses to calculate the Income-Related Monthly Adjustment Amount (IRMAA).

To understand why, you have to separate three moving parts: how the bonus deduction works, how IRMAA is calculated, and what does and doesn't count in modified adjusted gross income ( MAGI).

1. How the new senior tax deduction works

The "senior bonus" deduction is part of the so-called big, beautiful bill, Trump’s latest tax overhaul package, enacted on July 4, 2025.

The deduction first applies to 2025 federal returns (ones you’ll file now in early 2026). It’s essentially an extra deduction for older taxpayers, layered on top of the existing standard deduction rules, and also available to those who itemize.

Key features:

• It’s available to taxpayers age 65 and older with a valid Social Security Number (SSN) for tax years 2025 through 2028 (unless Congress extends it).
• The maximum amount is $6,000 per qualifying individual, so a married couple where both spouses are 65 or older could get up to $12,000.
• It’s on top of the regular standard deduction and the pre‑existing extra standard deduction for older adults and is available to itemizers as well.
• It’s subject to income limits based on modified adjusted gross income: the bonus starts to phase out when MAGI goes above roughly $75,000 for single filers and $150,000 for joint filers, and it disappears entirely at higher levels.

The critical detail for the IRMAA conversation: the senior bonus is a deduction that reduces taxable income, not what the IRS considers to be your AGI.

2. How is IRMAA calculated?

IRMAA is the surcharge added to your Medicare Part B and Part D premiums if Social Security determines that your income is high enough.

It’s essentially a means‑tested add‑on, and it’s based on a specific definition of income: your MAGI from two years prior.

That timing sometimes catches people off guard. Your 2026 IRMAA is generally based on your 2024 MAGI. Your 2027 IRMAA is based on your 2025 MAGI, and so on. So, changes you make in one tax year often show up in your Medicare premiums two years later.

For IRMAA purposes, the government starts with your AGI and then adds back certain items to arrive at MAGI. Common add‑backs include:

• Tax‑exempt interest (like interest from municipal bonds).
• Some foreign income exclusions and similar adjustments are required in more complex situations.

Standard and itemized deductions, the extra standard deduction for those over age 65, and this new senior bonus deduction don’t reduce AGI. They operate below the AGI line, which is why they do not directly lower MAGI for Medicare IRMAA.

3. MAGI vs. taxable income: Key difference

On your tax return, you’ll see several "income" numbers:

• Gross income is essentially all income you bring in that’s taxable.
• Adjusted gross income (AGI) is gross income minus "above‑the‑line" adjustments (e.g., specific retirement contributions, HSA contributions, deductible self‑employment tax, etc.).
• Taxable income is AGI minus either the standard deduction or itemized deductions (plus other below‑the‑line items).

IRMAA is tied to modified AGI, not taxable income. When you claim the new $6,000 senior bonus, you are reducing taxable income. However, your AGI itself doesn’t necessarily budge as a direct result. The MAGI number that Medicare cares about generally won’t change either, unless something else about your income mix changes.

That’s why the bonus deduction can be good news for your federal income tax bill, but if you were hoping it would drag you under an IRMAA threshold on its own, it likely won’t.

A quick example:

Imagine Susan, age 67, a single filer on Medicare. In 2025, her adjusted gross income is $90,000. (That includes some IRA withdrawals and interest income.)

Because she’s over 65 and under the senior bonus income phase-out ceiling, she qualifies for the full $6,000 bonus deduction. That new write-off lowers her 2025 taxable income and lowers her federal tax bill for the return she files this 2026 tax season.

But her 2027 Medicare premiums will still be based on her 2025 MAGI of $90,000, before any standard deduction, extra over-65 deduction, or the new senior bonus is applied. Those deductions don't change the AGI/MAGI number that Social Security uses for IRMAA, so the bonus cannot, by itself, pull Susan below the Medicare surcharge threshold.

Can the senior bonus still help your IRMAA strategy?

Even though the deduction doesn’t directly shrink MAGI, it can still play a role in broader planning around IRMAA.

For example, it might:

Make Roth conversions slightly more palatable. Assume that the senior bonus reduces your overall tax bill in a year when you do a modest Roth conversion. In that case, you might feel more comfortable managing the trade‑off between current taxes and future IRMAA exposure. The conversion still increases MAGI, but the bonus deduction might offset some of the tax burden.

Influence which income levers you pull. Knowing that the deduction doesn’t affect MAGI may force you to focus more on MAGI‑sensitive moves to try to stay below an IRMAA bracket. This might include reconsidering the timing and size of Roth conversions, capital gains realizations, and large one‑time distributions.

Reinforce why tax‑exempt income isn’t "invisible." Some retirees lean heavily on municipal bond interest, assuming "tax‑free" also means "IRMAA‑free." However, that interest is added back when calculating MAGI.

So, the new senior bonus deduction can be a helpful tool for reducing the tax you pay on your income, but it's not necessarily a lever for shrinking the income number that Medicare uses.

Near IRMAA threshold? What to watch

If your income is comfortably below the first IRMAA threshold, the senior bonus deduction is mostly straightforward. You take it if you qualify and likely enjoy the lower tax bill.

If your income is bumping up against an IRMAA bracket, though, you may want to keep an eye on the following.

• The size and timing of required minimum distributions (RMDs)
• Whether and when to do Roth conversions
• Large capital gains or one‑off income events (like property sales or big retirement account withdrawals)
• How much tax‑exempt interest do you generate each year

Bottom line? The new tax deduction can be a positive if you qualify. But it’s not a magic IRMAA fix. The best way to keep Medicare premiums under control is still to manage your MAGI, ideally using a multi‑year plan.

Read More

• The Many Definitions of Modified Adjusted Gross Income (MAGI)
• How to Calculate Taxes on Social Security Benefits
• The Extra Standard Deduction for People Age 65 and Older

As reported by Kiplinger, the D.C. Council recently enacted an emergency bill to decouple local tax laws from the federal 2025 Trump tax bill. That move would have effectively blocked residents from claiming the $6,000 "senior bonus," the "no tax on tips" deduction, and other new federal tax breaks on their District returns.

However, the United States Congress, which holds final review authority over D.C. laws, has struck back. A joint "disapproval" from both the U.S. House of Representatives and the Senate overturned the city's emergency tax law.

"It's just a mess, it didn't have to happen," D.C. Council Chairman Phil Mendelson told reporters earlier this month, following a Senate vote to overturn the District's emergency legislation.

Now, "early bird" filers might need to refile their income tax returns to capture local tax relief, and all D.C. filers could be forced to finish their income taxes in the fall.

Bonus deduction for older adults and overtime tax breaks are (almost) final in D.C.

Although the newly enacted Trump tax law sets federal policy, states generally have the right to conform their local tax policies or move away from federal law. The act of "moving away" is known as decoupling.

Facing projected revenue shortfalls, the D.C. council passed an emergency law in November to decouple the city's budget from the federal tax overhaul, citing budgetary concerns amid a then-government shutdown.

By opting out of the federal tax breaks, city officials anticipated using the almost $600 million in tax revenue to create a new local Child Tax Credit and bolster the District's version of the federal Earned Income Tax Credit (EITC).

However, Congress has moved to block the District's decision.

Capitol Hill lawmakers challenged the city's maneuver through House Joint Resolution 142, which explicitly "nullifies [recently passed decoupling] legislation enacted by the District of Columbia," effectively forcing the city to realign its local tax code with the new federal standard.

This intervention is possible because, unlike states that have decoupled, Congress maintains ultimate authority over the nation's capital (more on that later).

So, what happens next?

Since the resolution passed both the U.S. House and Senate, it moved to President Donald Trump's desk, where it was signed.

The resolution has drawn sharp criticism from some officials who argue that the District is being used as a pawn at the expense of taxpayers.

“The truth is, this city has already been under unrelenting assault by this [Trump] administration. The amount of bureaucracy in terms of refiling taxes puts another burden as well.” U.S. Senator Mark Warner (D-Virginia) remarked during Senate floor proceedings in February 2026.

The sentiment was echoed by Mendelson, as reported by WAMU, “There’s nothing fair about what’s going on. All they are doing is causing pain to the District government and to taxpayers.”

Taxpayer impact: Should you submit an amended tax return in D.C.?

The Congressional intervention is set to disrupt a tax filing season that is already in full swing. And the impact won't just be legislative, but a potentially massive technical hurdle for the District’s tax infrastructure.

D.C. Chief Financial Officer Glen Lee outlined the negative consequences of the disapproval resolution in a joint letter to congressional leaders.

"Forms and systems for tax year 2025 will no longer be consistent with District law," Lee wrote. ".... adjustments will likely require several months, which would extend District income tax filing deadlines into fall 2026." The financial impact of the decoupling is not only expected to result in lost revenue but, as Lee explains in the letter, "also generate millions of dollars of additional expenses."

The news comes after the District of Columbia anticipates losing up to $1 billion over the next four years due to the projected loss of 40,000 federal government-related jobs from the Trump administration staffing cuts, according to the D.C. Fiscal Policy Institute. Further erosion of the budgetary outlook could force cuts to public services and may negatively impact overall economic health, according to local officials.

Yet some warn that 2026 filers will bear the brunt of these fiscal shifts first.

"I just can't even imagine what it's like to tell thousands of tax filers, 'Oh, I know you filed, you did what you were supposed to do, but, oops, can you do it again?" D.C. Mayor Muriel Bowser, who is not seeking another term, said at a news conference earlier this month.

D.C. officials say changing local tax policy mid-season forces taxpayers who already filed to re-file, causing significant filing delays, and possibly lowering taxpayer compliance.

What does that mean for taxpayers?

Well, for the more than 42,000 residents who have already filed in D.C., they might now need to do the following since Trump signed the decoupling resolution (to take advantage of any applicable federal tax breaks on their local returns):

• Wait until D.C.'s new tax systems and forms are up and running.
• Use Form D-40 and check the box that it's an amended return.
• Include an explanation of the changes and any required forms that were missed.
• File online through MyTax.DC.gov or mail the completed amended return within 3 years of the original filing date, or 2 years after paying tax (whichever is later).

For the approximate 361,000 D.C. residents expected to file, processing delays could slow down tax refunds, depending on how long it takes the D.C. Office of Tax and Revenue to update applicable forms and systems.

Is a legal battle looming over the Trump tax law?

While the current fight may be in legislative buildings and press conference meetings, it could soon move to the courtroom.

The District of Columbia Home Rule Act of 1973 gives Congress the authority to review and potentially block any bill passed by the D.C. Council. But that block must occur within a specific window — typically 30 days.

That's why Mendelson recently contended that time stopped ticking at 12 pm on February 12, 2026, which was hours before the House and Senate finalized Joint Resolution 142. On that day, Mendelson posted a formal notice declaring that the review period had expired without federal intervention, effectively making the "decoupling" law permanent.

Congress, however, disagrees. Federal lawmakers argue that the Home Rule Act's definition of "days" is more flexible, accounting only for the days when both congressional chambers are in session. This would mean the review period hadn't expired before the resolution was passed.

D.C. officials haven't filed a lawsuit yet. But tax season is in full swing, a new city budget is due in April, and so the D.C. Council has decisions to make soon. Stay tuned.

Read More

• 10 Tax Breaks for Middle-Class Families on Income Taxes
• 3 Popular Tax Breaks Are Gone for Good in 2026
• What Changed in Trump's Tax Bill and How It Affects Your Taxes
• IRS Income Tax Refund Schedule 2026: When Will Your Refund Arrive?

1. Moving expense deduction

Question: Can I deduct moving expenses on my 2025 Form 1040? I'm talking about the cost of the moving van, mileage, food, lodging, etc.

Joy Taylor: Unfortunately, moving expenses are generally not deductible. It used to be that when you relocated for a new job, you could deduct the cost of your move on Form 1040. The 2017 Tax Cuts and Jobs Act temporarily eliminated the write-off from 2018 through 2025. And the One Big Beautiful Bill that lawmakers enacted in July 2025 made this repeal permanent.

There is one exception. Active-duty military personnel who move pursuant to military orders can still deduct their moving costs.

2. Interest write-off

Question: Rather than obtaining a mortgage when I bought my primary home last year, I borrowed against my investment securities at my brokerage firm with the intention of paying off a portion of the borrowed funds within a year or a bit more. I paid monthly interest on the borrowed funds until I paid off the debt after 15 months. Is the interest on the borrowed funds tax-deductible as home mortgage interest?

Joy Taylor: I don't think you would be able to take a federal tax deduction for the interest on the borrowed funds unless your home secured the loan. According to the IRS in Publication 936, Home Mortgage Interest Deduction:

"Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, or a second mortgage."

The IRS goes on to say: "Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan. The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements."

You said you borrowed against your securities. That makes it sound to me that your home didn't secure the loan. As a result, I don't think the interest qualifies as home mortgage interest.

Individual taxpayers can also deduct investment interest in certain cases. But again, I don't think your situation would qualify. That's because you didn't use the proceeds from the loan to acquire investment property. The tax rules allow, subject to limitations, a deduction for investment interest for people who borrow money to buy property held for investment. Here is how the IRS defines investment property for this purpose in Publication 550, Investment Income and Expenses:

"Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity)."

Unfortunately, a personal residence generally is not investment property for this purpose.

3. Senior deduction

Question: What is the $6,000 write-off for filers age 65 and older? Can you furnish me with detailed information?

Joy Taylor: The One Big Beautiful Bill that federal lawmakers enacted last July includes various tax changes for individuals. One of them is the $6,000 senior deduction. This write-off is for taxpayers who are 65 and older. Married couples with both spouses 65 and older can deduct $12,000 on a joint return. The deduction is available to taxpayers who claim the standard deduction and to those who itemize on Schedule A. The deduction is temporary, first taking effect on 2025 tax returns filed this year and ending after 2028.

Not every senior will qualify for the deduction. It begins to phase out at modified adjusted gross income (AGI) above $150,000 on joint returns and $75,000 on other returns. It is fully phased out once modified AGI reaches $250,000 for joint filers and $175,000 for others. Modified AGI for this purpose is AGI plus any foreign earned income exclusion, foreign housing exclusion, and certain income excluded from gross income because it was received from sources in Puerto Rico, American Samoa, Guam and the Northern Mariana Islands.

Each filer 65 and older must have a Social Security number to claim this tax deduction. And if married, you must file a joint return to claim the deduction.

Taxpayers who qualify for the $6,000 senior deduction use the new IRS Schedule 1-A to claim it. Fill out Part I of Schedule 1-A to calculate your modified AGI, and then complete Parts V and VI. Transfer the amount on line 38 of Schedule 1-A to line 13b of the 2025 Form 1040 (or line 13c of the 2025 Form 1040-SR). You can find the instructions for this Schedule in the Form 1040 instructions.

4. No deduction for gifts

Question: I gifted $5,000 to each of my grandchildren last year. Where do I deduct the gift on my federal tax return?

Joy Taylor: Gifts are not deductible to the donor for federal income tax purposes. So you can't deduct the gifts to your grandchildren on your Form 1040. The gifts are also not taxable to your grandchildren.

5. Charitable contribution deduction

Question: I donated publicly traded securities to a tax-exempt charity. The charity gave me a letter acknowledging the donation and describing what I gave, but didn't indicate the value of the contribution. Is this correct?

Joy Taylor: The charity is correct. The written acknowledgment letter that a charity gives you when you make a donation only includes the amount of a cash contribution. If you make a non-cash contribution, the letter is only required to provide the description of the contribution, but not the value.

For a donation of publicly traded securities, including shares in mutual funds, your charitable contribution amount is the fair market value of the securities on the date of the donation. The fair market value of the donation is the average between the highest and lowest quoted selling price on the date of the contribution.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on the $6,000 Senior Deduction
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Questions on SALT Deduction
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on Home Sale Tax Break

The American Gaming Association estimated that more than $1.76 billion would legally wager on the 2026 NFL championship, in which the Seattle Seahawks defeated the New England Patriots, 29-13.

“No single event brings fans together like the Super Bowl, and this record figure shows just how much Americans enjoy sports betting as part of the experience,” Bill Miller, AGA President and CEO, stated in a release about the big game.

But for 2026, the Super Bowl arrived alongside notable changes to how gambling winnings and losses are taxed, which could impact tax bills even for fans who just break even on the big game. Here's more to know.

Gambling winnings still count as taxable income

Under long-standing IRS tax rules, all gambling winnings, including sports bets, are taxable as ordinary income at the federal level.

• Yes, if you won on a Super Bowl or other bet through a legal sportsbook (like DraftKings, FanDuel, BetMGM, etc.), those winnings must be reported on your federal income tax return.
• For larger wins — typically over $600 — the sportsbook will issue a Form W-2G reporting your gambling income, and may even withhold taxes at the time of your payout.

State income taxes may also apply if you live in (or place the bet in) a state that taxes personal income. So your total tax bill is impacted by both federal and state obligations.

Gambling loss deduction change in 2025 Trump tax bill

One key change from the 2025 federal tax overhaul (informally known as President Donald Trump's "big beautiful bill") is this: For 2026, you can now deduct at most 90% of your gambling losses against winnings on your federal return, instead of the historical 100%.

This may sound minor, but it can create what tax experts call “phantom income” — taxable income that doesn’t reflect actual net gambling gains.

• Under the old rule (which applies to the 2025 tax returns you're filing now in tax season 2026), if you won $10,000 over the year but also lost $10,000, your net would be zero, so no tax on your gambling winnings.
• Under the new 2026 gambling loss limit, you could only deduct $9,000 of your losses against that $10,000. That essentially means $1,000 of theoretical income becomes taxable, even though you didn’t profit overall.

That extra taxable income is subject to your ordinary federal income tax rates, which range from 10 % to 37 % federally, depending on income level.

This change takes effect for tax year 2026 and beyond, meaning bettors who file their 2026 return in spring 2027 will feel the full effects.

Note: Though, as Kiplinger has reported, some lawmakers and industry leaders are looking to reverse the new gambling winnings rule. So, stay tuned.

Itemizing deductions still matters

Remember that gambling losses are deductible only if you itemize deductions on your tax return (using Schedule A).

But…most U.S. taxpayers take the standard deduction, which is higher than ever before but means no deduction for gambling losses. So, as mentioned, if you don't itemize, every dollar you win counts as taxable income regardless of losses.

State gambling tax changes

In addition to federal changes, some state and local governments are adjusting how they tax sports betting revenue. For example:

• Last year, Maryland raised its sports betting tax rates on operators. Some argue this could shrink profit margins and potentially influence odds or promotions
• As of January 1, 2026, Illinois has layered surcharges and progressive tax brackets on sportsbook revenue, and Chicago is enacting a city-level tax on betting revenue.
• Colorado is phasing out and will eventually eliminate its tax deductions for "free bets," meaning operators will pay more tax on gross gaming revenue over time.
• Several other states like Wyoming, Ohio, and North Carolina, have considered tax increases or structural changes to sports betting taxes.

Higher tax rates on operators are sometimes passed through to bettors in the form of reduced payout percentages, fewer free-to-play credits, or steeper early cash-out fees.

Super Bowl 2026 bet strategy: Plan ahead for taxes

With the Super Bowl wrapped and dollars on the line in potential winnings, the hype and excitement are real, but so are the tax implications:

• Know your obligation: Even small winnings are taxable; your friendly sportsbook issuing or not issuing a tax form doesn’t change your duty to report.
• Track wins and losses meticulously: If you itemize, good record-keeping is key to maximizing your deductible losses — capped at 90 % for gambling losses as of 2026.
• Anticipate “phantom income”: This year, it’s possible to owe tax even without a net profit.
• Watch for law changes: Local and state legislatures are actively revising sports betting tax codes, and the Trump administration could look to reverse the gambling loss limits enacted in its 2025 tax bill.

How much gambling winnings are taxable: Bottom Line

Unless Congress acts, new federal tax changes might reduce how much of your losses you can write off next tax season, which could affect your tax bill if you’re a big winner or even a breakeven bettor.

When layered with evolving state and local tax rules, your tax return next year could be as dramatic as this year's game.

Read More

• How 2026's Surge in First-Time Bettors and New IRS Rules Are Shifting World Cup Odds
• Taxes on Gambling Winnings and Losses: 9 Tips to Remember
• Trump Eyes Law Reversal on Gambling Loss Deduction
• What's Changed in the New Trump Tax Bill?

After all, the 2025 Trump/GOP tax and spending bill introduced several new tax breaks, like the deductions for tips and overtime. Yet while the IRS doesn't consider pets to be "dependents," there are specific (albeit strict) scenarios where your animal can actually reduce your taxable income.

From medical service animals to the rising world of "pet influencers," here are four ways your pet costs might qualify for a tax deduction on your 2025 return.

This article is not exhaustive advice for claiming pet-related costs on your federal income tax return. Consult with a tax professional before filing a return with deductible pet expenses.

Is there a pet tax credit or deduction?

No. A general "pet tax credit" or deduction doesn't exist at the federal level. Because the IRS views pets as personal property rather than human dependents, your day-to-day pet care expenses (like food, grooming, vet bills, etc.) are typically not tax-deductible.

That said, several states have attempted to offer pet owners some tax relief. In California, for example, some lawmakers proposed a pet tax credit that would provide up to $250 for adoption fees and $500 for medical care. However, pet tax credits and similar proposals remain stalled in state legislatures and are not available for the 2026 tax season.

Despite these roadblocks, you aren't necessarily out of luck. There are four specific situations under federal IRS rules that could allow you to claim pet-related costs as a business, medical, or charitable expense — if you qualify.

Pet tax deductions for dogs, cats, and horses

As mentioned, the IRS has strict rules for when you might claim your pet-related costs as a deduction on your federal return. Generally, pet expenses must fall into one of the following categories to be deductible:

1. Certified service animals. If a qualified animal is specifically trained to assist you in a diagnosed physical or mental disability, those related pet costs might qualify for the medical expense deduction (if you itemize instead of claiming the standard deduction).*
2. Business working animals. If you use a cat for pest control at a storage facility, a guard dog to protect a warehouse or junkyard, or have a similar business situation, you might be eligible to claim pet costs as "ordinary and necessary" business expenses on Schedule C.
3. Income-generating pets. If your pet works as an influencer (think: monetized social media), in film, or is a show or breeding animal, it could be considered a business asset and might qualify for a business deduction on Schedule C (unless your activity is considered a hobby — more on that later).
4. Foster pets. If you foster animals for a qualified 501(c)(3) nonprofit animal shelter or rescue, you might be eligible to deduct unreimbursed, out-of-pocket expenses as part of the charitable tax deduction (if you itemize).

Of course, all four scenarios have rules for when you can (or can't) deduct related pet expenses. Next, we'll visit a few of those rules as they pertain to tax documentation.

*Note: Household pets or emotional support animals (ESAs) that are not trained for a specific task related to a disability typically do not qualify as a "service animal" under either IRS or Americans with Disabilities Act (ADA) rules.

Pet tax deduction rules in 2026

Substantiating a "pet deduction" on your federal income tax return requires rigorous documentation. You'll want to be as specific as possible, documenting the medical, business, or charitable reason for your pet-related expenses. Below are a few examples.

1. Medical deduction pet rule. You'll have to obtain a "letter of medical necessity" from a doctor detailing why you need the animal. Even then, only documented, unreimbursed medical expenses (like food, grooming, and vet care) exceeding 7.5% of your adjusted gross income (AGI) might be deductible.
2. Business pet rule. You must keep detailed records, like receipts, invoices, and logs of the working animal's hours and duties. The animal should also be appropriate for the role (i.e., no one uses a toy poodle as a guard dog at a junkyard).
3. Performance pet rule. You can only claim your pet as an income-producing animal if the activity is a profit-seeking business, not a hobby. Plus, only qualified expenses, like training, grooming, and travel, can offset income (adequate documentation is also required).
4. Foster pet rule. The charitable deduction might include food, vet, or supply costs associated with your foster animal for a qualified non-profit. You must maintain accurate tax records and obtain written acknowledgment from the organization that you are volunteering with.

Be careful not to mistake a hobby pet activity for a business expense. If the IRS determines your pet-related activity lacks a primary profit motive, you’ll lose the ability to deduct any of the animal's costs as a business deduction (and might actually be at risk of an IRS tax audit).

Also, if the working animal is a personal pet, you can only deduct the percentage of expenses that relate to its work — so don't be surprised if the IRS wants a payback for the time Fido spent napping on your couch.

More on Filing

• Here's How to File Taxes for Free in 2026
• 8 Big Tax Changes to Know Before You File This Year
• What's the Standard Deduction in 2025 and 2026?

Why the discrepancy? It can come down to life changes or missed opportunities. Maybe you no longer qualify for the student loan interest deduction, or perhaps you’re leaving money on the table by taking the standard deduction instead of itemizing.

To help you avoid a shock on filing day, here are six common ways you could be paying more income taxes than necessary.

1. You overlooked the new 2025 tax credits and deductions

The 2025 Trump/GOP tax and spending bill introduced a wave of temporary tax incentives that could significantly alter your income return this filing season.

For instance, new car owners might be eligible for a car loan interest deduction, and workers earning tips or overtime might now qualify for targeted tax breaks. With the federal tax code in such a state of flux, it’s easier to overlook a major deduction or credit.

However, new and continuing tax breaks come with strict eligibility requirements, most notably income phase-outs. If your earnings exceed specific thresholds, certain tax breaks disappear, leading to a higher tax bill than anticipated.

Here are a few common tax deductions and credits with income phaseouts:

• Student loan interest deduction. For 2025 income taxes, the phase-out begins at a modified adjusted gross income (MAGI) of $85,000 for single filers and $170,000 for married couples filing jointly.
• Traditional individual retirement account (IRA) deductions. If you're covered by a retirement savings plan at work, your ability to deduct traditional IRA contributions starts to phase out at a MAGI of $79,000 for single filers and $126,000 for married couples filing jointly (for tax year 2025).
• "Senior bonus" deduction. Adults age 65 and older might qualify for this temporary tax break, but their income phase-out is $75,000 for single filers and $150,000 for joint returns.

What should you do next year? Start by reviewing various tax deductions and credits you might be eligible for. Next, look for ways to lower your adjusted gross income (AGI) so you can maximize your eligibility for tax breaks. For instance, you might increase contributions to pre-tax accounts — such as a 401(k), FSA or HSA — to directly reduce your taxable income.

Related: An HSA Sounds Great for Taxes: Here’s Why It Might Not Be Right for You

2. You claimed the standard deduction when you should have itemized

Roughly 90% of taxpayers claim the standard deduction, but this "path of least resistance" might not get you the most bang for your buck. For the 2025 tax year, several shifts in federal policy have made itemizing more attractive than it's been in years. For instance:

• The SALT cap increase. Until recently, the state and local tax (SALT) deduction was capped at just $10,000. But under the 2025 tax legislation, that cap has been raised to $40,000 for many filers. If you live in a high-property-tax state or pay significant state income taxes, this change alone could push your itemized total well past the standard deduction.
• Larger charitable contributions. New tax changes for 2026 charitable donations caused many taxpayers to donate larger gifts last year. If you increased your giving in 2025, those contributions could significantly tip the scales in favor of itemizing.

What should you do next year? Don't file out of habit. In a shifting tax policy environment, choosing whether you itemize or claim the standard deduction can change from year to year. Gather your property tax statements, mortgage interest summaries and receipts for donations and medical bills, and run the math on whether an itemized return could save you more on taxes.

Related: What's the standard deduction and who should itemize?

3. Your W-4 withholding is too low and outdated

Whether you’re starting a new role or settled into a long-term position, you should regularly review your Form W-4 (Withholding). This document tells your employer exactly how much to send to the IRS and state authorities on your behalf throughout the year.

If your tax withholding is out of date and too low, you might be build a debt to the IRS. Various life changes can increase your tax bill if your withholding isn't adjusted at least annually, like:

• Getting divorced or separated. Single and married-filing-separately statuses typically carry a lower standard deduction than those available to joint filers. Additionally, married separate filers might not qualify for certain tax breaks (like certain education tax breaks).
• Getting a pay raise. While a promotion, bonus, or raise is great news, that extra income could push you into a higher tax bracket, making your current withholding levels insufficient.
• Having a child leave home. When a child turns 17, they no longer qualify for the $2,200 child tax credit, even if they still live at home (though temporary absences, such as college, are exempt from this rule).

What should you do next year? Reviewing your withholding annually can help you avoid a surprise tax bill filled with interest and fees. Currently, the IRS failure-to-pay penalty is 0.5% of your unpaid taxes for every month (or part of a month) the balance remains, capping at 25%. Don't forget that most state agencies can apply their own underpayment penalties, adding another layer of cost to your tax bill.

4. Your side hustle income was underreported, or you missed estimated tax payments

Taking on a new side hustle during the past year means you probably owe taxes on the income generated from that work. Many freelancers and gig workers are surprised to learn that the IRS expects quarterly estimated tax payments if you anticipate owing $1,000 or more in federal taxes at year-end.

Whether you’re an Etsy seller, an Uber driver, or a freelance consultant, you'll probably receive some combination of the following tax forms when determining your income tax bill for the year:

• Form 1099-K: Reports payments received through third-party processors like PayPal, Venmo, or specialized gig platforms.
• Form 1099-NEC: Reports non-employee compensation for services you’ve performed as an independent contractor.
• Form 1099-MISC: Reports income not covered in the NEC category, like rental income.

*Note: All earned income is typically taxable regardless of whether you receive a tax form.

Failing to report your earnings throughout the year doesn't just lead to a higher bill come tax time, but can also trigger IRS underpayment penalties and interest.

Furthermore, if you aren't tracking your business expenses as you go, you might miss valid breaks (such as the home office deduction) and other overlooked tax deductions for the self-employed.

What should you do next year? Take time now to review the rules for reporting self-employment income. Depending on whether you're a full-time contractor or just a casual freelancer, your tax requirements might differ. For a deeper dive into maximizing your savings, check out Kiplinger’s report, 12 Tax Strategies Every Self-Employed Worker Needs in 2026.

5. Your tax-inefficient investments hurt your return

Did you sell a stock, bond, or piece of real estate for a profit last year? If so, that capital gain likely boosted your taxable income and potentially contributed to a higher tax bill. However, it isn't just what you sell that matters — it's where and how long you hold your investments.

Your income tax bill might be higher than expected because of these common oversights:

• Poor asset location. Keeping "tax-heavy" investments — such as high-yield bonds or actively managed mutual funds that payout frequent dividends — in a taxable brokerage account instead of a tax-deferred 401(k) or IRA.
• Frequent trading. Gains on assets held for less than a year (short-term) are taxed at ordinary income rates, which can reach as high as 40.8% when you include the net investment income tax (NIIT).
• Missing out on tax-loss harvesting. If you have winning investments, you can offset those gains by selling "losers" at a loss. If your losses exceed your gains, you can use up to $3,000 to offset your ordinary taxable income.

What should you do next year? Aim to maximize your contributions to 401(k)s, 403(b)s and IRAs to keep more of your growth tax-deferred until retirement (when your income tax rate might be lower). For your taxable accounts, try to hold investments for at least one year to qualify for lower long-term capital gains rates. Finally, make "tax-loss harvesting" a year-end habit to ensure you aren't paying more on your winners than you have to.

More: The Wash Sale Rule: Six Things to Know to Avoid Tax Pitfalls

6. You overlooked state-specific tax credits and deductions

While not every state has its own tax rules (and some states have no income tax at all), ignoring state-level credits and deductions is one of the easiest ways to overpay your year-end income tax bill.

Taking advantage of every tax break available to you could help save on state income taxes. To ensure you aren't leaving state money on the table, consider these tax resources and strategies:

• Stay current on state tax changes. Review applicable rules and any upcoming local changes to better prepare for your state income return.
• Look for how retirement taxes work in every state. If you're retired, how your state treats Social Security or pension income is vital — and could help you save on your next income tax bill.
• Check out the best low-tax states for middle-class families. Is your state a high-tax state? For some, a move across state lines might be the most effective tax strategy of all.

What should you do next year? Visit your state’s Department of Revenue website before you file. Many states have tax deductions, credits, and exemptions that can significantly reduce your state income tax liability.

Read More

• Tax Season 2026 Is Here: 8 Big Changes to Know Before You File
• 3 Popular Tax Breaks Are Gone for Good in 2026
• How to Lower Your Tax Bill Next Year
• 7 Bad Tax Habits to Kick Right Now