Summer is often a popular season for major life milestones. Across the country, proud parents, grandparents, relatives, and friends are celebrating graduations and weddings, and some are sending hefty financial gifts.

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.

Read More

• Gift Tax Exclusion 2026: What You Need to Know
• 5 Types of Gifts the IRS Won't Tax Even if They're Big
• June Tax Deadlines and IRS Refund Status

Touted by the Trump administration as "eliminating taxes on Social Security," the new, temporary "senior bonus deduction" is adding to concerns about Social Security's solvency, even as a COLA increase is expected for the coming year.

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

• How the $6,000 Senior Bonus Deduction Works
• 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.

Related Content

• How to Organize Your Financial Paperwork for Your Heirs
• Tips to Declutter Your Home Before Your Retirement Move
• 7 of the Best Budgeting Apps for 2026

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.

Related Content

• 7 Overlooked Tax Deductions for the Self-Employed
• 12 Tax Strategies Every Self-Employed Worker Needs in 2026
• Ask the Tax Editor, May 15: Deductions for Self-Employed Retirees

Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four questions on available tax breaks for retirees with a side hustle. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

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.

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Will I be Audited by the IRS?
• Ask the Editor: How Can I Resolve My IRS Tax Debt?
• Ask the Editor: Tax Questions on Roth IRA Conversions
• Ask the Editor: Reader Questions on QCDs
• Ask the Editor: What Medical Expenses are Deductible?

In 2026, frugality might feel to some more like a survival strategy than a lifestyle choice. A recent survey by price comparison site, Lenspricer, found that people across the country are adopting "broke behaviors," from skipping delivery fees to delaying purchases, to cope with the rising cost of living.

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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The 2026 FIFA World Cup kicks off this month with a projected record $150 billion in total wagers — driven largely by millions of first-time bettors.

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 $3,000 on the group stages but lose $4,000 on the finals.

• Winnings: $3,000
• Deductible losses: $2,700 (90% of your $3,000 win)
• Taxable income: $300

Even though you're down $1,000 in cash, the IRS sees $300 in income. This amount is taxed at ordinary rates (10% to 37%), meaning you're paying the government for the privilege of losing 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 $3,000 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.

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If you're a ride-share driver, delivery person or other gig worker, a simple smartwatch habit could land you in hot water during a tax audit. That's because fitness app users who track business miles might not be aware of the in-app limitations.

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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For millions of retirees, every dollar saved on taxes can help keep up with rising grocery and gas prices, health costs and everyday living expenses.

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.

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As we approach the 2026 mid-term elections and the close of a historic tax season, some lawmakers are already pivoting toward new tax relief proposals. Two plans in particular are designed to provide income tax cuts for low- and middle-income households by raising taxes on high earners.

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.

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Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on changes to charitable deductions and other tax breaks that first take effect in 2026. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

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.

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Even careful taxpayers can make filing mistakes that lead to penalties, missed deductions, or paying more tax than necessary.

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.

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Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on monthly Medicare premiums, IRMAA and tax-deductible medical expenses. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

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

Turning 65 can come with meaningful tax advantages. That's especially true now, given changes under the Trump/GOP tax bill enacted in July of last year.

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

Just three years ago, Alabama made history as the first state to strip income taxes from overtime pay. Yet the celebration for overtime workers was short-lived.

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

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. In the Ask the Editor July 18, 2025 column, she answered four questions on the new $6,000 senior deduction. This week she's looking at five more questions on the topic. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

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

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on how to file a tax return for someone who died. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

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

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at four questions on whether you can claim your elderly parent as a dependent on your tax return and more. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

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

If you’re on Medicare, you probably dread at least two financial happenings each year: tax season and a letter informing you that your Part B and Part D premiums are increasing.

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

What's worse than filing your taxes once? Having to do it twice. But that may be the startling reality for roughly 42,000 District of Columbia residents who were proactive enough to file their tax returns early this year.

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?

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on the whether moving expenses and more are tax-deductible. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

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

Every year, the Super Bowl becomes the biggest night for sports betting in the United States as wagers are placed across states and platforms. And this year is no different.

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?

We celebrate their birthdays, pay their vet bills, and include them in our family portraits — so it’s only natural to wonder if your furry friend can help lower your tax bill, especially as we head into the 2026 filing season.

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?

Nobody likes a tax season surprise — especially when it's a bill instead of a check. While the House GOP has projected $1,000 payouts for many taxpayers under the new 2025 laws, the reality for some will be a higher income tax bill or a shockingly lower refund.

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

You could be in for surprise taxes if you're planning for retirement in 2026. And we're not talking about common tax pitfalls, like taking required minimum distributions (RMDs) that force withdrawals from your individual retirement accounts (IRAs). (Though those certainly are important).

Several new federal policy changes could hike your retiree tax bill this year. For instance, under the 2025 Trump/GOP tax and spending bill, your "senior bonus" deduction may be lower than expected due to income phase-outs, indirectly resulting in an overall increase in Social Security benefit taxes.

For high-earning retirees still in the workforce, 2026 is the year the mandatory "Roth catch-up" mandate could arrive. Employers can start requiring you to contribute your catch-up contributions to a Roth account in this final year of implementation.

These three new retirement tax traps for retirees go beyond the basics, so let's look at how you might avoid them in 2026.

Related: Don't Overpay the IRS: 6 Tax Mistakes That Could Be Raising Your Bill

1. The SECURE 2.0 Roth catch-up contributions for 2026

About one-fifth of Americans 65 and older work, according to Pew Research, and if that's you, you'll want to watch out for the new high-earner Roth catch-up rules in 2026.

What's changed? Under federal tax law, if you're 50 or older, you can make catch-up contributions to your employer-sponsored retirement savings account (like a 401(k), IRA, etc.). However, starting this year, high earners may be subject to a "Roth mandate," which requires their catch-up contributions to be made to a Roth account, using after-tax funds.

The SECURE 2.0 "Roth mandate rule" won't be fully implemented until 2027, but employers must start complying as of January 1, 2026.

Here's who's affected by the new Roth rule on catch-up contributions:

• Workers (including retirees) who are 50 and older with a 401(k), 403(b), or governmental 457(b) plans, with
• Income of $150,000 or more from their current employer in the prior year.

Here's how to avoid the Roth mandate tax trap:

• Prepare for a smaller paycheck. With the shift to after-tax Roth catch-ups, that familiar pre-tax deduction may be gone on your year-end return. Plan now to adjust your 2026 household savings strategy.
• Watch for future Medicare premium spikes. Your adjusted gross income (AGI) might tick higher with after-tax Roth catch-ups compared to pre-tax contributions. Consider stopping catch-up contributions if the new rule applies to you, and look for investment options that don't affect AGI, like municipal bonds (though municipal bonds may impact your modified AGI calculation on Social Security benefits).
• Review your return for potential loss of tax benefits. Key 2026 benefits — like the new "senior bonus deduction" (more on that later) — have income phase-outs. Without the benefit of a pre-tax contribution, you might not get the highest tax benefit possible.

But while there are certainly some drawbacks, Roth contributions mean you can withdraw that money tax-free in retirement. That's why there are six reasons why you might convert your IRA to a Roth this year.

2. Social Security 'senior' tax deduction phase-outs in 2026

When the 2025 Trump tax bill was signed, there was initial confusion about whether federal taxes on Social Security benefits would be eliminated. While the Trump law didn't end the tax on Social Security benefits, a temporary new federal deduction was created, called the "senior bonus deduction."

What's changed? The idea was that the deduction would lower the amount of income subject to Social Security benefits tax by up to $6,000 per qualifying individual. The problem with this strategy is that not all retirees are eligible for the new bonus deduction.

For instance, single filers must make under $75,000 in modified adjusted gross income (MAGI) per year ($150,000 MAGI if married filing jointly). After that, the deduction begins to phase out.

Consequently, retirees who anticipated the senior bonus deduction lowering (or even "eliminating") their Social Security benefit taxes might end up with a higher tax bill if they aren't aware of the income phaseouts (and other eligibility requirements).

Here's what you can do to avoid this Social Security "senior bonus" tax trap:

• Avoid any extra withdrawals from an individual retirement account (IRA). If your household income is hovering just below the phase-out lines of the "senior bonus" deduction, hold off on withdrawing from an IRA that could wipe out the new tax break.
• Use a qualified charitable distribution (QCD). If you're at least 70 ½, you might use a QCD from an IRA to not only satisfy your RMD rules, but also to lower your AGI and keep yourself below the taxable thresholds for Social Security benefits and the bonus deduction.
• Review your investment strategy. Large taxable events, like Roth conversions or significant capital gains, should be strategically sequenced over time. Alternatively, if you can harvest capital losses to offset those gains, you can keep your income below the $6,000 bonus deduction phase-out limits (and maybe reduce taxation on Social Security benefits, too).

Despite the confusing Social Security Administration (SSA) email sent early last year, Social Security benefits remain federally taxable, up to 85%. Knowing the tax rules can help you avoid a surprise Social Security tax bill in retirement.

3. State tax conformity in 2026: Does your state follow the 'senior bonus' deduction?

States have the option to follow all, part, or none of the tax policy changes enacted in the 2025 Trump/GOP tax and spending bill. This is another opportunity for a potential "tax trap" on your state income tax bill at the end of the year (if you have one).

For instance, Virginia has temporarily halted automatic conformity with federal tax law, meaning residents will need to add back any 2025 Trump tax law changes to their state income returns during the 2026 filing season.

So if, say, a 70-year-old single filer who lives in Virginia has $55,000 in taxable income and qualifies for the "senior bonus" deduction:

• Federal taxes could allow a $6,000 "senior bonus" deduction, resulting in $49,000 federal taxable income.
• However, Virginia state income tax would add back that $6,000 deduction, resulting in $55,000 state taxable income.

*Note: This is a simplified example to demonstrate the difference between conformity vs. nonconformity tax rules. Actual federal and state tax positions may differ.

What's changed? While nonconformity with federal tax policy isn't a new development, more states are choosing not to adopt all the 2025 Trump tax law changes due to state budgetary concerns. Consequently, managing two different financial identities — one for federal, one for state — may be a more prevalent concept for many retirees in 2026.

Here are a few steps you can take to mitigate the state conformity tax trap:

• Working retirees should verify their state withholding. Don't let your employer's payroll system only account for federal withholding. Manually increase your state-level withholding (if necessary) or increase your quarterly estimated withholding (if you pay income taxes via that method).
• Use the health savings account (HSA) "Bronze Switch." The Trump/GOP tax bill expanded HSA eligibility to include Bronze health plans beginning this year. That means if your state has high income taxes but follows federal HSA rules (most states do), consider maximizing your HSA contributions to help lower your AGI for both federal and state purposes.
• Review if your state is adopting the federal "senior bonus" deduction. If your state doesn't allow the senior bonus, scale back any large taxable events. For instance, if you plan on converting an IRA to a Roth this year, convert up to the amount where your state tax bill remains manageable.

There may be other tax pitfalls as states continue to weigh in on whether to conform to federal tax law changes. Consult with a qualified tax professional if you have questions about your financial position.

Read More

• An HSA Sounds Great for Taxes, But It Might Not Be Right for You
• When to Hire a Tax Pro: The Age Most Americans Switch to a CPA
• Social Security Tax Limit for 2026: What the Higher Cap Means for Your Paycheck

You may have heard that the 2026 tax season, which officially began January 26, is the first to be impacted by President Donald Trump’s 2025 tax law, known by some as the "big, beautiful bill."

New tax changes, from revamped credits and one less free filing option to updated 1099‑K rules and new schedules for special breaks, could affect whether you owe money or get a tax refund, and how quickly the IRS processes your return.

On that note, the IRS is still implementing the changes and updating systems amid budget and staffing pressures. So be prepared this filing season for longer wait times for phone assistance and potentially slower resolution if your return needs extra review.

In the meantime, here are eight key 2026 tax season changes to know before you file.

1. The standard deduction for 2025 taxes is bigger

The 2025 Trump tax bill, signed into law on July 4, 2025, makes the lower individual tax brackets from the 2017 Tax Cuts and Jobs Act (TCJA, from Trump's first term as president) permanent. That means the seven federal income tax rates remain and range from 10% to 37%.

But for 2025 returns you'll file this tax season, the standard deduction increased to about $15,750 for single filers, $31,500 for married couples filing jointly, and $23,625 for heads of household.

(Those numbers reflect the higher base TCJA amount plus the Trump tax bill 2025 boost and inflation adjustment.)

Note: A higher standard deduction generally reduces taxable income and can simplify filing. But it can disadvantage taxpayers who would otherwise benefit more from itemizing deductions.

For more information, see 2025 Standard Deduction Changes Under the Trump Tax Law.

2. The SALT deduction cap has increased — for now

Speaking of the state and local tax deduction, the "big beautiful bill" raises the SALT cap from $10,000 to $40,000 for 2025 returns.

• The cap will increase by 1% annually through 2029. Phase‑outs begin for households with modified adjusted gross income (MAGI) over $500,000.
• Note: This expansion is temporary. After 2029, the SALT deduction cap is scheduled to revert to $10,000.

The higher cap will likely have the most significant impact on joint filers with high property‑tax bills in high‑cost housing markets. For many in that group, itemizing could now result in a bigger deduction than claiming the standard deduction.

For more information, see SALT Deduction: Three Things to Know.

3. Child tax credit amount and rules have changed

Taxpayers with children see a modestly higher federal child tax credit (CTC) for 2025, along with some eligibility rule changes.

• For 2025 returns, the maximum child tax credit is $2,200 per qualifying child under age 17. That's up $200 from last year and is subject to income limits.
• Up to about $1,700 of the credit can be refundable for eligible lower‑income families through the additional child tax credit, depending on earned income and other requirements.

Income‑based phase‑outs still apply. For most single filers, the CTC begins to phase out when MAGI exceeds $200,000. For most married couples filing jointly, it begins to phase out at $400,000, with the credit shrinking as income rises above those thresholds.

Co‑parents should coordinate which parent will claim each child for the year to avoid duplicate claims and processing delays.

To learn more, see Child Tax Credit 2025 and 2026: How Much Is It?

4. Older adults over age 65 get a 'senior' bonus deduction

Beginning with the 2025 tax year and running through 2028, individuals age 65 and older may claim an additional $6,000 deduction on top of their standard or itemized deduction, subject to certain conditions.

• This “senior bonus” deduction phase-out starts at modified adjusted gross income (MAGI) of $75,000 for singles (and $150,000 for joint filers), and disappears once income exceeds $175,000 (single) or $250,000 (joint).
• The deduction requires a Social Security number valid for work and is not available to those filing as married filing separately.

For retirees living on Social Security, pensions, and IRA withdrawals, that extra $6,000 can significantly reduce taxable income. That's especially when it's combined with the higher standard deduction and the existing extra standard deduction for people over 65.

Note: Tax software should automatically calculate the amount once the date of birth is entered, but paper filers should check the age boxes and follow the form instructions.

To learn more, see How the New Senior Bonus Deduction Works.

5. There are several new deductions and a Schedule 1‑A

The 2025 Trump tax bill also introduces several new “above‑the‑line” deductions and organizes them on redesigned schedules.

A revamped Schedule 1 now works with a new Schedule 1‑A to capture adjustments to income created by the new tax law. That includes the new car‑loan interest deduction and targeted tax relief for qualified tip income and overtime pay.

• For 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a “qualified vehicle,” subject to a $10,000 annual cap and strict requirements, including final assembly in the United States and other eligibility rules.
• This deduction is treated as an adjustment to income, meaning eligible borrowers can benefit even if they don't itemize.
• For more information, see New Car Loan Interest Deduction: Which Buyers and Vehicles Qualify.

In addition, workers can claim new deductions for certain earnings: up to $25,000 of qualified tip income (subject to income phaseouts and specific occupation eligibility) and up to $12,500 of overtime pay for single filers ($25,000 fo joint filers), subject to income limits and qualifying work definitions.

These overtime pay and tip income amounts are generally claimed through the new schedules rather than directly on Form 1040, and they depend on accurate employer reporting of wages and tip income.

Note: For many filers who previously used only Form 1040, taking full advantage of these breaks may now require completing Schedule 1 and Schedule 1‑A. Expect your tax software or preparer to ask extra questions about car loans, tip reporting, and overtime pay in its income and deductions sections.

6. IRS Direct File is gone for 2026

After piloting a free Direct File tool in limited states for the past two filing seasons, the IRS is not offering Direct File for the 2026 tax season.

Taxpayers seeking free filing options must instead rely on IRS Free File (if eligible), commercial software (some exceptions may mean filing isn't free), volunteer tax‑prep programs such as VITA and Tax Counseling for the Elderly (TCE), or paper forms (IRS Free Fillable Forms) to file 2025 federal tax returns.

Learn more: A Free Tax Filing Option Has Disappeared for 2026.

7. Casual sellers get 1099-K threshold relief

Third‑party payment platforms remain a major source of information for the IRS. But the 2025 tax law backs away from the controversial $600 threshold for Form 1099‑K reporting.

Instead, the tax agency reverts to an old rule: platforms send a 1099‑K if you have more than $20,000 in gross payments and over 200 transactions in a year. That gives casual online sellers far more breathing room.

Some side‑gig workers and people who regularly use payment platform apps for business activity will still receive 1099‑Ks, and the IRS can compare those gross amounts to what’s reported on the return.

• Because a 1099‑K can also reflect non‑taxable reimbursements and sales at a loss, it helps to keep good records.
• Those records should separate actual taxable income from personal transfers and other non‑taxable amounts.
• Good tax records can help lower the odds of an IRS mismatch notice or make it easier to straighten things out if the tax agency flags a discrepancy.

See: Another 1009-K Rule Change for Your 2025 Taxes.

8. Small‑business owners see full expensing again

For 2025 returns, 100% bonus depreciation (or full expensing) is available and can increase the deduction you claim. However, the tax break only applies to qualified business equipment placed in service after January 19, 2025.

• Business owners should confirm the “placed in service” date for major purchases.
• The January 19 date, not when the equipment was ordered or paid for, determines how much can be expensed on the 2025 return.

2026 tax season changes: How to get ready before you file taxes

Given this mix of higher and new deductions, new schedules, and reworked rules, it makes sense to treat this filing season as more of a reevaluation rather than an automatic replay of last year.

• Check your withholding or estimated tax payments against the new tax brackets and deductions, gather any 1099‑K and new‑account forms, and confirm that you're eligible to use your desired filing method.
• As mentioned, because the IRS is rolling out these changes while managing budget and staffing cuts, taxpayers should anticipate longer phone wait times and slower processing for returns that need human review.

The IRS advises not waiting until the last minute to file, responding promptly to legitimate IRS letters (beware of tax scams), and using online tools where possible can also help reduce friction and improve the odds of a timely refund, if you're due one.

And, speaking of tax refunds…

As Kiplinger has reported, U.S. House of Representatives tax writers have said many filers could see 2026 refunds jump by roughly $1,000 under the new law if they claim every tax break they are entitled to.

Though, as always, whether a taxpayer receives a refund — and how much — will depend on their individual tax situation.

Read More

• Not Ready to File Taxes? 8 Things to Do to Prepare
• What's in the 2025 Trump Tax Bill and What It Means for Your Money
• IRS Tax Refund Schedule for 2026: What to Know
• Don't Overpay the IRS: 6 Tax Mistakes That Could Be Raising Your Bill

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week she's looking at five questions on reporting income and loss from residential rental property. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Can I deduct interest paid on a HELOC?

Question: I own a rental home that I lease to a tenant. Every year, I attach Schedule E to my Form 1040 to report the income or loss from the property. I have a mortgage on the property and deduct the interest I pay on Schedule E. Last year, I took out a home equity line of credit (HELOC) on the house. In addition to deducting the interest I pay on the primary mortgage, can I also deduct the interest that I pay on the HELOC?

Joy Taylor: It appears that you can deduct interest paid on the HELOC on Schedule E if you used the HELOC proceeds for use in your rental activity. For example, if you used the HELOC proceeds to renovate or improve the home, you can deduct the interest on Schedule E. If you used the HELOC proceeds for other purposes not related to your rental activity, then the interest is not deductible. If you used the proceeds for mixed use (a portion for rental property improvements and a portion for personal use), then you'll need to trace the interest to how the proceeds were used. Here is language from the IRS's Schedule E instructions.

"In most cases, to determine the interest expense allocable to your rental activities, you must have records to show how the proceeds of each debt were used. Specific tracing rules apply for allocating debt proceeds and repayment. In general, you allocate interest on a loan the same way you allocate the loan proceeds. You allocate loan proceeds by tracing disbursements to specific uses."

2. Do landlords qualify for the QBI deduction?

Question: I own rental property and generate a profit from the activity. Can I claim a 20% qualified business income (QBI) deduction for my rental income that I report on Schedule E of my Form 1040?

Joy Taylor: It depends. Self-employed individuals and owners of LLCs, partnerships, S corporations and other pass-through entities can deduct 20% of their QBI, subject to limitations for individuals with incomes in 2025 of more than $394,600 for joint filers and $197,300 for single filers and head-of-household filers. (For 2026, these figures are $403,500 for joint filers and $201,750 for others.)

Rental income reported on Schedule E of the Form 1040 may be eligible for the deduction in certain cases. There are two ways to qualify for the 20% QBI write-off for rental income. The first is whether the rental activity rises to the level of a trade or business. For this purpose, the IRS’s regulations refer to the standard under tax code Section 162, the statute that generally governs the deductibility of trade or business expenses.

There is no statutory or regulatory definition of a Section 162 trade or business. Instead, this is based on each taxpayer’s specific facts and circumstances. Some relevant factors are the type of property (commercial or residential), lease terms, extent of day-to-day involvement by the lessor or his or her agents, the significance and type of ancillary services provided under the lease, and the number of rentals.

A second way to qualify rental income as QBI is to meet an IRS safe harbor. At least 250 hours in a year must be devoted to the rental activity by the taxpayer, employees or independent contractors. Time spent on repairs, collecting rent, negotiating leases, tenant services, property management, advertising and supervising workers counts. Hours put in for driving to and from the property, arranging financing and constructing long-term capital improvements on the property aren’t included. If you own multiple properties, you can treat each property separately or aggregate similar rental activities into commercial or residential categories.

Taxpayers who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their tax returns. Contemporaneous records must detail hours, dates and descriptions of the services and who performed them. If the services are done by contractors or employees, the taxpayer must keep logs of the work done by them, as well as proof of payment.

Note that the safe harbor doesn’t apply to rental income from property leased under a triple net lease or if the owner’s personal use of residential property exceeds the greater of 14 days or 10% of the days rented.

Treating rental income as QBI doesn’t change how you report that income on your Form 1040. Real estate rental income is usually reported on Schedule E of the 1040. Also, the rental income generally isn’t subject to self-employment tax.

Read more questions on QBI answered by Joy.

3. Can I deduct travel expenses on Schedule E?

Question: I owned a rental home for 25 years that I sold last year. Over the last 25 years, I made two visits per year to the property to do maintenance on it. For example, I upgraded the landscape, trimmed the grass, and did other small things. Can the cost of these trips be added to my home's tax basis in calculating my gain on the sale? Or can I otherwise now deduct those travel costs?

Joy Taylor: IRS Publication 527, Residential Rental Property, says this about travel expenses to and from rental properties that you own:

"Travel expenses. You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. You must properly allocate your expenses between rental and non-rental activities. You can’t deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. The cost of improvements is recovered by taking depreciation."

Since your trips to the rental property were for maintenance, and not to substantially improve the property, you should have deducted mileage and/or other travel expenses on your tax returns for the years of the visits. The amounts cannot now be added to the basis of your property.

4. What are the tax consequence when I sell?

Question: I plan to sell a rental home that I have owned for many years. I'm sure I will have a gain from the property. How will that gain be taxed on my federal income tax return?

Joy Taylor: If you hold rental property, the gain or loss when you sell is generally characterized as a capital gain or loss. If the property was held for more than one year, it's a long-term capital gain or loss, and if held for one year or less, it's a short-term capital gain or loss.

The gain or loss is the difference between the amount realized on the sale and your tax basis in the property.

The capital gain will generally be taxed at 0%, 15%, or 20%, plus the 3.8% net investment income tax for people with higher incomes. However, a special rule applies to gain on the sale of rental property for which you took depreciation deductions. When depreciable real property held for more than one year is sold at a gain, the federal tax law requires that previously deducted depreciation be recaptured into income and taxed at a top rate of 25%. This is known as unrecaptured Section 1250 gain, the number of its federal tax code section.

5. How is rental income taxed?

Question: I just bought a home that I am going to rent out to tenants. How is the rental income I receive taxed? Is it ordinary income or capital gain?

Joy Taylor: Rental income from real estate that you rent out is taxed at ordinary income tax rates, which vary depending on your taxable income. If you eventually sell the rental property at a gain, then that gain is generally treated as capital gain.

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

Homeownership is expensive, so many homeowners are on the lookout for ways to offset the costs and pad their emergency fund. With tax season approaching, one of the best ways to do that is claim tax credits and tax deductions you're eligible for as a homeowner.

While there are many tax breaks for homeowners filing their 2025 taxes — such as mortgage interest or property taxes — home insurance is unfortunately not one of them, except in a few circumstances.

Still, it's worth understanding when and how you can deduct home insurance premiums, in case one of those circumstances applies to you.

When is home insurance tax deductible?

Home insurance premiums generally aren’t tax-deductible. However, in certain situations, you might be able to deduct all or part of those costs as a business expense, which can lower your taxable income. Those scenarios include:

You have a home office or use your home for business

If you work from home or use it for business purposes — for example, running a day care out of your home — you can claim a portion of your home insurance premiums and other home expenses as a business expense.

You're paying for home insurance on your rental properties

If you own rental properties, your home insurance premiums will also count as a business expense, helping to lower your taxable income. Keep your personal and business records separate, and consult a financial adviser or tax professional for trickier situations, such as renting out your vacation home for part of the year.

One related change to watch starting in 2026 involves private mortgage insurance (PMI). Under new tax rules, PMI tied to home purchase loans will be treated as deductible mortgage interest for taxpayers who itemize.

That means some homeowners who pay PMI and itemize their deductions might be able to deduct those premiums going forward.

However, this applies to mortgage insurance — not standard homeowners insurance — and won’t affect 2025 tax returns. Income limits and other eligibility rules might also apply, so it’s worth checking with a tax professional before assuming you’ll qualify.

Keep track of all of your home expenses anyway

While you generally can’t deduct homeowners insurance premiums, other housing-related expenses might qualify for tax breaks.

Certain mortgage-related costs that aren’t deductible today might become eligible again in future tax years, depending on legislative changes. Keeping good records of your home expenses can help you stay ready to take advantage of any savings opportunities that open up.

In the meantime, you can offset the cost of protecting your home by shopping around for lower premiums. Use the tool below, powered by Bankrate, to see how much you could save on home insurance:

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The charitable giving landscape is set for its most significant tax overhaul in a decade. Starting this year, new federal tax rules — enacted via the big GOP/Trump tax and spending bill — change how nearly every American taxpayer can deduct contributions on federal returns.

For instance, a new tax break allows those who claim the 2026 standard deduction to deduct charitable giving donations. At the same time, new rules limit how the itemized charitable deduction reduces taxes for high earners.

Here are three big ways the charitable deduction has changed for individual taxpayers in 2026, and what these new rules might mean for you.

Note: This article pertains to federal income taxes only. State income returns may differ.

1. New $1,000 standard deduction charity break in 2026

Do you typically claim the standard deduction on your federal taxes? You're in luck. Beginning in tax year 2026, there's a new deduction you could take.

The non-itemizer charitable deduction is available for all taxpayers claiming the standard deduction, worth up to $1,000 ($2,000 for joint filers).

Here are a few fast facts on this key tax break:

• Only cash contributions qualify (checks, credit card charges, online donations and payroll deductions).
• The donation must be made to a qualified 501(c)(3) public charity.
• You must follow the typical IRS rules for a charitable deduction, including obtaining a written acknowledgement if you donate $250 or more.

Unlike the itemized charitable deduction, any contributions exceeding the annual limit for the non-itemized deduction cannot be carried forward. You also can’t use the deduction in conjunction with a donor-advised fund (DAF) or private foundation, as you can for itemized charitable contributions.

Despite these limitations, some predict that 144 million Americans will be eligible to claim the standard deduction charitable tax break during the 2027 filing season.

A similar (though temporary) policy took place during the COVID-19 pandemic, which allowed a $300 charity deduction for individual non-itemizers. Almost 30% of standard deduction filers took advantage of the tax break, "indicating that the One Big Beautiful Bill (OBBB) even larger deduction could be popular," per the Tax Foundation.

2. 2026 charitable deduction: The 0.5% AGI floor

One of the most significant changes in the 2025 Trump tax bill is the introduction of a "floor" for itemized deductions. Starting in 2026, you can only deduct charitable gifts that exceed 0.5% of your adjusted gross income (AGI).

This significant change effectively eliminates the tax benefit of smaller, routine donations.

For example, if you have a $200,000 AGI and donated $2,000 over the year:

• Your AGI floor is $1,000.
• Only $1,000 of your donation would be deductible.

The change might push more high-income donors toward "bunching" their contributions — making one large gift every few years — to clear the AGI floor and maximize their deductions.

Alternatively, taxpayers age 70½ or older might choose to make more qualified charitable distributions (QCDs), which the 0.5% AGI floor rule does not affect.

For more information on charitable contribution strategies, check out Kiplinger's report: How High Earners Can Maximize Their Charitable Contribution Donations.

3. The new 35% deduction cap for high-income donors in 2026

Charitable contributions for high-income itemizers are subject to a deduction cap in 2026. The new law imposes a 35% limit on the value of all itemized deductions for those in the highest income bracket.

This means top-bracket taxpayers (currently 37%) receive a lower effective tax break compared to last year.

For example, if you have a $2,000 deductible donation as a top federal-bracket earner:

• You could only get $700 in tax savings for 2026.
• In the prior tax year, that same donation resulted in $740 of savings.

Combined, the AGI floor and the charitable deduction cap are expected to lower the tax benefit for donating to charities for high-income earners in 2026.

2026 charitable deduction example: Calculating your new tax benefit

The table outlines how a top tax-bracket donor with an AGI of $1,000,000 with $400,000 in donations could receive a lower tax benefit in 2026 vs the 2025 rules.

Note: The "total potential tax benefit amount" does not reflect further AGI limits applied or other tax liability limitations applicable to high-income earners.

Important context for carryforwards: While excess contributions can still be carried forward for up to five years, any carryforwards used in 2026 and beyond are subject to the new limitations. As a result, a generous 2025 gift carried into 2026 could unexpectedly result in a smaller tax benefit than originally planned.

Summary of the OBBB changes to 2026 charitable tax rules

The 2025 Trump Tax Bill changed many rules regarding charitable donations. Those changes are summarized in the table.

The changes might not affect everyone, depending on your gifting strategy. Consult with a qualified tax professional to discuss which tax strategies are best for your financial circumstances.

Explore More

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• The New Retirement Math: How an Active Lifestyle Can Lower Your 2026 Taxes
• The Real Reason 'Tax Me More' Billionaires Don't Cut a Check to the IRS

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week she's looking at five questions on itemized deductions claimed on Schedule A of Form 1040. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Valuation of donated publicly traded shares

Question: I am planning to donate shares in a publicly traded mutual fund to charity. What is the value of my donation for claiming a charitable contribution deduction on Schedule A of my Form 1040.

Joy Taylor: You would use the fair market value of the donated property on the day you donate your mutual fund shares. For charitable contributions of publicly traded stocks, bonds, mutual funds, etc., the fair market value of the donation is the average between the highest and lowest quoted selling price on the date of the contribution.

IRS Publication 561 has more information on determining the value of donated property.

2. Higher SALT deduction cap

Question: When does the $40,000 cap on deducting state and local taxes (SALT) kick in? Does it apply to my 2025 Form 1040 if I itemize on Schedule A?

Joy Taylor: The “One Big Beautiful Bill” (OBBB) increased the cap for the SALT deduction on Schedule A of the federal income tax return from $10,000 to $40,000 for five years (2025-2029). So the higher limit will apply to your 2025 federal return that you file in 2026, provided you itemize on Schedule A of Form 1040 or 1040-SR. The cap for married couples who file separate returns is $20,000 apiece for 2025-2029.

There is an income limit. For 2025, the SALT write-off begins to phase out, but not below $10,000, for filers with modified adjusted gross incomes (modified AGI) over $500,000 ($250,000 for married couples who file separate returns). 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 or the Northern Mariana Islands.

By law, the $40,000 cap and $500,000 modified AGI threshold increase 1% each year through 2029. For 2026 returns filed in 2027, the SALT deduction cap will be $40,400 and the income limit at which the deduction will begin to phase out will be modified AGI over $505,000. After 2029, the SALT deduction cap falls back to $10,000, unless Congress acts.

3. Home office

Question: My employer instituted a hybrid work policy. Each week, I have to work three days in my employer’s office and two days at home. Can I claim a home office deduction if I itemize on Schedule A of the Form 1040?

Joy Taylor: No. Prior to 2018, certain employees could deduct the cost of home office expenses as unreimbursed employee costs included in Schedule A miscellaneous itemized deductions, subject to the 2%-of-AGI threshold. The 2017 Tax Cuts and Jobs Act (TCJA) repealed this group of tax breaks through the end of 2025, and the OBBB permanently repealed them. So no, employees cannot claim the home office deduction.

The home office deduction is still available to self-employed people or independent contractors who file Schedule C with their Form 1040 and use a room or space in their house or apartment exclusively and regularly as their principal place of business.

4. Investment management fees

Question: Did the OBBB bring back the itemized deduction for fees I pay to my broker to manage my personal investment accounts, including my retirement accounts?

Joy Taylor: Unfortunately, no. These types of investment expenses used to be deductible as miscellaneous itemized deductions on Schedule A of the Form 1040 (subject to the 2%-of-AGI limit). But the TCJA temporarily eliminated that entire group of deductions through 2025, and the OBBB has permanently ended them.

5. Medical Expenses

Question: Did the OBBB make any changes to the medical expense deduction on Schedule A?

Joy Taylor: No, the OBBB made no changes to the medical expense deduction. Only taxpayers who itemize on Schedule A can deduct medical expenses, and only to the extent that the total amount exceeds 7.5% of AGI.

You might be interested in a congressional bill introduced by Senator Josh Hawley (R-Mo.). His bill would let nonitemizers deduct up to $25,000 of medical expenses, and it would also get rid of the 7.5%-of-AGI haircut. It is too soon to know whether this proposal will gain any traction in Congress next year.

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.

The Ask the Editor column is taking a two-week break for the holidays. 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, beginning with our first column in 2026, which we will publish on January 9. 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: Tax Questions on Roth IRA Conversions
• Ask the Editor: Questions on SALT Deduction
• Ask the Editor: QCDs and Tax Planning
• Ask the Editor: Questions on Inherited IRAs

Gambling winnings are expected to be taxed more next year — at least federally. Thanks to the 2025 GOP/Trump tax and spending bill, a portion of winnings from activities like lotteries, slot machines, and sports betting face a potential double taxation.

That's because prior IRS gambling rules allowed you to deduct all gambling losses up to the amount of winnings. Starting in 2026, losses are limited to 90% of winnings.

But just weeks before the new gambling tax provision becomes effective, President Donald Trump reportedly said he would "think about" repealing income taxes on gambling winnings entirely.

Here's more of what to know.

Trump gambling tax: Is it coming to an end?

When reporters asked President Trump in early December if he would consider eliminating federal taxes on gambling winnings, he remarked, "No tax on gambling winnings, I don't know. I'm gonna have to think about that."

This suggestion stands in stark contrast to the effects of the major legislative Republican tax bill enacted in July. Starting January 1, 2026, the new GOP law will impose a tax cap, limiting gambling loss deductions to 90% of winnings (down from 100%) — a provision that may hike the tax bill for many gamblers.

For example, if you pay $100 for state scratch-offs and win $100, you could owe the government $10 on your "winnings" in 2026.

Gaming industry leaders and stakeholders, including the American Gaming Association, have referred to this new tax scenario as "phantom income." This term is used because the new cap forces gamblers to pay taxes on losses — a rule the AGA argues is "uniquely penalizing" gambling compared to other businesses.

And the new gambling tax provision is expected to generate a significant amount of phantom income.

According to the Joint Committee on Taxation, taxing Americans on 10% of their gambling losses could generate over $1.1 billion over the next decade.

While most of those earnings are expected to come from high-wealth, professional gamblers, any taxpayer who itemizes their gambling losses could be subject to paying more tax due to the new IRS gambling rule in 2026.

IRS audit triggers and gambling taxes

In recent years, the IRS has ramped up its investigative work on gambling winnings.

Under the Biden administration, the agency began enforcement efforts with taxpayers whose income was $100,000 or more, vowing to take a closer look at sports betting and online gambling in particular.

Since then, overall IRS audits have decreased under the Trump administration, particularly for high-income taxpayers. Yet the IRS still views nearly all recreational and professional gambling as taxable income.

As such, here are some types of gambling income that could be subject to an IRS audit:

• Lotteries and raffles, including state lotteries, scratch-off cards, charity drawings, etc.
• Sports betting (either online sports bets or in-person betting, and even office pools like the NFL playoffs or the Super Bowl).
• Online gambling, including casinos, poker, and fantasy sports bets.
• Horse races, dog races, and other racing activities.
• Sweepstakes, contests, and game shows.

Whether a casual gambler or a professional, all gambling winnings are always subject to federal income taxes. Losses are deductible on Schedule A of Form 1040, up to 90% of the amount of gambling winnings for tax year 2026 (100% for tax year 2025). To claim the deduction, you must keep detailed tax records of your wagers (e.g., tickets, receipts, forms, etc.).

Tip: Also check with your state and/or local jurisdictions for how more localized taxes apply. Gambling is not legal in all states.

'Big beautiful bill' gambling tax changes backlash

As Kiplinger has reported, the new gambling winning tax provision in the new Trump tax law has faced considerable backlash from industry giants and government officials.

Jason Robbins, CEO of DraftKings (popular sports betting platform), remarked in an interview with CNBC, "If you can't deduct all your losses, you know, how does that make sense that you pay income tax on something that's not actually income."

Rep. Jason Smith (R-MO), Chairman of the House Ways and Means Committee and advocate of the new 2025 Trump tax law, called the provision a "mistake" and added that he was committed to working on a fix.

In the meantime, there have been proposals to repeal the new gambling tax law. For instance, the Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET), proposed by Rep. Dina Titus (D-Nev), would revert the 90% gambling winnings loss deduction to 100% of gambling winnings.

Titus has been a lead critic against the new gambling winnings provision, citing negative economic impacts on Nevada and other "gaming-dependent" states.

Still other bipartisan bills have been introduced in Congress to repeal or modify the gambling tax provision, though all have stalled in committees and have not yet received votes in either the Senate or the House. Ongoing pressure from lawmakers and, now, the President, may help bolster a bipartisan deal or amendment in the new year.

Stay tuned for updates.

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• How 2026's Surge in First-Time Bettors and New IRS Rules Are Shifting World Cup Odds
• New Cap on Gambling Loss Deductions Begins Soon: What to Know Now
• Tips For Reporting Gambling Winnings and Losses Taxed In 2025
• Is Your State Coming For Your Online Sports Bets?

Anyone who’s a fan of holiday movies is no doubt familiar with Charles Dickens' "A Christmas Carol."

The story is about how Ebenezer Scrooge, a miserly old man who swims through hoards of gold coins in some retellings, is transformed into a generous soul after he receives a visit from four spirits on Christmas Eve.

While most of us probably hope we’re not as frugal as Scrooge, we still enjoy a good deal when we see one. That’s why his dramatic change of heart holds a critical tax lesson: The most powerful way to lower your tax bill this season may be to give.

By employing this "Scrooge Strategy," you can donate gifts, clothes, and other old "junk" to squeeze out one last tax break before December 31. It might not be mounds of gold, but hey — every bit helps, right?

This article covers the federal income tax deduction. States may offer some variation of the charitable contribution deduction, if any. See your state's Department of Revenue or Taxation website for more information.

Charitable donations for the 'Scrooge' strategy

We all have those items piling in the back of our closets waiting to be used. So why not donate them?

Not only will you be helping someone in need, but you may be able to claim the charitable donation deduction on your 2025 federal income return if you itemize (rather than claim the standard deduction).

Yet before we dive into the types of donated goods that qualify for a potential tax break, we’ll first need to lay out some ground rules. Namely, the IRS rules on the eligibility of donated goods employing the "Scrooge" strategy.

1. The item must be donated to a qualified tax-exempt 501(c)3 organization (e.g., Goodwill, Toys for Tots, churches, etc.). You can verify an organization’s tax-exempt status via the IRS Tax Exempt Organization Search tool.
   
2. Donated goods must be in "good used condition" or better to be deductible. Nothing of poor quality will be accepted as a tax deduction (unless you can prove your item is worth more than $500 by a qualified appraiser).
   
3. The deductible amount of your donated goods is equal to the fair market value (FMV) at the time of donation, not what you originally paid. This means that if you’re donating to a thrift or consignment shop (like Goodwill), it’ll be for the amount they can sell the item.

You should keep detailed tax records of your donated goods. For example, if you donate $100 worth of old mugs to the Salvation Army, you'll at least want a description of the items, their value, and how that value was determined.

Written acknowledgement is a requirement for any non-cash goods donated that are worth $250 or more. You can often get this written notice by asking the organization you donated to for proof of donation.

Lastly, any one item or group of items worth over $5,000 must be appraised by a qualified appraiser to confirm their value (though most of us likely don’t have $5K lying around our closets, do we?).

Note: Collectibles, fine art, and other items that are valued over $5,000 may only be deducted based on FMV if the charity uses the item in a related way. So, for example, if you donate a painting to a museum that uses the art on display, that could be deductible at FMV. Otherwise, your deduction may be limited to your original cost basis in the item.

Charitable deduction deadline checklist

Just as Scrooge awoke on Christmas, relieved it was not too late to change his miserly ways, you also have time to make a non-cash contribution to charity before year-end. But you'd better hurry. The deadline to contribute for the 2025 tax year is December 31.

Here's a checklist of items you may find in your attic or closet that could count toward the federal charitable tax deduction:

While individually the items may not be worth much, the total value of your donated goods could quickly add up. And if you’re on the cusp of claiming the itemized or the standard deduction for the 2025 tax year, any extra donated goods could push you to itemize for a higher tax break. This could be particularly important given that new charitable deduction rules next year will further limit non-cash charity deductions.

Starting in 2026, all itemizers will be subject to a new deduction floor of .5% of their adjusted gross income (AGI). Any charitable contributions (including non-cash) below this threshold will be non-deductible.

Note: Appreciated stock, real estate, and other items that are typically not stored in the back of a closet or attic were excluded from this list. However, consult with a qualified tax professional before making a high-value donation, as different rules and tax planning considerations may apply.

Tax deduction for a charitable donation

Although we covered eligibility rules and examples of what could qualify for a charitable contribution tax break, some additional IRS guidelines limit how much you can claim on your federal income return for your non-cash charity deduction.

• Ordinary property held less than a year (like clothing, household items, etc.) is limited to your cost basis and 50% of your AGI.
• Appreciated long-term capital gain property (like artwork, jewelry, etc.) is limited to FMV and 30% of your AGI.
• If you donate long-term property to a private foundation, that’s generally limited to cost basis and 20% of your AGI.

However, there may be a silver lining: If your donation exceeds your AGI for the tax year, the leftover amounts may be carried over into the future, up to five tax years. So if you plan to itemize again, your non-cash contributions could qualify on next year’s return — but even if they don't, your charitable intentions will surely be appreciated by the charity of your choice.

Read More

• How Charitable Donations Can Reduce Your Taxes
• 3 Ways High-Income Earners Can Maximize Their Charitable Donations
• The Gift Tax Exclusion for 2025 and 2026 Is Here
• What Is a Qualified Charitable Distribution (QCD)?

You can save more for retirement this year, thanks to an increase in the 401(k) contribution limit for 2026. The IRS adjusts contribution limits and other tax provisions for inflation each year.

High inflation as of late means this is the fourth year in a row that the adjustments have resulted in a higher 401(k) contribution limit. But what about your IRA?

Here’s how much you can contribute to retirement accounts in 2026.

IRA 2026 contribution limits

The contribution limits for a traditional or Roth IRA increased last year and will increase again for 2026.

• You can contribute a maximum of $7,500 (up from $7,000 last year).
• Catch-up contributions for taxpayers 50 and older are also subject to cost-of-living adjustments, and these limits have also increased for 2026 to $1,100 ($8,600 total).

However, not everyone can make the maximum IRA contribution limits this year. You can only make the maximum contribution to your Roth IRA if your modified adjusted gross income (MAGI) is below the threshold set for the year.

• For 2026, single and head-of-household filers with a MAGI below $153,000 (up from $150,000 last year) can contribute the full $7,500 in 2026.
• The maximum contribution is reduced for these filers if their MAGI is between $153,000 and $168,000, and these taxpayers can't contribute to a Roth IRA at all if their MAGI exceeds $168,000.
• For married couples filing jointly, the income phase-out range for 2026 is from $242,000 to $252,000 (up from from $236,000 to $246,000 last year).
• Joint filers with a MAGI below $242,000 can contribute the full $7,500 for 2026, but these filers cannot contribute anything to an IRA with a MAGI greater than $252,000.

(Note: The above income limits do not apply to traditional IRAs.)

401(k) limit increase for 2026 contributions

Contribution limits for 401(k), 403(b) most 457 plans, and the federal government's Thrift Savings Plan will increase by $1,000 for 2026. Eligible taxpayers can contribute $24,500 to these accounts in 2026 (up from $23,00 last year).

The contribution limit for SIMPLE plans increases to $17,000 this year (up from $16,500 last year). Similarly, participants of an applicable SIMPLE plan might be able to contribute a higher amount of $18,100 (up from $17,600 last year).

401(k) 2026 catch-up limit

There's an increase in catch-up contribution limits for taxpayers 50 and older for 2026. These taxpayers will be able to contribute an additional $8,000 in 2026 ($32,500 total).

However, under SECURE 2.0, a higher catch-up contribution limit applies for those age 60 to 63 beginning this year. (Participants in that age range could contribute an additional $11,250 instead of $8,000.) The total potential contribution amount for these taxpayers is $35,750.

For more information, see Kiplinger's report: 'Super Catch-Up' Contribution for Ages 60-63.

The catch-up contribution limit for employees age 50 and older who participate in SIMPLE plans also has increased for 2026, to $4,000 (certain applicable plans might have a contribution limit of $3,850).

But under a new change under SECURE 2.0, those who are 60 to 63 can contribute more to SIMPLE plans, ($5,250) for 2026.

IRA deduction phase-out thresholds for 2026

If you put money in a traditional IRA, you might be able to take a tax deduction for some or all your contributions. (There is no deduction available for contributions to a Roth IRA.)

However, the deduction is gradually phased out if your income is above a certain amount.

Here are the phase-out ranges for 2026.

• For single taxpayers covered by a workplace retirement plan, the phase-out range is from $81,000 to $91,000 (up from from $79,000 to $89,000 last year).
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is from $129,000 to $149,000 (up from $126,000 to $146,000 last year).
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is from $242,000 to $252,000 (up from from $236,000 to $246,000 last year).

If you are married and filing a separate return (and covered by a workplace retirement plan), the phase-out range remains from $0 to $10,000 because this limit is not subject to a cost-of-living adjustment.

Saver's Credit income limit for 2026

Americans with lower and middle incomes who contribute to a retirement plan can claim the Saver's Credit on their federal tax return, which could lower their tax bills.

However, not everyone qualifies. Here are the new income limits for claiming the Saver’s Credit in 2026.

• $80,500 for married couples filing jointly (up from $79,000 last year).
• $60,375 for heads of household (up from $59,250 last year).
• $40,250 for single and married taxpayers filing separately (up from $39,500 last year).

Read More

• 2026 HSA Contribution Limit: What You Should Know
• Saver's Credit: Who Qualifies for This Retirement Tax Break?
• New 2026 Income Tax Brackets Are Set

Half a century might seem like forever to own your home, but a 50-year mortgage is the Trump administration’s latest proposal to address the U.S. housing affordability crisis.

Earlier this month, President Donald Trump released a graphic on his social media platform Truth Social titled “Great American Presidents.” Inside the graphic were the words “30-Year Mortgage” above a photograph of former President Franklin D. Roosevelt, and “50-Year Mortgage” above a photo of Trump.

The post sparked debate as industry experts and elected officials weighed in on a proposed 50-year loan term to help first-time buyers afford a home.

But would such a proposal actually help or hurt a homebuyer’s financial situation? And how would a 50-year mortgage affect another pain point for homeowners: Taxes?

Read on.

Are 50-year mortgages coming?

When homeowners buy a house, they typically secure a 30-year mortgage. This loan lifecycle follows a process called amortization, where the borrower pays fees and interest first, then slowly pays down the principal balance over time. Ideally, after 30 years, the homeowner owns the house.

By stretching the loan term from 30 to 50 years, the buyer effectively pays less every month for the same principal balance.

Consequently, on the surface, a 50-year mortgage might seem to help a first-time homebuyer afford a home, as shown by Fannie Mae’s mortgage calculator:

• A 30-year mortgage on a $200,000 home with a 5% down payment and 6% interest rate could result in a monthly mortgage payment of $1,512.
• A 50-year mortgage home with the same price and terms as above could lead to a monthly mortgage payment of $1,373.
• Compared to a 30-year term, the proposed 50-year mortgage would result in a monthly payment savings of approximately $139 for the homebuyer.

Director of the Federal Housing Finance Agency, Bill Pulte, who reportedly proposed the idea to Trump, called the proposal “a complete game changer,” while sharing Trump’s post on X. Pulte later added that the Trump administration is developing a “WIDE arsenal of solutions” to the housing affordability crisis.

Home affordability has become a recent issue for the Trump administration, as housing prices have skyrocketed more than 50% over the last five years.

And those who can afford a house spend an average of 39% of their income on housing expenses — well over the 30% recommended amount given by financial experts, according to Redfin. Yet some elected officials and industry experts claim the 50-year mortgage proposal could boomerang, leading to significantly higher home costs over time and even threatening future generational wealth.

50-year mortgage Trump proposal

A 50-year mortgage may yield slightly lower monthly payments than a 30-year term. But the total loan cost would be staggering, according to the latest LendingTree analysis using a $500,000 mortgage and a 6.1% interest rate:

• For a 30-year fixed loan, a homebuyer would pay $590,791 in interest over the life of the loan.
• For a 50-year fixed loan, a homebuyer would pay over $1.1 million in interest alone.
• Effectively, the amount of interest you pay on a 30-year vs. a 50-year loan would be more than double, even though your loan only increased by 20 years.

“This is not a good idea,” remarked Richard Green, a professor at the University of Southern California’s Marshall School of Business, who told CNN, “The monthly payment savings would be really small. At the same time, you’re putting people at risk, because it takes a really long time for them to start paying down their loan.”

Just days after the proposal, Trump told Fox News in an interview, “It’s not even a big deal,” and “All it means is you pay less per month. You pay it over a longer period of time. It’s not like a big factor.”

Meanwhile, the average age of a new homebuyer has increased to a record-breaking 40 years old, according to the National Association of Realtors.

If the first-time buyer purchases a home at that age, there’s a good chance they could be dead before their 50-year mortgage matures. Future generations could be on the hook for paying the loan, which means less wealth would be passed down to younger generations.

"I don’t like 50 year mortgages as the solution to the housing affordability crisis,” wrote Rep. Marjorie Taylor Greene (R-Ga.) on X. “It will ultimately reward the banks, mortgage lenders, and home builders while people pay far more in interest over time and die before they ever pay off their home. In debt forever, in debt for life!"

In the meantime, Opendoor’s CEO, Kaz Nejatian, praised the idea on X. “50 year mortgage is probably the most pro-homeowner government policy of the last two decades.”

50-year mortgage vs. 30-year mortgage: Interest tax deduction

Some may wonder whether the cost of a 50-year mortgage could be offset through tax savings. After all, homeowners may take advantage of the mortgage interest deduction (MID) if they itemize their federal returns.

• MID allows you to deduct up to $750,000 on qualifying loans after 2017 (before that date, the limit is $1 million).*
• Interest paid on a proposed 50-year loan would be higher compared to interest paid on a 30-year loan (even though your monthly mortgage payment would be lower).
• Because of this, your annual MID could be potentially higher on a hypothetical 50-year loan compared to a 30-year mortgage.
• However, because the MID is capped at $750,000 for new loans, you might not be able to recoup all your interest paid over the life of the loan (plus you’d have to itemize your federal taxes every year just to claim it instead of the standard deduction).
• And since the average homeowner typically sells their home after 12 years, you likely wouldn’t see a more advantageous tax benefit from the mortgage tax deduction than on a 30-year loan.

And there’s home equity risk, too. The principal is paid down slowly on a 50-year mortgage, which means the homeowner's equity builds at a significantly slower rate. This exposes the homeowner to a greater risk of potential home price declines, or even “negative” equity if the housing market dips.

*Note: The MID limits for married filing separately couples are lower than other filing statuses.

Is a 50-year mortgage a good idea legally?

Before anything else, the Trump administration would need to overcome a legislative hurdle to enact a 50-year mortgage.

The Dodd-Frank Wall Street Consumer Protection Act, which was designed (in part) to protect homebuyers after the 2008 housing financial crisis, doesn’t currently embrace 50-year mortgages.

So if a 50-year loan were issued, it would likely be “non-qualified,” meaning it wouldn’t be backed federally. The lack of federal assurance increases lender risk, which would likely increase the interest rate for the buyer.

Yet a policy change might not be off the table.

According to ABC News, a White House official said that the administration is "always exploring new ways to improve housing affordability" and will announce any official policy changes directly.

So stay informed and stay tuned.

Read More

• About 40% of Heirs Say They Can’t Afford an Inherited Home
• Ten Tax Breaks for Homeowners and Homebuyers in 2025
• Are Trump Tariffs Legal? The Supreme Court and What’s at Stake

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at five questions on the 20% tax deduction for qualified business income or QBI. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Did the OBBB extend the QBI deduction?

Question: I know the qualified business income (QBI) deduction was going to expire at the end of 2025. Did the “One Big Beautiful Bill” (OBBB) extend this federal income tax break?

Joy Taylor: Yes. The OBBB not only extended this popular tax break that was otherwise set to expire after 2025 but also made it permanent. Self-employed individuals, independent contractors, gig workers who aren’t employees, farmers, some landlords and owners of pass-through entities, such as partnerships, LLCs and S corporations, claim the 20% QBI write-off on line 13 of their Form 1040 and attach IRS Form 8995 or 8995-A.

QBI is one’s allocable share of income less deductions from a business. The rules can get complicated, especially for individuals with 2025 incomes that exceed $394,600 for joint filers and $197,300 for other filers.

This tax deduction was first enacted in the 2017 Tax Cuts and Jobs Act to provide some federal income tax parity between C corporations, which are taxed at a 21% rate, and pass-through entities, in which the individual owners pay income tax on earnings up to a 37% tax rate. Many congressional Republicans wanted to make the 20% QBI permanent, and they got their wish in the OBBB.

Note that making this tax break permanent cost the government lots of money. That’s because it is in the top 10 largest federal individual income tax expenditures, rounded up by the staff of the bipartisan congressional Joint Committee on Taxation.

2. Can freelancers claim the QBI deduction?

Question: I recently left my full-time job, and I am now an independent freelance consultant. Can I claim the 20% QBI deduction on my 2025 Form 1040?

Joy Taylor: Generally, yes. The QBI deduction applies not only to individual owners of pass-through entities, such as partnerships, S corporations and LLCs, but also to self-employed individuals who file Schedule C with their returns.

An important limitation applies to high earners in certain service fields. They include health, law, accounting, consulting, financial and brokerage services, performing arts, athletics, actuarial science, investing or trading in securities, or any business where the principal asset is the reputation or skill of its employees. If you are in one of the affected fields and your income for 2025 exceeds $394,600 for joint filers or $197,300 for single filers and head-of-household filers, the 20% deduction begins to phase out.

3. Do landlords qualify for the QBI write-off?

Question: I own rental property and generate a profit from the activity. Can I claim a 20% qualified business income deduction for my rental income that I report on Schedule E of my Form 1040?

Joy Taylor: It depends. Self-employed individuals and owners of LLCs, partnerships, S corporations and other pass-through entities can deduct 20% of their QBI, subject to limitations for individuals with incomes in 2025 of more than $394,600 for joint filers and $197,300 for single filers and head-of-household filers.

Rental income reported on Schedule E of the Form 1040 may be eligible for the deduction in certain cases. There are two ways to qualify for the 20% QBI write-off for rental income. The first is if the rental activity rises to the level of a trade or business. For this purpose, the IRS’s regulations refer to the standard under tax code Section 162, the statute that generally governs the deductibility of trade or business expenses.

There is no statutory or regulatory definition of a Section 162 trade or business. Instead, this is based on each taxpayer’s specific facts and circumstances. Some relevant factors are the type of property (commercial or residential), lease terms, extent of day-to-day involvement by the lessor or his or her agents, the significance and type of ancillary services provided under the lease, and the number of rentals.

A second way to qualify rental income as QBI is to meet an IRS safe harbor. At least 250 hours in a year must be devoted to the rental activity by the taxpayer, employees or independent contractors. Time spent on repairs, collecting rent, negotiating leases, tenant services, property management, advertising and supervising workers counts. Hours put in for driving to and from the property, arranging financing and constructing long-term capital improvements on the property aren’t included. If you own multiple properties, you can treat each property separately or aggregate similar rental activities into commercial or residential categories.

Taxpayers who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their tax returns. Contemporaneous records must detail hours, dates and descriptions of the services and who performed them. If the services are done by contractors or employees, the taxpayer must keep logs of the work done by them, as well as proof of payment.

Note that the safe harbor doesn’t apply to rental income from property leased under a triple net lease or if the owner’s personal use of residential property exceeds the greater of 14 days or 10% of the days rented.

Treating rental income as QBI doesn’t change how you report that income on your Form 1040. Rental estate rental income is usually reported on Schedule E of the 1040. Also, the rental income generally isn’t subject to self-employment tax.

4. Do REIT investors get the 20% QBI write-off?

Question: I am thinking of buying shares in a real estate investment trust (REIT). My financial advisor told me that REIT investors qualify for the 20% QBI deduction. Is this true?

Joy Taylor: Yes. The 20% QBI deduction also applies to holders of publicly traded partnership units and REIT shares. Individuals can deduct 20% of qualified REIT dividends, which are distributions not taxed under the favorable rules for capital gains and dividends, and 20% of their share of a PTP’s QBI.

5. How do LLC members know the amount of the entity’s QBI?

Question: I own membership interests in a multi-member LLC. How do I know if the LLC has QBI, and if it does, my allocable share of the LLC’s QBI?

Joy Taylor: The Schedule K-1 that you receive from the LLC will include your allocable share of the LLC’s QBI, if any, in the “Other Information Box” of the K-1 under a special code. Similar information will be shown on Schedule K-1s given to S corporation shareholders and to partners in partnerships.

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 and more. We will continue to answer these in future Ask the Editor round-ups. 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: Deducting Car Loan Interest
• Ask the Editor: What Medical Expenses are Deductible?
• Ask the Editor: Questions on the New Tips Deduction
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Question on SALT Deduction
• Ask the Editor: Questions on the $6,000 Senior Deduction

With the giving season officially underway, December 31 marks your critical tax deadline for charitable giving. About 30% of annual gifts occur before year-end, making this the prime time for taxpayers to maximize their 2025 itemized charitable donations tax deduction.

And for high-income earners, charitable giving in 2025 is particularly vital. Tax legislation in 2026 will cap the maximum federal tax benefit at 35%, effectively making contributions this year far more valuable. Plus, a new rule next year will further reduce the allowable charitable deductions for donors over a certain floor limit.

Here’s what you need to know.

Related: The 'Scrooge' Strategy: How to Turn Old Junk Into a Tax Deduction

Charitable deduction for high-income earners in 2025

Let’s first review why donating this year, in 2025, is more advantageous than in 2026. Basically, the 2025 Trump Tax Bill changed several rules regarding charitable donations. A couple of those changes affecting high earners are summarized in the following table.

As you can see, for 2026, a charitable contribution "floor" will be introduced for itemizers, regardless of income level. Only total contributions above 0.5% of your AGI will be deductible.

For example, if you had $200,000 AGI and donated $2,000, only $1,000 would be deductible.

Charitable contributions for high-income itemizers will also be subject to a cap in 2026. The new law imposes a 35% limit on the value of all itemized deductions for high earners, meaning taxpayers in the top bracket will receive a lower tax break compared to 2025.

While excess contributions can still be carried forward for up to five years, carryforwards used in 2026 and beyond will be subject to the new limitations.

So below are three ways for you to take advantage of the more advantageous donation rules in 2025 — especially if you’re a high earner.

1. Donate stock to charity (or other appreciated non-cash assets)

You may have heard that donating appreciated stock (or other non-cash assets) is a part of a good charitable deduction strategy. Well, that’s because donating these assets provides a “double” tax benefit.

• You can deduct the asset’s full fair market value, pre-tax. If your asset’s fair market value (FMV) is higher than “cost-basis” (what you paid), the gain is not taxable once donated to a qualified, public charity.
• This allows you to avoid capital gains tax. By transferring the asset directly to your chosen charity, you’ll avoid paying capital gains tax (up to 20%) on the increase in the asset’s value. Plus, you may also avoid paying the 3.8% net investment income tax (NIIT).

Of course, there are a couple of caveats when donating appreciated non-cash assets.

• Namely, the donated asset must have been held for more than one year before donation; otherwise, the asset will be donated at cost-basis, which could be significantly lower than the value of an appreciated stock.
• Also, donations of appreciated stock to a public charity are subject to a 30% AGI limit, which is higher than the AGI limit for cash (60%). Despite this difference, avoiding capital gains tax typically makes donating the asset (rather than selling and donating the cash) more tax-advantageous.

If you donate appreciated assets to specific types of accounts, your donations may also yield tax-free growth for future charitable giving. One such account that high-earners typically use is a donor-advised fund (DAF).

2. Use a donor-advised fund (DAF) bunching tax strategy

A donor-advised fund (DAF) allows you to claim an immediate tax deduction for your contributions this year (under the more favorable 2025 rules), while the fund recommends grants to your chosen charities over time.

Given the flexibility in timing, a DAF is often used in conjunction with a tax strategy called “bunching.” This is where you pay two or more years’ worth of itemized expenses in the current tax year to push your total itemized deductions over the standard deduction amount.

• If performed correctly, “bunching” your deductions gives you one year of high itemization followed by one year of the standard deduction, which maximizes your total tax savings for both years.
• Using a DAF-bunching strategy is particularly beneficial for high-income earners who anticipate a higher federal income tax rate in 2026, when charitable giving tax laws will be less favorable.
• Plus, tax-free growth in a DAF means you can pay out more money in the future, amplifying your philanthropic impact.

Also, bunching doesn’t just exist for charitable deductions. You can front-load other popular itemized deductions, like the state and local (SALT) deduction, the medical expense deduction, and even the mortgage interest deduction, to help push your deduction amount higher than the standard. Yet keep in mind that certain AGI limits and other IRS rules may apply to each itemized deduction.

3. Make a charitable IRA distribution (QCD)

A qualified charitable distribution (QCD) is a distribution from your IRA to a qualified charity of your choice. QCDs are particularly beneficial if you’re trying to avoid taking your required minimum distribution (RMD) and still want to meet your charitable giving goals for the year.

Here are the eligibility requirements for 2025:

• You must be age 70 ½ or older.
• You can donate up to $108,000 (or $216,000 if married spouses) in a single tax year.
• The distribution must be made from a traditional IRA, an inherited IRA, or an inactive SEP/SIMPLE IRA.

Although QCDs require that you “give up” a portion of your annual IRA distribution to a charity, that amount is excluded from your AGI.

This lower AGI may reduce your taxable income, thereby lowering your tax on Social Security benefits for the current year. Even better, reducing your AGI helps lower your income for the Medicare premium calculation two years later, potentially allowing you to avoid higher premiums.

But a QCD doesn’t qualify as an itemized “charitable deduction” on your income taxes, which may hamper your bunching strategy. You also can’t use a DAF to make a QCD, so be sure to review your complete charitable giving strategy before making one.

Changes to charitable donations in 2026

While we covered several notable ways to maximize your gifting strategy in 2025 if you’re a high-income earner, here are a couple of other gift tax changes going into effect in 2026:

• Increased estate tax exclusion. While the basic exclusion amount for individuals was $13.99 in 2025, the exclusion was increased to $15 million in 2026. This may affect your gifting strategy as a higher exclusion amount allows individuals to transfer more wealth to heirs estate tax-free.
• New non-itemizer charitable deduction. A federal deduction for non-itemizers up to $1,000 for single filers (or $2,000 for joint filers) will be available in 2026. However, you can’t use this deduction in conjunction with DAF or private foundations.

Of course, these changes may not affect everyone, depending on your gifting strategy. Also, state tax rules may differ. Consult with a qualified tax professional to discuss which tax strategies are best for your financial circumstances.

Read More

• 10 Retirement Tax Plan Moves to Make Before Year-End
• What is the Gift Tax Exclusion for 2025 and 2026?
• 2025 Roth Conversion Strategy: 6 Reasons to Convert (& When Not to)
• How Charitable Donations Can Reduce Your Taxes
• 3 Major Changes to the Charitable Deduction in 2026

New: For the first time in history, the United States Congress has overturned a local D.C. budget and tax law. The move strikes down an emergency policy enacted by the D.C. City Council, which sought to "decouple" District tax rules from federal breaks included in the 2025 Trump tax and spending bill. For more information, check out Kiplinger's report, Trump Ends Emergency Tax Bill Over $6,000 Senior Deduction and Tip, Overtime Tax Breaks in D.C..

Amid a record-breaking federal government shutdown, Washington, D.C. leaders made an emergency move that impacts key tax breaks for residents.

The D.C. City Council decoupled from the new 2025 Trump tax law, thereby removing local income tax savings tied to the new "no tax on tips" deduction and the $6,000 "senior bonus" deduction. This means District of Columbia residents who qualify for these federal tax breaks won't be able to claim them on their local tax returns.

While difficult, the choice certainly wasn’t surprising. The District of Columbia is expected to lose up to $1 billion in revenue over the next four years, due to the projected loss of 40,000 federal government-related jobs, according to the D.C. Fiscal Policy Institute (DCFPI). Although the federal shutdown may be coming to an end, its effects could be felt long-term in the nation’s capital.

City Chief Financial Officer Glen Lee wrote in a letter to the mayor and council chairman late September, citing that a prolonged government shutdown could “place significant strain on the economy” in D.C., as previous shutdowns had “a range of impacts on revenue.”

The Council’s temporary decision to separate its income tax laws from federal tax provisions also underscores a broader, continuing state-level debate: Should states adopt all of the “Trump tax law,” and if not, which provisions will get bumped? Read on.

D.C. ends tax-free overtime and bonus deduction for older adults

Although the BBB is federal law, it doesn’t have to be part of state tax laws. That’s because states have three options when it comes to adopting current federal tax policy (or any combination thereof):

• Rolling conformity. States can automatically follow the latest federal rules for the current tax year.
• Static conformity. States can update their conformity date every year through legislation.
• Selective conformity. States can “pick and choose” which parts of the federal tax law to follow, rather than adopting the tax code in its entirety.

In the past, the District of Columbia has typically accepted federal tax law on a rolling basis. However, just this month, the City Council approved “emergency legislation” to decouple from federal tax code changes enacted in July, including:

• The $6,000 bonus deduction for older adults.
• The “no tax on tips” provision and the overtime pay deduction.
• Immediate expensing of research and development (R&D) costs.
• Special depreciation allowances for businesses.

By excluding these provisions from D.C. income taxes, the Council is hoping to save $95 million in fiscal year 2025 and $567 million through fiscal year 2029.

Retained revenue will be used to create a new local Child Tax Credit of $1,000 per child and expand the city’s Earned Income Tax Credit from 85% to 100% of the federal level.

Supporters of the measure, like the DCFPI and DC Guaranteed Income Coalition pointed out the growing child poverty rates in the District of Columbia. The city faces a significant challenge with child hunger, affecting approximately one in seven children. Furthermore, D.C.'s child poverty rate for those aged 6 to 17 is the fifth-highest when compared to other states, according to the DCFPI.

Federal vs. state: The complex rules of tax conformity

The “emergency amendment” that the City Council passed did not require voter approval. The effect will only last 90 days, at which point a “temporary amendment” clause will also kick in, extending the law for 225 days. After that, the law must be approved through the normal, permanent state legislative process.

Yet while D.C. is unique in how it temporarily decoupled from federal law, other former rolling conformity states are decoupling from individual tax law via more “traditional” methods:

• New York has rejected the federal "no tax on tips" and overtime deductions. The state achieved this by adhering to its tax code's static date (an enactment date before the new bill was signed), effectively ensuring these federal tax breaks do not apply to state income taxes.
• Even before the BBB was signed, Colorado passed a law requiring all overtime pay to remain subject to overtime tax. This means the overtime provision in the BBB will not benefit Colorado overtime workers on their state returns.

With COVID-era federal aid depleted and Trump tariffs raising economic uncertainty, many states are looking for ways to protect state budgets by decoupling from federal corporate tax law, too.

For instance, Michigan, Rhode Island, and Illinois decoupled from specific business tax cuts, like the 100% bonus depreciation and R&D provisions. If all states conformed with these provisions, the total projected cost would be $38.2 billion in 2026, according to the Tax Foundation.

However, in an already slowing national economy, further reduction in economic growth could be a red flag. The Tax Foundation has advocated for “judicious decoupling” of federal tax cuts that could promote economic prosperity, particularly in the nation’s capital.

The Institute of Taxation and Economic Policy also reports that greater conformity to federal rules makes state tax returns more “practical” for taxpayers, with “fewer calculations to make.”

How state tax conformity will alter your 2025 income tax bill

As the debate continues, several states have decided to either decouple from federal provisions or simply continue with existing state tax laws. Here’s a breakdown of where various states stand in adopting BBB tax provisions, according to Reuters:

• At least four states will accept most BBB individual return provisions in 2025, including Iowa, Montana, North Dakota, and Oregon.
• Several states will not conform to BBB provisions, including California, Connecticut, Hawaii, and Massachusetts.
• Waiting in the wings are states like Georgia, Maryland, and South Carolina, which plan to address changes to their state tax codes in the 2026 legislative session.

So when you file your 2025 taxes in the 2026 filing season, you should pay extra attention to your state return. The tax breaks you thought you were getting may only apply to your federal taxes, and your state tax liability may be unaffected by the new Trump tax law provisions.

Read More

• Ten Tax Breaks for Middle-Class Families in 2025
• Trump’s 2025 Tax Bill: What’s Changing and How It Affects Your Taxes
• Three Popular Tax Breaks Are Gone for Good in 2026
• New Tax Rules: Income the IRS Won’t Touch in 2025

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at four questions on the new tax deduction for paying interest on vehicle loans. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What are the general rules for the deduction?

Question: I hear that individuals can now deduct interest paid on their car loans. Can you explain this tax break?

Joy Taylor: The “One Big Beautiful Bill” law that was enacted on July 4 provides several new tax breaks for individuals. One of those is the up-to-$10,000 deduction for interest paid on loans to buy a new vehicle for personal use. This deduction is temporary, first taking effect on 2025 tax returns that you file next year, and ending after 2028. It is available to people who itemize on Schedule A of Form 1040 and to filers who claim standard deductions. This is a “below-the-line” deduction, meaning it is subtracted from adjusted gross income to arrive at taxable income.

The write-off begins to phase out at modified adjusted gross income (MAGI) over $200,000 on joint returns and $100,000 on other returns, and ends at MAGI of $250,000 on joint returns and $150,000 on others.

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 that is bought for personal use. Also, the vehicle’s final assembly must take place in the United States. You must purchase the vehicle in 2025 or later, and you cannot deduct interest paid on a loan to buy a used vehicle.

The lender must generally file an information return with the IRS, reporting the amount of interest received from the buyer of the car and send a copy to the purchaser. The IRS is providing some transitional relief from this reporting rule. For the 2025 year, the business receiving the car loan interest may satisfy its reporting obligations by making a statement available to the car buyer stating the total amount of interest received on a qualified passenger vehicle loan. This can be provided on an online portal, in a monthly statement or annual statement given to the buyer, or something similar.

This relief gives lenders extra time to comply with the normal reporting obligations and lets the IRS make necessary program changes and updates to its tax forms, while also giving car buyers the information they need to claim the new deduction.

2. What is MAGI?

Question: I know the deduction for interest paid on car loans begins to phase out at MAGI over a certain amount. What is the definition of MAGI for this deduction?

Joy Taylor: As stated above, the tax break begins to phase out at MAGI over $200,000 on joint tax returns and $100,000 on other tax returns, and ends at MAGI of $250,000 on joint tax returns and $150,000 on other tax returns.

MAGI is often used by the IRS to determine your eligibility for certain tax benefits or tax breaks, or to determine whether you are subject to surtaxes or surcharges. True to the complexity of the federal tax code, the definition of MAGI often differs, depending on what it is used for.

MAGI for this purpose is your adjusted gross income shown on line 11 of your Form 1040 or 1040-SR, 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.

3. Can I deduct interest on my 2023 car loan?

Question: I bought a new car in 2023 for personal use, and I took out a loan to finance the purchase. Will I be able to deduct the interest that I pay this year on my 2025 tax return that I file next year?

Joy Taylor: Unfortunately, no. To qualify for the deduction, you must purchase the vehicle in 2025 or later. Since you bought the vehicle in 2023, you cannot deduct the interest that you pay on the car loan in 2025 or in later years.

4. How do I report this on my tax return?

Question: I bought a new car for personal use this past March, and I took out a loan to finance the purchase. How do I deduct the interest that I paid on the car loan on my 2025 Form 1040?

Joy Taylor: You would use new IRS Schedule 1-A to compute your MAGI and to calculate the amount of the car loan interest deduction. You would then transfer the deduction amount to line 13 of your Form 1040. Note that you will need to also put in the vehicle identification number on Schedule 1-A.

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 and more. We will continue to answer these in future Ask the Editor round-ups. 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: Reader Questions on QCDs
• Ask the Editor: Reader Questions on QCDs and Tax Planning
• Ask the Editor: Questions on the New Tips Deduction
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Question on SALT Deduction
• Ask the Editor: Questions on the $6,000 Senior Deduction

Put down the pumpkin pie and get ready for tax planning: These retirement tax moves could help you prepare for 2026.

Retirees are in a unique planning position compared with other tax filers heading into the winter season. Not only are they faced with complex withdrawal rules on RMDs, but many have access to age-specific tax deductions, including the new $6,000 “senior bonus” deduction.

Whether you leverage this time by making strategic money moves or wait until the last second to act can affect your financial position next year (and potentially this year).

Here are 10 tax moves you can make before December 31 to optimize next year’s retirement income and potentially lower your 2025 tax bill.

Retirement tax plan in 2025 and 2026

Kiplinger only considered individual income returns for the retiree tax planning checklist. As such, business taxes were excluded, as well as educational expenses or tax breaks typically associated with self-employment.

The retirement tax moves listed might be affected by a taxpayer’s income level and filing status. State retirement tax treatment may differ.

Consult with a qualified tax professional for specific advice on your financial situation.

RMDs

1. Review your 2025 RMD (and 2026) tax strategy

As a retiree, you might already be familiar with the concept of required minimum distributions (RMDs). An RMD is money that must be withdrawn from a 401(k), 403(b) or other traditional IRA every year after you reach a certain age. If you don’t make the withdrawal, you could be subject to a 25% penalty on the amount not distributed.

Here are the current age requirements for RMD withdrawals:

• If you’re 73 or older, you must take an RMD from your retirement accounts by December 31.
• If you turned 73 in the current year, your first RMD is due by April 1 of the following year, but your second RMD is still due by December 31 of that same year.

If you’re subject to RMD rules and haven’t already withdrawn your RMD for 2025, you should do so now to avoid the penalty. But you’ll also want to look at 2026’s RMD withdrawal for retirement tax planning purposes. This might help you avoid common RMD tax traps:

• Preventing the “two RMD trap.” The IRS gives an extended deadline of April 1 to take your first RMD. However, all subsequent RMDs must be taken by December 31, meaning that if you delay until April, you’ll have to take two withdrawals in one year. That could push you into a higher tax bracket and increase your overall tax liability for that year.
• Reducing investment risk. RMDs are calculated in part using your RMD account balance from the prior year. If there’s a market downturn in, say, 2026, you’ll still have to withdraw the predetermined amount at the end of 2025 (which might have been higher). This could result in the forced selling of IRA investments at a lower value just to satisfy your RMD obligation.

By reviewing your RMD withdrawal strategy now, you can minimize the effect of market volatility on your portfolio. This often means strategically withdrawing cash or bonds during downturns.

Alternatively, during an economic upturn, you’d likely want to take your RMD earlier in the year, locking in investment gains by selling fewer shares to meet the RMD amount.

You can also take steps to lower your taxable income from other revenue streams, which helps to counteract the larger taxable income resulting from RMDs and keeps your overall tax bill more manageable in 2026.

For more information, see Required Minimum Distributions: Rules, Deadlines, and Key Points to Know.

IRA Conversion and Investment Timing

2. Take advantage of capital loss carryover: Tax-loss harvesting

Tax-loss harvesting is the strategic practice of selling taxable account investments (such as trusts or brokerage accounts) to maximize tax savings. Here’s how this strategy works:

• You have at least one capital asset (such as real estate, stock, etc.) that you sell for more than you paid for it, resulting in a capital gain.
• You sell at least one investment for less than you originally paid, resulting in a capital loss.
• Then you offset the total amount of capital losses against your capital gains, effectively leading to a 0% tax on any gains offset by losses.
• If your total capital losses are greater than your gains for the year, you can use the excess to deduct up to an additional $3,000 against your ordinary income. Any remaining losses that exceed this $3,000 limit are carried forward indefinitely to offset future capital gains.*

When would tax-loss harvesting be useful? Here are a few examples:

• If you’re subject to the highest tax rate on capital gains, you can avoid that tax through tax-loss harvesting, resulting in valuable savings. Those savings can be reinvested in securities or used to help rebalance your portfolio.
• By deducting up to $3,000 of capital losses against ordinary income, you can save on taxes typically levied on retirement plan distributions, pensions, and other ordinary income sources. An unlimited amount of capital loss might be carried forward to offset gains from real estate sales, mutual funds, ETFs, etc..

However, before you commit to tax-loss harvesting, look out for the “wash sale rule,” which says you can’t reinvest in similar securities 30 days before or after you sold the capital loss ones. If you do, your capital losses won’t count as an offset to your capital gains.

*Note: The deduction amount is $1,500 for taxpayers married filing separately.

For more information, see: Capital Losses: Rules to Know for Tax Loss Harvesting.

3. Perform a Roth conversion

If you have a traditional retirement savings account (such as a 401(k), 403(b) or traditional IRA), you might be wondering: Is now the right time to convert to a Roth IRA?

The trade-off is clear: With a traditional IRA, you pay taxes when you take a distribution; with a Roth account, you pay taxes now on the funds you contribute.

Consequently, converting from a traditional IRA to a Roth means you must pay the income tax in the year of conversion, but the potential long-term benefits of tax-free growth might be worth the upfront cost.

Reasons you might consider converting your traditional IRA to a Roth account:

• You expect your 2026 income tax rate (or later) to be higher. Often, there’s a “lull” for retirees in the years after they stop working and before they start receiving Social Security, where income is at its lowest. If you’re there now, you might consider converting to a Roth before the end of 2025, and your income (and/or federal tax rate) is higher.
• You want to avoid RMDs. Those yearly required withdrawals from your IRA disappear with a Roth conversion. Your money in a Roth account grows tax-free throughout your entire lifetime and gives you greater control of when and how much you withdraw each year, which might be ideal for those who want more flexibility with their retirement tax plan.
• You plan to leave money to your heirs. If you have a valuable estate, a Roth generally offers beneficiaries tax-free withdrawals. Comparatively, traditional IRA withdrawals are taxed as ordinary income for your heirs.

*Note: If you're 73 or older at the time of the conversion, you must first take your RMD from your traditional IRA for the year of the switch.

But the grass isn’t always greener on the Roth side of things. Here are a few reasons why you wouldn’t convert a traditional IRA to a Roth:

• You expect your 2026 income tax rate (or later) to be lower or the same. If your projected future tax rate is lower than your current rate, you might not want to convert a traditional IRA to a Roth, as you would be paying taxes at a higher rate vs later (in 2026) when your rate is lower.
• You have to use IRA funds just to pay the conversion tax bill. Converting a traditional IRA to a Roth requires you to pay the federal income tax owed upfront. If you're forced to use funds from the traditional IRA to pay off the conversion taxes, the conversion can incur early withdrawal penalties. Taking an early withdrawal not only diminishes your savings but also significantly lowers the primary benefit of the Roth account: Tax-free growth.
• You need to use the converted funds within five years. If you’re under 59½, you can’t use your funds for five years after a traditional IRA to Roth conversion. Otherwise, you could be subject to a 10% early withdrawal penalty. (However, if you’re older than 59½, you might withdraw the funds penalty-free before the five years are completed, though any earnings on those funds will be subject to income tax.)

Like other checklist items on this retirement tax planning list, you’ll want to consider your overall retirement tax strategy when deciding whether to convert your traditional IRA to a Roth account. However, the deadline to complete a 2025 conversion is December 31.

For more information, check out Kiplinger's report, 6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't).

4. Convert a 529 to a Roth (if you can)

While we’re on the topic of conversions, let’s review an exciting (and relatively new) tax law: The Secure Act 2.0. Among other things, this law enacted a provision that allows you to convert a 529 savings plan into a Roth account.

Here are the rules for a 529 savings account to Roth IRA conversion:

• The 529 plan must have been open for at least 15 years.
• Plan contributions must have been held in the account for at least five years before conversion.
• The beneficiary for both the 529 and the Roth must be the same, and the transfer must be direct: From one plan trustee to the other trustee.
• The beneficiary must have earned income at least equal to the amount of the rollover.
• You might roll over up to $35,000 of unused 529 funds into a Roth IRA (per beneficiary). That’s a lifetime limit, meaning you’ll need to total all transfers across all 529 plans that are rolling over into Roths.

The rollover is subject to the annual Roth IRA contribution limits. (You might want to spread a large conversion over several years.) But if you can roll over your 529 plan into a Roth, the federal tax benefits might be worthwhile.

Benefits of a 529 to Roth conversion. You won’t be taxed federally on the conversion. Plus, you’ll avoid penalties for withdrawing funds from a 529 for non-educational expenses, with the added benefit of jumpstarting the beneficiary’s retirement savings.

Itemized deduction timing

5. Organize your bunching strategy for tax deductions

The tax strategy of “bunching” means you pay two years’ worth of itemized expenses in the current tax year to push your total itemized deductions higher than the standard deduction amount.

If performed correctly, you’ll gain one year of high itemization followed by one year of the standard deduction, which maximizes your total tax savings for both years.

Bunching deductions typically relies on the fact that you:

1. Can claim the itemized deduction on your income tax return (at least for the year that you “bunch”)
2. Have the flexibility to pay for some of your expenses early

You should consider bunching your deductions in 2025 if you anticipate a higher federal income tax rate in 2026. Bunching deductions might also be beneficial if you expect your tax situation to be negatively impacted by new tax legislation in 2026, such as the new AGI floor for itemized charitable deductions (more on that later).

Here are a few ways you might “bunch” your deductions and acquire tax savings in 2025:

• Maximizing the state and local (SALT) deduction. Starting in 2025, you can deduct up to $40,000 in SALT on your federal income return (if you meet income requirements). By prepaying your fourth-quarter property taxes before December 31 (if your state allows it), you could reach higher tax savings before the AGI floor kicks in in 2026.
• Front-load charitable contributions. You can use a donor-advised fund to take advantage of more favorable tax rules in 2025 (more on that below).
• Pay high medical expenses early. Do you have significant medical expenses scheduled for early 2026? If those qualified procedures are near the 7.5% AGI threshold for the medical expense deduction, consider paying them before the end of 2025 to take advantage of bunching.*

*Any medical procedures completed “substantially beyond” 2025 might not qualify for the medical expense deduction in 2025.

6. Finish your charitable donations

If you itemize, be sure to finish making your charitable contributions before the December 31 deadline. Donations can be a powerful way to reduce your taxable income for the year. (Though adjusted gross income (AGI) limits apply.)

Starting in 2026, the rules for itemizing charitable giving will get tighter, making your contributions this year even more valuable.

That’s because the Trump/GOP 2025 spending bill, known to some as the “One Big Beautiful Bill,” provides an AGI floor for itemizers as well as a deduction cap for high-income earners in 2026. Here’s a table summarizing the new tax rules for charitable deductions going into effect next year:

For 2026, a charitable contribution "floor" will be introduced for itemizers, regardless of income level. Only total contributions above 0.5% of your AGI will be deductible. For example, if you had $200,000 AGI and donated $2,000, only $1,000 would be deductible.

Charitable contributions for high-income itemizers will also be subject to a cap in 2026. The new law imposes a 35% limit on the value of all itemized deductions for high earners, meaning taxpayers in the top bracket will receive a lower tax break compared to 2025.

Both of these provisions make “bunching” deductions more valuable than ever. You can achieve this by contributing to a donor-advised fund (DAF). A DAF allows you to claim an immediate tax deduction for your contributions this year (under the more favorable 2025 rules), while the fund awards the “bunched” money to your chosen charities over time. This might help you maximize your deduction before the 2026 limits take effect.

For more information, see our guide: The Charitable Donation Tax Deduction: What to Know.

Optimize Retirement Tax Efficiency

7. Consider making a qualified charitable distribution in 2025

A qualified charitable distribution (QCD) is a distribution from your IRA to a qualified charity of your choice. However, not everyone’s eligible to make one. Here are the eligibility requirements for 2025:

• You must be age 70½ or older.
• You can donate up to $108,000 (or $216,000 if married spouses) in a single tax year.
• The distribution must be made from a traditional IRA, an inherited IRA, or an inactive SEP/SIMPLE IRA.

QCDs require that you “give up” a portion of your annual IRA distribution to a charity, effectively going without your hard-earned cash. But making a QCD goes hand-in-hand with many of the retirement tax items we’ve already covered on our list. For example:

• Avoiding the taxability of RMDs. If you don’t need all the money from your RMD, you can donate a portion as a QCD. This has the double benefit of satisfying your RMD while paying no federal income tax on the portion you donate.
• Lowering your AGI. Remember that charitable deduction cap coming into effect in 2026 for high-income earners? If you make a QCD in 2026, you can effectively reduce your AGI, potentially lowering your federal income tax bracket next year and thereby avoiding the new AGI cap.
• Reducing high taxes on Social Security benefits and Medicare premiums. Because your QCD lowers your gross income, you might see a reduction in the amount of tax you pay on Social Security in the year you made the QCD, or your Medicare premium tax two years later.

That said, a QCD doesn’t qualify as an itemized “charitable deduction” on your income taxes, which might hamper your bunching strategy. You also can’t use a DAF to make a QCD, so it might make your approach to donating less flexible.

For more information, see: What is a Qualified Charitable Distribution?

8. Update your retirement income withholding

There are two primary methods for retirees to pay federal income taxes. The first is through estimated tax payments, which are due quarterly.

The second is through automatic withholding by filling out the appropriate form (e.g., pensions and annuities use Form W-4P, Social Security benefits use Form W-4V, etc). We’re going to discuss the withholding option.

You should review your retirement withholding form(s) annually for potential changes in your tax situation. This is particularly pertinent for 2026, when the withholding forms will be updated for new tax deductions such as:

• The car loan interest deduction. Worth up to $10,000 on qualifying new vehicles, some suggest the estimated annual tax savings could average around $400 to $500 per taxpayer in 2026.
• The bonus deduction for those age 65 or older. Worth up to $6,000 for eligible individuals with less than a certain income, the Tax Policy Center estimates that about half of eligible older adults will see some benefit.

The main benefit of updating your retirement withholding is that you can take advantage of the tax deductions throughout the year instead of just at year-end.

Not only does this give you more income month-to-month, but you can also invest those extra dollars into a savings account or other security and start accruing interest right away.

The IRS considers withholding to be paid “evenly throughout the year” regardless of when you actually withheld your taxes. If you accidentally underpay your taxes during one quarter, you can increase your withholding toward the end of the year and cover the shortfall. This is another reason you should review your retirement tax withholding before December 31.

Review Important Tax Documents

9. Review health care coverage: Open enrollment for Medicare

We’re in full swing of open enrollment season (which typically lasts until December 7 for Medicare, and until January 15 for Affordable Care Act (ACA) marketplace insurance). This is the time to ensure your health care coverage and plan costs still meet your needs and compare potential alternative plans.

Reviewing your medical plans might be more important than ever. If you’re currently using ACA subsidies, those are scheduled to expire at the end of 2025 (unless Congress acts). The expiration is expected to lead to significant premium increases and higher out-of-pocket costs for many enrollees in 2026.

• Medicare premiums and IRMMA are projected to increase. As reported by Kiplinger, Medicare Part B premiums and deductibles are expected to increase by about 12%, and Part D IRMMA surcharges might increase by as much as 6%.
• Prescription drug coverage will likely see a higher maximum deductible. Current estimates place the projected 2026 out-of-pocket cost cap at $2,100, compared to $2,000 in 2025.

What should you do? Review the Annual Notice of Change (ANOC) letter you received from your current insurer to understand the plan changes going into effect in 2026. The ANOC might inform you of income-related premium increases and if your doctor network is still covered.

By using previously discussed tax strategies like QCDs or Roth IRA conversions, you might be able to reduce high anticipated Medicare premiums.

However, keep in mind that Medicare premiums are calculated on modified adjusted gross income (MAGI) from two years prior. Any change you make in tax year 2025 will not impact your Medicare premiums until 2027.

Related: Health Insurance Tax Credits and the Government Shutdown: What to Know.

10. Review your estate planning goals

Lastly, now’s a good time to review your will, power of attorney documents, and beneficiary designations on all retirement accounts and insurance policies.

Reviewing those important documents each year helps ensure that your estate-planning goals still align with your current retirement goals, especially in light of new tax rules.

Here are a couple of things to know regarding your 2026 estate tax plan:

• The annual gift tax exclusion remains the same. For both the 2025 and 2026 tax years, the annual gift amount is $19,000 (single filers) or $38,000 (married filing jointly couple). Gifting money tax-free helps minimize estate tax liability for your heirs when you pass away.
• The estate tax exclusion amount increased. While the basic exclusion amount for individuals was $13.99 million in 2025, the exclusion was increased to $15 million in 2026. This allows individuals to transfer a larger amount of wealth estate tax-free, potentially offering heirs more post-tax funds.

While the estate exemption amount remains high in 2026, you might want to make large gifts in 2025 to “lock in” asset values if you think those assets could appreciate significantly. This effectively moves that future appreciation out of the estate, avoiding estate tax on future growth.

At the same time, assets in an estate are given to heirs at a “stepped up” basis, meaning the heir receives those assets at fair market value. This effectively eliminates the capital gains tax (should your heir later decide to sell the asset) and is one of the benefits of keeping assets in an estate.

Everyone’s estate tax liability looks different. Outsource your taxes to a qualified tax adviser when necessary.

Read More

• How the IRS Taxes Retirement Income
• The Rubber Duck Rule of Retirement Tax Planning
• New Tax Rules High-Income Earners Should Know Before Donating in 2025
• Test Your Retirement Tax IQ: How Much Do You Know?

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at nine questions on the tax deduction for medical expenses. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Can I claim medical expenses and the standard deduction?

Question: I normally claim the standard deduction when I file my Form 1040. This year, I have incurred lots of medical expenses. Can I deduct them and take the standard deduction?

Joy Taylor: No. The medical expense write-off is an itemized deduction claimed on Schedule A of Form 1040. You cannot take the standard deduction if you are itemizing deductions on Schedule A. It’s an either/or situation – either you claim the standard deduction OR you itemize deductions on Schedule A. You can’t do both.

2. Are Medicare premiums deductible?

Question: This will be the first year I am claiming medical expenses on Schedule A of the Form 1040. My spouse and I each pay monthly premiums for our Medicare coverage. Are the premiums we pay deductible medical expenses?

Joy Taylor: Yes. Taxpayers who itemize on Schedule A 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.”

3. Can we deduct long-term-care costs?

Question: My spouse is going into a long-term-care facility. Can we deduct our unreimbursed costs for the care that is not paid by insurance as a medical expense on Schedule A of Form 1040 if we otherwise itemize?

Joy Taylor: Medical expenses are deductible on Schedule A of the Form 1040 only to the extent the total exceeds 7.5% of your adjusted gross income. You will likely be able to deduct your spouse’s unreimbursed long-term-care costs as medical expenses. Long-term-care expenses include the costs of assisted living, in-home care and nursing home services.

The long-term care must be medically necessary for one who is chronically ill, meaning at least two activities of daily living can’t be performed without help for 90 days or more. Anyone in need of long-term care because of dementia or other cognitive impairment is also considered chronically ill if substantial supervision is needed to protect the individual’s health and safety.

The chronic illness must be certified by a licensed health care practitioner. The cost of meals and lodging at a facility or nursing home counts as medical expenses if a person is mainly there for medical care.

4. Are long-term-care insurance premiums deductible?

Question: I pay annual premiums for a long-term-care insurance policy. Can I deduct the premiums I pay as medical expenses on Schedule A of the Form 1040?

Joy Taylor: The premiums you pay for a long-term-care policy are deductible medical expenses, subject to limitations. For most taxpayers, these premiums are medical costs deductible by itemizers on Schedule A of the Form 1040 to the extent that total medical expenses exceed 7.5% of adjusted gross income. Self-employed individuals can deduct these premiums on Schedule 1 of Form 1040.

The deduction for long-term-care premiums is capped based on age. The older you are, the higher the tax break. For 2025, taxpayers who are 71 or older can deduct as much as $6,020 per person. Filers age 61 to 70 can deduct up to $4,810 per person. People aged 51 to 60 can deduct up to $1,800 each. Individuals who are 41 to 50 can take up to $900. And people age 40 and younger can deduct no more than $480. For 2026, these monetary caps are $6,200, $4,960, $1,860, $930 and $500, respectively.

Note that a tax break related to paying long-term-care premiums takes effect next year. Generally, pre-age distributions from IRAs and workplace retirement plans are hit with a 10% early withdrawal tax, in addition to any regular income tax that is due on the distribution. Beginning in 2026, you can withdraw up to $2,500 from your 401(k) or other plan each year to help pay for long-term-care premiums without having to pay the additional 10% tax if you are younger than 59½.

5. Do costs for a drug rehab program qualify?

Question: Are the costs for a drug treatment program deductible medical expenses?

Joy Taylor: Yes, the cost of treatment for drug use or alcoholism is a medical expense. And many other health and wellness costs also qualify as deductible medical costs. These include the cost of a smoking cessation program, nutritional counseling for a doctor-diagnosed disease, and a weight-loss program to help with the treatment of obesity, hypertension, heart disease or other physical illness diagnosed by a physician. Note thought that the cost of diet foods, weight-loss supplements or reduced-calorie beverages are not deductible medical expenses.

6. Are teeth whitening procedures tax deductible?

Question: I paid a dentist lots of money last year to get my teeth whitened. Can I deduct the cost as a medical expense on Schedule A of my Form 1040?

Joy Taylor: Unfortunately, no. The costs of procedures to improve your appearance generally aren’t deductible. These include, for example, a weight-reduction program, a gym membership or cosmetic surgery to improve your appearance. Teeth whitening and hair transplants don’t count either.

7. Can I deduct costs for service animals?

Question: We are getting a service dog for my child who has epilepsy. Can I deduct the cost of the dog and his veterinary bills?

Joy Taylor: Yes. Amounts you pay to purchase a service dog, and the costs of training, food, grooming and veterinary care, are deductible medical expenses. These animals assist the visually impaired and others who have physical disabilities, so the owner can write off the costs of buying and caring for their dogs on Schedule A of Form 1040 to the extent total medical expenses incurred exceed 7.5% of adjusted gross income.

In some cases, the cost of an emotional support animal may be deducted as medical expenses. The owner must show that he or she is using the animal primarily for medical care to alleviate a mental disability or illness.

Read more on tax breaks for parents of children with disabilities.

8. Is the cost of medicine from abroad deductible?

Question: I am thinking of buying medicine from another country because I cannot get it here in the U.S. Can I deduct the cost of that medicine?

Joy Taylor: It depends. Buying medicine from abroad can come with a hefty tax price. The cost is generally not deductible as a medical expense on Schedule A. That’s because federal law bars importing many drugs from other countries. There are some exceptions to this general rule. For one, you can include the cost of an imported drug in deductible medicals if the drug was imported legally, for example, as announced by the Food and Drug Administration (FDA). You can also include in medicals a drug’s cost if you purchased and used that drug in another country, provided the drug is legal in the other country and in the United States.

9. Do costs for abortion procedures qualify?

Question: Is the cost of an abortion a deductible medical expense?

Joy Taylor: It depends. People who itemize on Schedule A can include in medical expenses the amount paid for a legal abortion, meaning the procedure is performed in a state where abortion is legal. Transportation costs are also deductible. If you drive there, you can deduct out-of-pocket costs or use the standard mileage rate for medical driving, which is 21¢ per mile for 2025. Hotel expenses of up to $50 a night can also be deducted if the abortion is provided by a doctor in a licensed hospital or a medical care facility. You can deduct up to an additional $50 a night for a traveling companion’s lodging. Meals aren’t deductible.

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 and more. We will continue to answer these in future Ask the Editor round-ups. 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: Reader Questions on QCDs
• Ask the Editor: Questions on Capital Gains
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on Home Sales and Taxes

Your 2026 paycheck may be about to get a boost: New and increased tax breaks from the 2025 Trump/GOP spending bill could allow millions of workers to increase their monthly take-home pay next year.

How? Well, you’ll have to update your federal tax withholding.

Your withholding is the amount your employer takes out of each paycheck to pay taxes on your behalf. It’s typically a form you fill out when you start a new job, but the IRS recommends reviewing your W-4 Form annually to avoid costly mistakes.

For example, if you qualify for a new federal tax deduction, waiting until year-end to claim that tax break could lead to missing out on monthly savings, potentially giving the government an interest-free loan of your money until tax time.

So if you want to keep more of your take-home pay as you receive it in 2026, here are three critical tax changes that could boost your paycheck — if you qualify and update your Form W-4, that is.

Key tax changes to boost pay in 2026

To find the three critical tax changes for 2026 paychecks, Kiplinger considered tax breaks the IRS will soon add to its Tax Withholding Estimator that could affect workers.

• Taxpayers may use the estimator tool to help calculate federal tax withholding.
• This information can then be utilized to help fill out IRS Form W-4, Employee’s Withholding Certificate, with your employer.
• Only tax deductions with annual estimated savings above $1,000 qualified as “critical.” Estimated tax savings were referenced from the Tax Policy Center and The Tax Foundation, the latter of which sourced data originally published by the U.S. Census Bureau.

While Kiplinger notes estimates of how much you could save with these tax breaks, any actual tax savings may depend on several factors, like your filing status, applicable restrictions, and federal income tax bracket in 2026.

That said, here are three critical tax break changes that could boost your paycheck in 2026.

1. Tip income tax deduction in 2026

Tax deduction amount in 2026 (maximum): $25,000

Average estimated tax savings in 2026: $1,400

The new tip income deduction is a temporary tax break for tax years 2025 through 2028.

Although the deduction can be as high as $25,000 per tax return, the Tax Policy Center projects an average benefit of approximately $1,400 for each eligible household in 2026. That’s over $100 per month in tax savings, if you qualify and update your withholding.

Here are a few fast facts about the federal tipped pay tax deduction:

• Only “Qualified” tips are eligible, including voluntary cash and charged tips (like credit card or PayPal).
• Payroll taxes still apply (that is, the deduction doesn’t reduce Social Security or Medicare taxes).
• Your tip deduction starts to be reduced if you’re a single-filer with a modified adjusted gross income (MAGI) of $150,000 or more (married filing joint filers have a MAGI limit of $300,000 or more).

For every $1,000 your MAGI exceeds the above limits, your tip income deduction is diminished by $100. The deduction is completely phased out for single filers with $400,000 in MAGI and joint filers with MAGI of $550,000.

Plus, only certain professions qualify. The list of qualifying professions from the Treasury/IRS currently includes:

• Wait staff and bartenders.
• Food servers, chefs, and cooks.
• Dancers, musicians, singers, and digital content creators.
• Housekeeper cleaners and resort desk clerks.
• Home plumbers, electricians, and landscapers.
• Private event planners, pet caretakers, and tutors.
• Hairstylists, Tailors, makeup artists, and pedicurists.

While the IRS hasn’t released a final 2026 W-4 Form, you can start thinking about your withholdings with the draft version released late last month.

However, you’ll need to know an estimate of your qualified tip income for 2026 to plan how this federal tax break may affect your withholding. You can start by using your reported tips on last year’s tax return as a baseline and then project your qualified tips for 2026.

2. Overtime tax deduction for 2026 paychecks

Tax deduction amount in 2026 (maximum): $25,000

Average estimated tax savings in 2026: $1,400

Similar to the tax deduction for qualified tip income, qualifying non-exempt employees may be eligible to claim an overtime pay deduction from tax years 2025 through 2028.

The overtime deduction is worth up to $12,500 for single filers and $25,000 for joint filers, which the Tax Policy Center estimates could average about $1,400 per qualifying household next year.

Here are a few fast facts about the federal overtime pay tax deduction:

• You must work more than 40 hours per week.
• You must be a non-exempt employee who earns overtime under the federal Fair Labor Standards Act (FLSA).
• Single filers with more than $150,000 in MAGI will see their deduction reduced, while married filing joint couples won’t see a phase-out begin until their MAGI exceeds $300,000.

The overtime deduction is reduced by $100 for every $1,000 MAGI over the thresholds. When single filers have MAGI of $275,000 or more (and married filing jointly couples with $550,000 or more), the overtime deduction is completely phased out.

Like the tip income deduction, you can start thinking about adjusting your tax withholding for how much overtime pay you expect to receive in 2026. Begin with your 2025 overtime pay as a starting point. If you're unsure of this amount, consult your employer or refer to your pay stubs.

But keep in mind the overtime deduction only applies to the “extra” half of your time-and-a-half rate, not total overtime wages. That means your regular hourly rate is subtracted from your overtime rate when determining the deduction.

3. SALT deduction for 2026 withholding

Tax deduction amount in 2026 (maximum): $40,400

Average estimated tax savings in 2026: $4,722 to $14,974

The unlimited state and local tax (SALT) deduction was capped at $10,000 seven years ago by the Tax Cuts and Jobs Act (TCJA).

In 2025, the GOP tax bill temporarily raised the SALT deduction cap for certain taxpayers. This cap is projected to rise by 1% in 2026, increasing from $40,000 to $40,400.

Here are a few fast facts about the SALT tax deduction cap:

• Itemizing taxpayers could save up to $40,400 on federal taxable income in the 2026 tax year (returns normally filed in 2027).
• However, single filers in tax year 2026 will be subject to a phase-out of the SALT deduction when MAGI reaches $505,000 or more ($252,500 if married filing separately).
• For every dollar your income surpasses the above thresholds, your SALT deduction cap will be reduced by 30 cents.
• Your SALT cap will return to the original $10,000 limit once your income no longer qualifies for the deduction.

Claiming the SALT deduction largely depends on whether you itemize deductions on your return and how much state and local taxes you pay. So, individual tax savings may vary widely.

For example, the Tax Foundation estimates the average SALT paid per capita is between $4,722 and $14,974 annually. If you’re on the low end of that spectrum, you likely won’t see any benefit from this raised deduction cap, but if you’re on the high end, a higher SALT cap could make it worth the effort to update your federal withholding.

But beware if you’re in the highest tax bracket. That’s because those in the top 37% federal bracket for 2026 will be subject to a 35% rule on itemized deductions. This rule caps each itemized dollar to 35 cents worth of tax benefits (rather than 37 cents). Thus, if you’re a high-income earner, the 35% rule may limit the amount of estimated SALT deduction you should enter on your W-4 Form for 2026.

New federal tax withholding in 2026

While we covered three major 2025 tax breaks that could boost your monthly paycheck in 2026, the IRS will update its estimator tool with several other key tax breaks that may affect your work withholding to a lesser degree.

• The car loan interest deduction. Worth up to $10,000 on qualifying new vehicles, some suggest the estimated annual tax savings could average around $400 to $500 per taxpayer in 2026.
• The bonus deduction for those aged 65 or older. Worth up to $6,000 for eligible individuals with less than a certain income, the Tax Policy Center estimates that about half of eligible older adults will see some benefit.

The IRS is expected to release a final version of the 2026 W-4 Form by the end of December. So if you’re thinking about claiming these or other federal tax breaks on your withholding, wait until the finalized version is published to submit a new or updated form to your employer.

Also, it’s important to remember that not all tax savings may apply to you, and restrictions or certain limitations may apply to these and other tax deductions.

Double-check that you are fully eligible for the amount you claim on your Form W-4 before entering the deduction amount on your tax withholding. Otherwise, you could be in for a rude awakening at year's end with a hefty tax bill, fees, and even penalties.

The IRS Estimator may also be a helpful tax planning tool for other IRS withholding forms, like the Form W-4P (for retirees) and Form 1040-ES (for quarterly estimated tax payments). The estimator tool does not account for state income tax, so consult your tax professional for guidance on your specific tax circumstances if necessary.

Read More

• W-4 Form: Tax Withholding Tips to Optimize Your Taxes This Year
• New 2026 Income Tax Brackets Are Set: Will Your Rate Change?
• Three Popular Tax Breaks Are Gone for Good in 2026
• Standard Deduction 2026 Amounts Are Here

By now, you've likely heard about the tax and spending megabill that President Donald Trump signed into law on July 4, 2025.

This new law, formally known as Public Law 119-21 and often referred to by Trump as the "big beautiful bill, reshapes many tax rules that you and other taxpayers rely on each year. But understanding the various changes and their implications can be confusing.

Essentially, the tax bill extends many of the lower tax rates and increased standard deduction base amounts from the 2017 Tax Cuts and Jobs Act (TCJA), which was enacted during Trump's first term as president. As a result, some concerns about "tax cliffs" — key provisions initially set to expire at the end of last year — have been alleviated.

The legislation introduces several new temporary tax deductions and credits, including those related to tips and overtime pay. However, the bill also eliminates or accelerates the phase-out of certain incentives, including the federal EV tax credit and other clean energy credits.

Some changes were effective as of 2025 (returns you just filed in early 2026), while others don't come into play until this year (impacting returns you'll typically file in early 2027).

• Cost-wise, the Congressional Budget Office (CBO) projects that this law will increase federal deficits by approximately $4.1 trillion in the next decade. That includes about $700 billion in added interest costs on federal debt.
• The law introduces substantial cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), which provide health and food support to millions of people in the United States.

It’s a lot to digest, but we’ll dive into many of the changes in more detail below, beginning with some key points.

New Trump Tax Bill

Trump tax bill summary

Congress passed the massive bill using the budget reconciliation process. That approach allows a single party, in this case, Republicans, to approve certain legislation with a simple majority.

GOP members in the U.S. Senate narrowly approved the bill after a tie-breaking vote from Vice President JD Vance. Republicans in the U.S. House of Representatives also approved the bill along party lines.

The megalegislation is considered by many Republicans to be the signature fiscal effort of Trump's second term. Here's an overview of some key tax provisions.

• The seven tax brackets and their lowered rates stay put for now, so taxpayers didn't see higher income tax rates creep back up after last year, as was feared.
• Similarly, the standard deduction remains nearly double what it was before 2017 and will continue to be adjusted each year for inflation. (For 2026, that’s $16,100 for singles and more than $32,200 for couples filing jointly.)

According to separate analyses by the CBO and the Joint Committee on Taxation (JCT), the benefits from this tax law aren’t spread evenly.

People with higher incomes are expected to receive the most significant tax breaks, while many lower-income households might see their overall resources decrease.

Middle-income families could experience small gains or losses, depending on their individual circumstances.

Other key points:

• The state and local tax (SALT) deduction cap, which limits how much you can deduct for state and local taxes, rises sharply (subject to income limits) from $10,000 to $40,400 for 2026 and then remains elevated through 2029 before dropping back in 2030.
• New temporary deductions allow taxpayers to deduct interest on car loans for new U.S.-assembled vehicles (up to $10,000 per year) purchased after 2024, with income phaseouts and expiration at the end of 2028.
• Employees in traditionally tipped jobs, as specified by the U.S. Treasury and IRS, can exclude up to $25,000 in tips from federal income tax through 2028, subject to income limits and specific eligibility requirements.
• Overtime pay up to $12,500 (or $25,000 for joint filers) can be deducted in the same period, again with income phaseouts.
• The federal Child Tax Credit of $2,200 per child remains, but requires a valid Social Security number.
• New child savings accounts (called Trump accounts) start with a $1,000 federal deposit for kids born in 2025–2028 and allow further yearly contributions subject to limits and rules.
• Increased estate tax exemption, raising the threshold to $15 million beginning in 2026, indexed to inflation.
• Meanwhile, Medicaid and SNAP funding take significant hits, resulting in reduced eligibility or enrollment, increased work requirements, and lower funding levels. Some expect millions to lose health care coverage or food assistance because of those program cuts.

Here’s more of what you need to know about those provisions and how they could impact your taxes.

This content is for informational and educational purposes only and should not be considered financial, investment, tax, or legal advice. The views expressed are general in nature and may not apply to your individual situation. You should consult a qualified financial advisor, tax professional, or attorney before making any financial decisions.

What’s in Trump's tax bill?

Note: This is not an all-inclusive list of individual tax changes in the massive bill.

Extended individual TCJA provisions

The new megareconciliation legislation extends the TCJA’s seven individual income tax rates and brackets. Taxpayers have avoided the “tax cliff” rate increases that were set to take effect after 2025 if Congress hadn’t acted.

For more information, see: Federal Tax Brackets and Income Tax Rates.

The 2025 GOP tax bill also maintains the nearly doubled base standard deduction, which for 2025 was $15,750 for single filers and $31,500 for married joint filers, indexed for inflation annually. (As mentioned, those amounts adjust to $16,100 and $32,200, respectively, for this year).

Related: Standard Deduction Changes to Know Now

Estate tax exemption increase

The lifetime estate and gift tax exemption was scheduled to be reduced by half in 2026 due to looming Tax Cuts and Jobs Act (TCJA) expirations.

However, under the new Trump tax bill, the lifetime estate and gift exemption increases, as of January 1, 2026, to $15 million ($30 million for married couples).

Meanwhile, gifts given before 2026 benefit from the already-high 2017 tax exemption.

Learn More: What's the New Estate Tax Exemption Amount for 2026?

SALT deduction cap change

The SALT deduction cap is raised from $10,000 to $40,400 (for 2026), and the base amount will remain elevated for the years 2025 through 2029.

As a result, taxpayers who itemize deductions can deduct a larger amount of state and local taxes (including income, sales and property taxes) from their federal taxable income.

This cap increases by 1% annually during that period but phases out for taxpayers with modified adjusted gross income (MAGI) exceeding $500,000, returning fully to $10,000 for all taxpayers starting in 2030.

Related: SALT Deduction: Three Things to Know

New Tax Deductions

Several new deductions included in the tax and spending bill are temporary.

Car loan Interest deduction

Taxpayers can deduct interest on car loans up to $10,000 per year for new qualifying vehicles assembled in the U.S., purchased after December 31, 2024. Eligible buyers might be able to reduce their overall tax liability without itemizing deductions.

The tax break applies to passenger cars, light trucks, SUVs and motorcycles used for personal purposes.

• The deduction phases out 20% annually beginning at $100,000 MAGI for single filers and $200,000 MAGI for joint filers, with full phaseout at $150,000 and $250,000, respectively.
• Vehicle Identification Numbers (VINs) are required on tax returns.
• This deduction expires December 31, 2028.

Learn More: New Car Loan Interest Deduction: Which Buyers and Cars Qualify

'No tax on tips' deduction

Employees in traditional tipping occupations (e.g., servers, bartenders, salon workers) can exclude up to $25,000 in tips earned from federal income tax for tax years 2025–2028.

That essentially means eligible tipped workers might keep more of their earnings by paying less in federal income taxes on tips they earn through 2028. But ...

• Income phaseouts start at $150,000 (single) and $300,000 (joint).
• Self-employed individuals in tipped trades are excluded.
• Payroll and state taxes still apply to tips.

See: 'No Tax on Tips' Approved: What You Need to Know for more information.

Overtime pay tax deduction

A deduction for overtime pay of up to $12,500 (single) and $25,000 (joint) is allowed from 2025 to 2028, subject to the same income phaseouts as the deduction for qualified tip income.

See What's Happening With Taxes on Overtime Pay? for more information.

Targeted Tax Breaks

Child Tax Credit under Trump tax law

• The Child Tax Credit (CTC) maximum is $2,200 per qualifying child, indexed to inflation starting in 2026. The refundable portion of the credit is capped at $1,700 per child.
• Valid Social Security Numbers are required for taxpayers and dependents to claim the credit.

To learn more, see: Child Tax Credit 2025-2026: How Much Is It?

Trump Account for kids

New tax-exempt Trump accounts receive a government-seeded $1,000 for children born from 2025 to 2028, with additional nondeductible contributions capped at $5,000 per year. These funds, after age 18, can be used for education, home purchase or retirement purposes.

For more information, see: The GOP Wants to Auto-Enroll Your Child in a Trump Savings Account.

Senior Bonus Deduction (65+)

Taxpayers age 65 and older receive a bonus $6,000 deduction through 2028, phased out starting for incomes above $75,000 (single) and $150,000 (joint).

The deduction is available for eligible taxpayers whether you itemize or take the standard deduction.

For more information, see our report: New $6,000 Bonus Deduction: What It Means for Taxpayers Over Age 65.

Other 'Big Beautiful Bill' Tax Changes

1099-K threshold reporting

The GOP tax and spending bill brings back higher thresholds for 1099-K reporting from payment apps such as (but not limited to) PayPal, Venmo, Cash App, Etsy, StubHub, eBay, and Airbnb.

Beginning in 2025, for payments you receive for a given tax year, you should only receive a Form 1099-K if:

• You receive more than $20,000 in gross payments and
• You conduct more than 200 transactions on a single platform within a year.

For more information, see: Another IRS 1099-K Threshold Change to Know.

Health Savings Account (HSA) changes

• For HSAs, the new 2025 tax law expands eligibility by allowing individuals enrolled in Bronze or Catastrophic Affordable Care Act (ACA) plans to contribute starting in 2026.
• It also permanently allows telehealth services and direct primary care fees to qualify as HSA expenses, broadening the types of health care costs that HSAs can cover.

However, other reforms like expanding eligibility for Medicare enrollees weren’t included.

What this means for most: HSAs largely retain their prior features, including triple tax advantages on contributions, growth, and qualified withdrawals.

Student loan changes under Trump

Though not tax-related, the Trump tax and spending bill also introduces a significant overhaul of federal student loan programs.

Popular income-driven repayment plans initiated under the Biden administration will be phased out, borrowing for graduate students and parents will be restricted, and some options for deferment due to economic hardship or unemployment will be eliminated.

Though recent news reports indicate that the Trump administration might follow through with processing student loan forgiveness under certain Biden-era programs.

There's more. While the pandemic-era American Rescue Plan Act (ARPA) excluded forgiven student loan amounts from federal taxable income through 2025, the Trump/GOP tax and spending bill doesn't extend that exclusion.

That means, unless Congress acts, student loan debt forgiven after December 31, 2025, will once again be considered taxable income at the federal level.

That could leave borrowers who were counting on Public Service Loan Forgiveness (PSLF) or other forgiveness programs facing an unexpected tax bill.

For more information, see: How Taxes and Student Loan Repayment Could Soon Change Under Trump.

Ending clean energy tax credits

The new tax law delivers a major shake-up to federal clean energy incentives, setting expiration dates for popular tax credits.

Homeowners planning to install rooftop solar or battery storage had until December 31, 2025, to qualify for the 30% residential solar tax credit; after that, the credit is eliminated.

To learn more, see: Homeowners Rush to Install Solar Panels.

The federal EV tax credit for new, used, and commercial clean vehicles ended for vehicles acquired and put into service after September 30, 2025.

For more information, see How the EV Tax Credit Works.

The credit for installing home electric vehicle (EV) chargers remains in effect for a period of time, expiring for equipment placed in service after June 30, 2026.

With these deadlines, some analysts say the law is expected to slow the momentum of clean energy adoption and raise the cost barrier for solar and EV upgrades.

Business provisions in the Trump tax bill

The Trump/GOP tax and spending bill impacts businesses as well. Some key changes include:

• Permanent 20% small business deduction for pass-through entities such as partnerships and sole proprietorships.
• Permanent 100% bonus depreciation and full expensing for business investments.

(A permanent lower corporate tax rate, initially set by the 2017 TCJA, remains.) Other key business provisions are summarized in the following table.

Health Care and Food Benefit Cuts

Medicaid cuts and rule changes

The bill enacts the most sweeping cuts to Medicaid since the program’s 1965 inception.

The legislation reduces Medicaid funding by roughly 18% over a decade — about $600 billion to $800 billion according to the Congressional Budget Office (CBO) — through a combination of new eligibility restrictions, asset tests, and work requirements.

• Most adults, including parents of children age 14 and older, will need to work at least 80 hours a month to keep coverage, with some exceptions.
• States will be required to reassess eligibility every six months, rather than annually.
• States could also impose co-pays up to 5% of household income and require monthly income verification.

The CBO estimates that 10 million to 12 million people could lose Medicaid coverage in the next 10 years, with additional losses expected from tighter Affordable Care Act enrollment rules.

The impact is expected to fall hardest on families with low incomes, people with disabilities and rural residents.

SNAP: Shrinking food assistance benefits

The bill’s approach to the Supplemental Nutrition Assistance Program (SNAP) is equally notable.

SNAP program funding (formerly known as food stamps) will be cut by about 20%, an estimated $230 billion over 10 years.

• Work requirements are expanded to cover adults up to age 64 (up from 50), and parents with children age 14 and older.
• States will be required to shoulder a greater share of SNAP costs or risk losing federal support entirely.

Many family advocates say these changes threaten to push millions into food insecurity, especially older workers and families in high-unemployment areas.

For more information, see Medicaid and SNAP Benefits at Risk Under Trump’s Tax Bill.

More Tax Changes for 2026

Gambling losses tax deduction change

Starting in the 2026 tax year, the new law limits gamblers to deducting only 90% of their losses against their gambling winnings. Previously, you could deduct 100% of your losses up to your winnings, meaning you weren’t taxed on net-zero or losing years.

This change applies to all gamblers and related gambling expenses. However, as Kiplinger has reported, several bills have been introduced proposing to reverse this, so stay tuned.

To learn more, see: Gambling Loss Deduction Limit Sparks Debate.

Charitable donation tax deduction

Under the new tax law, a significant change has been introduced to charitable giving incentives.

• As of 2026, individuals who claim the standard deduction will be able to deduct up to $1,000 annually for single filers and $2,000 for joint filers in cash donations to qualified charitable organizations.
• Previously, only those who itemized deductions could benefit from the charitable donation tax deduction.

Additionally, for high-income taxpayers in the 37% tax bracket, the value of charitable deductions has been capped at 35%, meaning they can receive a maximum of 35 cents in tax savings for every $1 donated.

For more information, see: Charitable Donation Tax Deduction: What to Know AND 3 Changes Coming to Charitable Deductions for 2026.

ACA Tax Credit expiration

The premium tax credit subsidies under Affordable Care Act (ACA) marketplace plans expired after December 31, 2025.

• Congress originally expanded these premium tax credits during the pandemic in 2021 and later extended them through the end of 2025.
• They substantially lower health insurance costs for more than 24 million people in the U.S., or roughly 7% of the population.
• Data show the tax credits have helped make coverage more affordable for a range of people, including the self-employed, small-business owners and those who lack access to employer or other coverage.

Deficit and Impact

The fiscal impact of the GOP tax bill

Proponents argue the bill’s tax cuts and spending changes will boost growth and jobs. But the numbers tell a more complicated story.

The CBO projects the bill will add about $3.3 trillion to the national debt over 10 years, even after accounting for the spending reductions and new revenue measures.

Other independent estimates, which factor in the interest on that additional debt, put the true cost closer to $4.5 trillion or more over a decade.

Public Perception

Who benefits from Trump's tax bill?

A Tax Foundation analysis shows the largest tax cuts will go to households earning $400,000 and above. The top 1% would receive a disproportionate share of benefits compared with those making $100,000 or less.

• Data show that most tax benefits will go to wealthier taxpayers, with the top 10% receiving approximately 80% of the total tax breaks.
• Meanwhile, lower-income Americans generally see fewer gains — or even lose resources — especially when cuts to Medicaid and food assistance programs like SNAP are taken into account.
• Middle-income families are expected to experience mixed results, depending on their individual circumstances.

What the polls say about the tax bill

What about the public? Some public skepticism was reflected in a CBS News/YouGov poll conducted in early June. About 47% of respondents said the bill would hurt the middle class, 54% believed it would negatively affect low-income people, and 60% expected the wealthy to benefit most.

More recent polling also shows public opinion is generally running against the bill.

According to a recent Pew Research Center poll, only 27% of Americans believe the big bill will help people like them, while 51% think it will hurt the middle class.

A Kaiser Family Foundation’s survey echoes those concerns: 56% of respondents say they're “very worried” or “somewhat worried” that the bill’s benefits will primarily go to the wealthy and corporations, rather than to ordinary families.

Because the megabill was passed by the GOP without Democratic support, the law has added to political divisions.

• Many are concerned about the hardship Medicaid and SNAP cuts could bring to vulnerable populations.
• New deductions for tips, overtime pay and car loan interest might help some taxpayers but add complexity to filing.
• Some environmental advocacy groups criticize the rollback of clean energy tax credits.

Republican lawmakers have focused on aspects of the law they believe support working families, while Democratic lawmakers often point to the high price tag and loss of medical insurance and care for millions.

Trump tax bill details: Bottom line

Understanding the fine print in the new tax law — including exactly which deductions expire when and income thresholds for phaseouts — can help you better prepare your finances and tax filings in the years ahead.

As always, consult a trusted and qualified tax professional or financial planner who can guide you and devise a strategy that fits your situation and goals.

Read More

• Income the IRS Won't Touch
• How Much is the Standard Deduction for 2026?
• New 2026 Income Tax Brackets Are Set: What to Know

As it does each year, the IRS has announced inflation adjustments to several tax credit and deduction amounts for 2026. This includes new 2026 income tax bracket thresholds, higher standard deduction amounts, and an increase in the additional standard deduction available to taxpayers age 65 and older.

As Kiplinger has noted, this extra standard deduction — which can be claimed in addition to the regular standard deduction — can help lower taxable income for many eligible retirees and older adults.

Adding to those familiar annual adjustments, the Trump/GOP so-called “big, beautiful bill” introduces a new bonus deduction for qualifying older adults. This extra benefit, which is available to itemizers as well, takes effect for the 2025 tax year and remains available through 2028.

Here’s more to know to plan for tax returns you'll file in early 2026 and 2027.

Over 65 additional standard deduction for 2026 announced

For single filers and heads of households age 65 and over, the additional standard deduction increased slightly — from $2,000 for 2025 (returns you'll file earlier next year) to $2,050 for 2026 (returns you’ll file in early 2027).

For 2026, married couples over 65 filing jointly will also see a modest benefit.

• The extra deduction per qualifying spouse increased from $1,600 in 2025 to $1,650 for 2026, a $50 increase per qualifying spouse.
• For couples where both partners are 65 or older, this translates to a total increase of $100 in their additional standard deduction.

New: 2026 Extra Standard Deduction Age 65 or Older (Single or Head of Household)

New: 2026 Extra Standard Deduction Age 65 and Older (Married Filing Jointly or Separately)

Those 65 or older and blind continue to receive double the additional amount. For 2026, that means an extra $4,100 for single filers or heads of household. (Twice the $2,050 for those 65 or older or blind.)

• Meanwhile, the 2026 amount will be $3,300 per qualifying spouse for those married filing jointly (i.e., $1650 x 2).
• These changes are typically an issue for those deciding between taking the standard deduction and itemizing.

While the inflation-adjusted amounts may seem small, depending on the financial situation and federal income tax bracket, some taxpayers over 65 may benefit from a modest tax reduction.

It’s also worth noting that the IRS announced inflation-adjusted federal income tax brackets for 2026.

For more information on 2025 tax changes targeted to taxpayers over age 65, see our report: 2025 Tax Deduction Changes Those Over Age 65 Should Know.

Regular standard deduction rises for 2026

The IRS adjustments to the extra standard deduction for older adults come alongside increases in the standard deduction for all taxpayers.

The Tax Policy Center and other groups estimate that around 90% of people take the standard deduction rather than itemizing.)

• The new Trump tax bill (enacted July 4, 2025) changed the 2025 standard deduction to $15,750 for single taxpayers, $31,500 for joint filers, and $23,625 for head of household.
• With the latest inflation adjustments, the standard deduction amounts are as follows for 2026 (returns filed in early 2027):

New: Standard Deduction 2026 Amounts

For more information, see: Standard Deduction 2026 Amounts Are Here.

$6,000 bonus deduction 2025-2028

Additionally, as Kiplinger has reported, the big bill introduces a new temporary and separate $6,000 bonus deduction for those age 65 and older.

• The bonus deduction is available to individuals age 65 and older, with eligibility set at $75,000 in income for single filers and $150,000 for couples, and phasing above those levels.
• But the provision is temporary. It will only be available from 2025 through 2028.
• It will supplement, but not replace, the existing extra standard deduction already available to older adults who take the standard deduction.

Note: The new bonus deduction applies regardless of whether you itemize or take the standard deduction.

So, it could help those with sufficient deductible expenses to itemize, but who also want to further reduce their taxable income.

For more information, see our report: How the 'Senior Bonus Deduction' Works.

Impact of 2026 deduction changes for 'seniors'

Because Trump's new tax bill was recently enacted, the IRS is working to issue guidance and regulations to implement the many tax changes in the bill.

And while the new bonus deduction for older adults could help many taxpayers, how it impacts you depends on your specific tax situation.

Consider consulting with a tax professional to understand how new inflation-adjusted amounts may (or may not) affect your overall tax liability for the upcoming tax season and beyond.

Related

• The Extra Standard Deduction for People 65 or Older
• New Tax Rules: Types of Income the IRS Won't Touch
• Calculating Taxes on Social Security Benefits
• $6K Bonus Deduction Impact on Retirees: 5 Income Examples

The IRS has released the 2026 standard deduction amounts you’ll use for your 2026 tax return — and they're higher than ever.

The federal tax agency adjusts these amounts for each filing status every year. Since these adjustments are based on inflation and given the key tax changes in the 2025 Trump/GOP tax overhaul, the standard deduction is higher for 2026 than in recent years.

Knowing the standard deduction for your status can help you determine whether you should plan to itemize or claim the standard deduction next year.

Here's more to know.

The standard deduction amount for 2026 (Returns normally filed in 2027)

2026 standard deduction age 65 and older 

Taxpayers age 65 and older, as well as those who are blind, can claim an additional standard deduction. For 2026, that additional amount is $1,650 ($2,050 if unmarried and not a surviving spouse).

Those eligible can add the extra standard deduction to the regular amount for their filing status. A single taxpayer 65 or older (or who is blind) can claim a total standard deduction of $18,150 on their 2026 federal tax return.

Additionally, as Kiplinger has reported, the 2025 Trump tax bill introduces a new bonus standard deduction of $6,000 for those age 65 and older.

This can be added to the 2026 standard deduction for each eligible individual and can be claimed by those who itemize.

However, the "bonus" amount is temporary and phases out for incomes above certain thresholds.

Standard deduction if you're claimed as a dependent

Your standard deduction amount might differ if you can be claimed as a dependent on another taxpayer’s federal tax return.

The 2026 standard deduction for dependents is limited to either $1,350 or the sum of $450 and the dependent’s earned income, whichever is greater.

Note: The standard deduction for dependents cannot exceed the regular standard deduction for your filing status, even if your earned income is higher than the basic standard deduction amount.

What's the highest standard deduction amount possible?

Given the new senior bonus deduction, the existing extra standard deduction for those over age 65, and changes to the base standard deduction, the highest possible 2026 standard deduction amount is a whopping $47,500.

That amount is for married couples filing jointly who are both age 65 or older, qualify for the bonus deduction, and can claim the extra standard deduction for both spouses.

For more information on how to calculate your total standard deduction, see: The Extra Standard Deduction for People Age 65 and Older.

Read More

• Federal Tax Brackets and Income Tax Rates for 2026
• 10 Tax Breaks for Middle-Class Families That Claim the Standard Deduction
• How the Standard Deduction Works

You might find that your most fruitful tax breaks aren’t hiding in itemized deductions — but they might be waiting for you after age 65.

Data from the IRS shows that 90% of taxpayers choose the standard deduction over itemizing at tax time, including retirees.

Where do you start? When federal tax breaks, such as the deduction for medical expenses, are disallowed for non-itemizers, claiming the standard deduction can seem counterintuitive.

Fortunately, there might be some good news this tax season for retirees. Five tax breaks are available to those 65 and older who are claiming the standard deduction on their 2025 income tax return (if you’re eligible). Here they are.

What tax deductions and credits can I claim with the standard deduction as a retiree 65 and older?

To find the five tax breaks available to those age 65-plus and retired (and who claim the standard deduction), Kiplinger first referenced IRS tax breaks available to this age group.

• Only tax credits and deductions were considered.
• Of those selected, tax breaks that could not be claimed with a standard deduction were disqualified.
• Additionally, federal tax breaks that required one or both spouses to work or go to school were excluded.
• Finally, information was gathered about state income tax breaks at large.

Even then, keep in mind that this listing is not exhaustive, and it’s important to check with your state’s Department of Revenue website regarding additional tax breaks for which you might be eligible. Consult with a qualified tax professional when necessary.

1. Extra standard deduction for retirees who are 65-plus

Not to be confused with the new standard deduction, the “extra standard deduction” is a tax break designed for those 65 and older to claim additional tax relief come filing time.

However, the amount of federal income tax relief you receive from the extra standard deduction depends on your filing status for the 2025 tax year:

• For married, filing jointly couples and surviving spouses, the amount of the extra standard deduction is $1,600 per qualifying individual.
• For single filers or heads of household, the amount of the extra standard deduction is $2,000.

Additionally, if you or your spouse is blind, you might receive more relief. The extra standard deduction is $3,200 per qualifying individual age 65 or older and blind (if married filing jointly) and $4,000 if single filing.

These amounts are stacked onto your regular standard deduction. For instance, if both you and your spouse are 65 and older, and your spouse is blind, the combined total of the standard deduction and extra standard deduction would be $36,300.

For more information on this tax break, check out Kiplinger’s report, The Extra Standard Deduction for People Age 65 and Older.

2. Bonus deduction for retired older adults

Introduced by the 2025 GOP spending bill, also referred to by some as the One Big
Beautiful Bill (OBBB), retirees might qualify for a new federal tax break, the bonus deduction.

Similar to the extra standard deduction, this temporary tax break is meant to provide relief to Americans 65 and older. It also stacks on top of the regular standard deduction and the extra standard deduction (though it can be claimed if you itemize).

Does this sound too good to be true? Maybe it is. Unlike the extra standard deduction, the bonus deduction has income limits that might preclude some retirees from claiming the tax break.

• The maximum deduction amount for married filing jointly couples is $12,000, while single filers might qualify for up to $6,000.
• However, the deduction amount begins to phase out for married couples who have $150,000 or more in income (single filers have a phaseout for income $75,000 or more).*
• The deduction is reduced by 6 cents for every $1 that’s above the phaseout threshold.
• The bonus deduction phases out completely when income is above $250,000 for couples and $175,000 for single filers.

For instance, if a qualifying single filer were 65-plus and had $80,000 in income, their bonus deduction would be $5,700 ($5,000 above the threshold multiplied by 6 cents, then subtracted from $6,000).

Check out Kiplinger’s report for more information on the bonus deduction and what it means for taxpayers age 65-plus.

*Note: “Income” for the bonus deduction is based on a taxpayer’s modified adjusted gross income (MAGI).

3. Car loan interest deduction for those 65-plus in retirement

According to the National Highway Traffic Safety Administration, 89% of people 65 and older drive. What’s more, data show that over one-quarter of new car purchases are made by this age group.

If you’re looking to buy a vehicle, there’s a new federal tax deduction for which you might be eligible. The OBBB introduced a temporary car tax break for qualifying taxpayers in 2025:

• The car loan interest deduction is worth up to $10,000 per year on qualifying vehicle loans.
• Single filers with income exceeding $100,000 (married filing joint couples with income above $200,000) will face a $200 phaseout of the deduction for every $1,000 of income above the income limit.*
• When income levels reach $150,000 for single filers ($250,000 for married filing joint couples), the car loan interest deduction is eliminated.

But while the car loan tax break might help some folks save on car buying costs, it’s important to note a couple of caveats. This federal tax break only applies to new, American-made vehicles purchased for personal use between 2025 and 2028.

For more information, check out Kiplinger’s report, New GOP Car Loan Tax Deduction: Which Vehicles and Buyers Qualify.

*Note: “Income” for the car loan interest deduction is based on a taxpayer’s modified adjusted gross income (MAGI).

4. Tax credit for low-income older adults claiming the standard deduction

Like all the other tax breaks on this list, you don’t need to be working or itemize your deductions to claim the tax credit for low-income older adults. The total tax credit amount is worth up to $7,500.

You must meet specific eligibility requirements. For instance:

• You must be 65 years of age or older to qualify, OR
• Under 65 but retired and on permanent and total disability, AND you received taxable disability income.

Additionally, your income must meet two income limit tests to qualify for the low-income older adult tax credit.

• The first income test is based on adjusted gross income (AGI).
• Your AGI must be under $17,500 if you’re single, a surviving spouse or head of household.
• Your AGI must be under $20,000 if you’re married and only one spouse is eligible for the credit. Otherwise, you’re subject to the $25,000 AGI limit if both spouses qualify.
• The second income test is based on your combined total nontaxable Social Security, pension, annuity and disability income. Single-filer income must be under $5,000, while married filing jointly couples must have under $7,500 (if both spouses qualify; otherwise, the limit is $5,000).

If, after all that, you’re not eligible for this retiree tax break — never fear. We have one more tax break on our list for retirees who claim the standard deduction.

*Note: Married filing separately couples who lived apart for the entire tax year may also qualify for the low-income older adult tax credit. However, these filers are subject to different income limits. The AGI limit is $12,500, and the combined total income limit is $3,750.

5. Property tax credits on your state income return (if you have one)

Did you know that nearly every state offers some type of property tax relief for retirees?

Whether it’s a homestead exemption, exclusion, property tax deferral or freeze on your property tax bill, there might be different types of relief from property taxes for older adults in many U.S. states.

However, here are a few states that offer a credit on your state income taxes, which you must claim come tax filing time to get relief. The selections below are worth up to $1,150 or more and are available to “older adults.”

• Massachusetts offers a “senior” property tax credit of up to $2,730 per year (annually adjusted).
• Michigan adults 65 and older might qualify for up to $1,200 through the state’s homestead property tax credit, provided their property taxes exceed 3.5% of their income.
• Montana “seniors” who are 62 or older might be eligible for a credit worth up to $1,150.

Eligibility rules apply, and the above list is not exhaustive. Property tax breaks aren’t just for homeowners. If you’re renting in retirement, check out your state’s Department of Revenue website to see if you qualify for property tax relief on your state income return.

Read More

• Test Your Retirement Tax IQ: How Much Do You Know?
• Retirement Taxes: How All 50 States Tax Retirees
• Most-Overlooked Tax Breaks for Retirees and People Over 65
• The Rubber Duck Rule of Retirement Tax Planning

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the tax rules for charitable deductions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. How do I substantiate my write-off?

Question: I donated money to charity earlier this year, and I would like to deduct the contribution on my tax return since I will be itemizing on Schedule A of Form 1040. What documents do I need to keep to support the tax write-off?

Joy Taylor: The required documentation for substantiating a charitable contribution write-off differs based on whether you are donating property or cash and the amount of the donation. I've set forth some of the rules here. For charitable gifts of cash:

• Keep cancelled checks, electronic fund transfer receipts, credit card statements or a letter from the charity
• For cash donations of $250 or more, receipt of a contemporaneous written acknowledgment from the charity is required

For charitable gifts of property:

• A letter or receipt from the charity suffices for property donations under $250
• For property donations of $250 or more, receipt of a contemporaneous written acknowledgment from the charity is required
• Attach Form 8283 to your tax return if your property donation exceeds $500
• Obtain a written appraisal for a donation of property over $5,000

You can find more information on the substantiation rules for charitable donations in IRS Publication 526, Charitable Contributions.

2. Will the IRS audit me?

Question: I am planning on making a big donation to charity closer to year-end. Will my IRS audit odds go up because of the large charitable contribution deduction I claim on Schedule A of my 1040?

Joy Taylor: It depends. You won’t automatically be audited by the IRS for claiming big deductions on your tax return. But if your write-offs are disproportionately large when compared with the income reported on your return, your risk of an audit rises because that is a key factor in the IRS’s process of selecting returns for examination. Make sure to keep good records and to comply with the substantiation rules for charitable contributions, which you can find in IRS Publication 526 (as above).

3. What if I donate an annuity contract?

Question: I am thinking of donating an annuity contract I own to charity. Can you explain the tax consequences if I decide to do this?

Joy Taylor: You will generally be treated as receiving taxable income equal to the difference between the annuity’s cash surrender value and your investment in the contract. For example, say you have a small variable annuity in which you invested $20,000 years ago, and it’s now worth $43,000. If you donate it to charity, you’ll have to report $23,000 of the appreciation as additional income on your tax return in the year of the transfer. You will also be able to take a charitable deduction on Schedule A of Form 1040. The charitable write-off will equal the value of the annuity in most cases.

4. Any changes for next year?

Question: I heard that the “One Big Beautiful Bill” (OBBB) allows nonitemizers to deduct charitable contributions. When does this take effect?

Joy Taylor: The OBBB has mixed news for individuals who make charitable donations. Two new rules begin in 2026, meaning they will first affect your 2026 tax return that you file in 2027. First, the good news. Nonitemizers will be able to deduct up to $1,000 of their charitable cash contributions. The amount is $2,000 for joint filers.

Now, the bad news. Charitable donations claimed by itemizers on Schedule A will be subject to a haircut. Beginning with 2026 returns, the charitable write-off is deductible only to the extent that total charitable gifts exceed 0.5% of adjusted gross income. For example, say your AGI is $232,000 and you donate $14,000 to charity in 2026. If you itemize on Schedule A, you can only deduct $12,840 of charitable contributions ($14,000 – ($232,000 x 0.005)).

5. Will I owe tax if I donate I bonds?

Question: I own Series I savings bonds that have not yet matured. Can I donate the I bonds to charity before they mature and avoid a federal income tax hit?

Joy Taylor: No. Series I (and EE) bond buyers have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end. Most people choose the latter. They report the interest income on their Form 1040 for the year the bonds mature (generally 30 years) or when they’re cashed in, whichever comes first.

I assume you have deferred reporting for federal income tax purposes the annual interest that you earned on the savings bonds. Gifting away EE or I bonds to someone else, including a charitable organization, before those bonds mature, doesn’t let you avoid the tax on previously untaxed interest. Instead, it will accelerate interest reporting. You will owe federal income tax on all the previously deferred interest in the year you make the donation.

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 OBBB and more. We will continue to answer these in future Ask the Editor round-ups. 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: Reader Questions on QCDs
• Ask the Editor: Tax Questions on The SALT Deduction
• Ask the Editor: Questions on Four New Tax Deductions
• Ask the Editor: Questions on Inherited IRAs
• Ask the Editor: Questions on Home Sales and Taxes

The One Big Beautiful Bill Act, signed into law in July, has wide-reaching implications for taxpayers. From an enlarged standard deduction for older adults to more-generous tax credits for families with young children, the legislation contains a plethora of provisions that could lower your 2025 tax bill — or, in some cases, increase it.

Just as noteworthy as the new rules are those that extend provisions from the 2017 Tax Cuts and Jobs Act (TCJA). The OBBBA makes permanent the reductions in federal income tax rates that the TCJA implemented. (Otherwise, those tax rates would have expired on December 31.)

In addition, the OBBBA increases the federal estate tax exemption from $13.99 million per person in 2025 to $15 million per person, or $30 million for a married couple, in 2026. It will be adjusted annually for inflation.

Without congressional action, the exemption would have dropped to about $7 million after 2025. Because of the exemption’s size, the vast majority of taxpayers don’t need to worry about paying federal estate taxes.

You may want to schedule an appointment with your financial planner or tax preparer to discuss how the bill will affect your 2025 tax liability.

“You’ve got to run the numbers, because there’s so much that’s changing,” says Tim Steffen, director of advanced planning at Baird.

To get you started, we have guidance here on how to get the most from some of the significant provisions in the OBBBA.

A BONUS DEDUCTION FOR OLDER ADULTS

Starting with the 2025 tax year, taxpayers who are 65 or older will be eligible for an additional standard deduction of $6,000. The bonus deduction, which is scheduled to expire at the end of 2028, comes on top of an existing extra standard deduction of $2,000 for single filers who are 65 or older or, for married couples who file jointly, $1,600 for each spouse who is 65 or older.

The expanded deduction means a single taxpayer who is 65 or older will be able to deduct up to $23,750 from taxable income, while a married couple who file jointly will qualify for a deduction of up to $46,700, assuming both are 65 or older.

That can translate to significant savings for older taxpayers. For example, an older married couple in the 22% tax bracket (for 2025, that includes income of $96,951 to $206,700) could see tax savings of $2,640 a year, says Marilou Davido, a certified financial planner in Milwaukee.

Older taxpayers in lower tax brackets could save $600 to $1,200 a year, she says.

The legislation won’t eliminate taxes on Social Security benefits. But because the taxability of benefits is based on a calculation involving your adjusted gross income, the OBBBA will reduce the number of beneficiaries who pay the taxes from 36% to 12%, according to the White House Council of Economic Advisers.

Now for the caveats: The bonus standard deduction will affect only eligible taxpayers whose income exceeds the amount of the deduction, so low-income people won’t benefit from this tax break.

At the other end of the spectrum, higher-income taxpayers could see the amount of the bonus deduction reduced or eliminated altogether.

The deduction starts to phase out for couples with modified adjusted gross income of more than $150,000 ($75,000 for single filers) and is fully phased out at MAGI of $250,000 ($175,000 for singles). Your modified adjusted gross income is your adjusted gross income with certain deductions added back.

The higher standard deduction won’t shield Medicare beneficiaries who pay a surcharge, known as the income-related monthly adjustment amount (IRMAA), on their Part B and Part D premiums. The surcharge is based on a version of your MAGI that’s specific to Medicare and is calculated before the standard deduction applies.

Taxpayers whose MAGI is close to surpassing the eligibility threshold for the bonus standard deduction should consider avoiding moves that could reduce this tax break’s value.

For example, converting funds in a traditional IRA to a Roth IRA could reduce or eliminate the bonus deduction by increasing your MAGI, says Davido.

If you want to convert to a Roth, consider spreading out the conversions over several years to keep your MAGI below the threshold, she says.

One argument in favor of doing a Roth conversion is that it protects your nest egg from future tax increases, because Roth withdrawals are tax-free as long as you’re 59½ or older and have owned the Roth for at least five years.

But now that the OBBBA has extended current tax rates, individuals can spread out conversions without fear of a tax increase, at least under the current presidential administration, Davido says.

Timing matters, too: Converting to a Roth before age 65 would avoid the potential loss of the bonus deduction.

Capital gains distributions and withdrawals from traditional IRAs will also increase your MAGI. But there are steps you can take to offset that income and preserve the bonus deduction.

If you’re still working, increasing pretax contributions to 401(k) plans and health savings accounts (HSAs), for example, will reduce your MAGI.

Individuals who are 70½ or older can reduce their MAGI by making qualified charitable distributions from their IRAs, says Todd Calamita, a CFP in Charlotte, N.C.

In 2025, taxpayers can make QCDs of up to $108,000 from their IRAs to qualifying charities. If you’re 73 or older, a QCD will also count toward your required minimum distribution (RMD). A QCD isn’t deductible, but it’s excluded from taxable income.

Davido recommends working with your tax preparer or financial planner before year-end to adjust income-tax withholding and estimated tax payments for 2026. The bonus standard deduction could enable you to reduce the amount of tax withheld from your Social Security benefits and IRA withdrawals; you may also be able to lower your quarterly estimated tax payments.

A BIGGER BREAK FOR HOMEOWNERS

The OBBBA contains a valuable tax break for homeowners who live in high-tax states, and like the bonus standard deduction, the change could affect your 2025 tax bill.

Starting in 2025, those who itemize will be able to deduct up to $40,000 in state and local taxes (SALT), up from a cap of $10,000. The cap will increase by one percentage point each year through 2029, then return to $10,000 in 2030.

The SALT deduction includes state income, property and sales taxes; it’s often most useful for property taxes, which have soared as home values have risen in recent years. The primary beneficiaries will be homeowners in states with high property taxes, such as New Jersey and New York.

The cap is gradually reduced for those with MAGI above $500,000 ($250,000 for a married individual filing separately), and taxpayers with MAGI of $600,000 or more will be limited to deducting $10,000 on their tax returns.

Consequently, homeowners who are eligible for the higher cap need to be even more mindful of their 2025 MAGI, says Robert Keebler, a CFP with Keebler and Associates in Green Bay, Wis. This phaseout is potentially more costly than the phaseout for the bonus standard deduction, he says.

Keebler offers this example: Suppose you’re married, file jointly and have a MAGI of $500,000. Your itemized deductions include $40,000 in state and local taxes. If you convert $100,000 from a traditional IRA or 401(k) to a Roth, your gross income rises to $600,000, and your state and local tax deduction is reduced to $10,000. While your gross income went up by $100,000, your taxable income rose by $130,000.

At a 35% marginal rate, your effective rate on the conversion is 45.5%.

As is the case with older taxpayers, homeowners who are eligible for the higher SALT cap should consider spreading out Roth conversions and taking other steps to keep their MAGI below the thresholds.

Homeowners in high-tax states may get even more out of the higher cap by bunching their itemized deductions.

For example, if you paid your 2025 property taxes earlier this year and receive a bill for 2026 in December, pay it before December 31 so you can deduct both payments on your 2025 tax return, Davido says.

Using the bunching strategy, you would claim the standard deduction in 2026 and make two property tax payments in 2027 so you can itemize in that year.

Bunching your charitable contributions is also an effective way to increase your itemized deductions and lower your tax bill.

A donor-advised fund is a useful tool for this strategy. These funds, offered by major financial institutions, allow you to make a large contribution, deduct the donation on the current year’s tax return, and decide later which charities you want to support.

However, there are other provisions in OBBBA that could reduce the effectiveness of this strategy, which we’ll discuss below.

NEW STRATEGIES FOR CHARITABLE CONTRIBUTIONS

As you consider your year-end charitable contributions, it’s important to understand new tax breaks for givers — along with new limits on how much some donors will be allowed to deduct.

Starting in 2026, taxpayers who don’t itemize can deduct up to $1,000 in charitable contributions, or up to $2,000 for married couples who file jointly. Donations to donor-advised funds and private foundations aren’t eligible for this new deduction.

If you don’t itemize and want to take advantage of this tax break, consider making the charitable contributions you’d ordinarily make by the end of this year in January 2026 instead.

Meanwhile, taxpayers who itemize on their tax returns and deduct charitable contributions will be subject to a new limit on the amount they can deduct. The maximum amount of cash gifts donors can deduct will remain at 60% of AGI.

However, starting in 2026, the deduction will be limited to the amount of charitable contributions that exceed 0.5% of adjusted gross income, Steffen says.

For example, a married couple with AGI of $100,000 who donate $700 to charity will be permitted to deduct only $200.

To avoid that new floor, itemizers may want to make their 2026 contributions in 2025, keeping in mind how that will affect other aspects of their tax bill.

Taxpayers in the top tax bracket (for 2025, that includes income higher than $626,350 for singles or $751,600 for joint filers) may also want to accelerate charitable contributions into 2025 because of a cap on all itemized deductions those taxpayers can claim.

Starting in 2026, the amount of itemized deductions taxpayers in the 37% tax bracket can claim will be limited to 35% of their taxable income.

MORE BENEFITS FOR HEALTH SAVINGS ACCOUNTS

A health savings account can be a valuable tool to set aside money for both current and future health care expenses. An HSA provides a triple tax break: Your contributions are tax-deductible (or pretax if made through your employer), the money grows tax-deferred, and you can use it tax-free for eligible medical expenses in any year.

After you turn 65, you can also withdraw money tax-free from the HSA for Medicare premiums, in addition to other out-of-pocket health care costs.

The new law has three HSA-related provisions. Starting on January 1, 2026, you can withdraw up to $150 per month ($300 for couples) from an HSA tax-free to pay monthly or annual fees for direct primary care arrangements (also known as concierge medicine), in which doctors provide services in exchange for a membership fee.

The law also clarifies that enrolling in a direct primary care arrangement does not disqualify someone from being able to contribute to an HSA if they also have an eligible high-deductible health policy.

Not all concierge practices qualify under the new law as direct primary care arrangements — there are limits to the types of services they can provide beyond primary care.

Additionally, the law permanently exempts telehealth services from the HSA-qualified plan deductible. Most medical care, except for some preventive care, must be subject to the deductible for a health insurance policy to be HSA-qualified.

During the COVID pandemic, you could receive some telehealth services without first paying the plan’s deductible — typically with a $5 or $10 co-payment — but that rule expired at the end of 2024. The OBBBA permanently exempts telehealth from the deductible requirements, retroactive to January 1, 2025.

Finally, bronze plans and catastrophic plans sold on the Affordable Care Act insurance marketplace will automatically be HSA-qualified, starting with the 2026 plan year.

Using an HSA-eligible bronze plan and making tax-free withdrawals from your HSA to pay for direct primary care could be a win-win, says Roy Ramthun, founder and president of HSA Consulting Services LLC in Silver Spring, Md.

You can sign up for direct primary care for your regular doctor’s visits but have a high-deductible bronze plan as a backstop if you end up needing expensive medical care. You’ll be eligible to contribute to an HSA, and you can also use HSA money tax-free to pay the monthly direct primary care fees.

Notably, the version of the OBBBA that originally passed the House of Representatives would have allowed people who sign up for Medicare Part A to contribute to an HSA. But that provision wasn’t included in the final law, so the current rules still stand: You can make HSA contributions only if you haven’t enrolled in either Medicare Part A or Part B.

If you or your spouse is still working and you have health insurance from an employer with 20 or more employees, you can delay signing up for Part A and Part B. But you must enroll within eight months of losing that coverage; otherwise, you could face a lifetime late-enrollment penalty for Part B.

If you sign up for Part A after you turn 65, that coverage takes effect up to six months retroactively. Keep that time frame in mind when calculating your HSA contribution.

CHANGES TO THE HEALTH INSURANCE MARKETPLACE

Several administrative changes are coming to Affordable Care Act marketplace coverage because of provisions in the OBBBA, as well as new rules from the Centers for Medicare & Medicaid Services.

The open-enrollment period to sign up for a marketplace plan will be shorter. Next year, open enrollment for the federal marketplace (HealthCare.gov) will run from November 1, 2026, to December 15, 2026. States that operate their own marketplaces won’t be allowed to extend open enrollment past December 31. Currently, open enrollment goes to January 15, and even longer in some states.

Before you enroll in a marketplace plan, you’ll need to provide evidence of income eligibility for tax credits for your premiums. (Currently, you have 90 days after you enroll to submit the information.)

If your income increases after you enroll and you don’t update your information with the marketplace, you may have to pay back the extra subsidy when you file your income tax return.

Under the previous rules, there were limits to how much you have to pay back if you underestimate your income.

Enhanced subsidies are scheduled to expire

Perhaps the most consequential outcome for ACA plan enrollees is that the OBBBA didn’t extend enhanced premium subsidies for marketplace coverage. The enhanced subsidies are set to expire at the end of 2025, and Congress probably won’t pass additional legislation to extend them.

So the size of the subsidies and the income levels to qualify are likely to shrink significantly on January 1, 2026. People who earn more than 400% of the federal poverty level will no longer be eligible for any subsidies after 2025. For 2026 marketplace plans, 400% of the poverty level is $62,600 for singles and $84,600 for couples.

If you have individual health insurance from the ACA marketplace and you plan to do Roth conversions, you may want to convert more money before the end of 2025 than in 2026, when the extra income may make you ineligible for the subsidy.

“For a retired client, we’ve been able to do about $100,000 of Roth conversions yearly with the enhanced premium tax credits,” says Mark Whitaker, a CFP and founder of Retirement Advice LLC, a fee-only financial planning firm in Provo, Utah.

“Going forward, to hit their ACA subsidy levels, they will only be able to do about $60,000 of Roth conversions a year.”

But be sure to consider other variables, too, such as your tax rate and other income cut-offs. (For more, see the section above on the bonus deduction for older people.)

UPDATES FOR FAMILIES

If you have kids at home, you may benefit from multiple provisions in the OBBBA.

More-generous tax credits for parents

The OBBBA permanently extends the child tax credit and increases it to $2,200 per child, up from $2,000. The credit phases out for singles with modified adjusted gross income of $200,000 or more and married couples who file jointly with MAGI of $400,000 or more.

The OBBBA also makes permanent a separate credit of up to $500 for families with other dependents, such as parents or adult relatives.

The adoption tax credit is more valuable, too. If you adopted a child this year, you can claim a credit for up to $17,280 in eligible expenses. Here’s what’s new: $5,000 of the tax credit will be refundable.

In other words, taxpayers with tax liability of less than $5,000 can still claim that portion of the credit, which means some of that amount could be returned to parents as a refund.

Starting in 2026, the maximum tax credit parents can claim for child and dependent care expenses, such as the cost of day care or a nanny, will increase to 50% of as much as $3,000 in expenses for one dependent and 50% of as much as $6,000 for two or more dependents (both up from 35%).

The credit decreases based on adjusted gross income to as little as 20% of expenses, but OBBBA increased the income thresholds. For married couples with AGI between $150,000 and $210,000, the credit ranges from 35% to 20%. Couples with AGI of $210,000 or more are eligible for a credit of 20% of expenses.

Expanded uses for 529s

Originally designed as a tax-advantaged way to save for college, 529 plans have been expanded over the past several years to permit tax-free withdrawals for certain non-college expenses, too. The OBBBA extends these uses even further.

“The new rules allow up to $20,000 per year to be used for elementary and secondary school tuition, course materials, tutoring, fees for standardized tests, and more,” says Robert Farrington, founder of the website The College Investor.

Previously, tax-free withdrawals of 529 money for K-12 students were limited to tuition, up to $10,000 annually.

The legislation also permits tax-free 529 withdrawals for certain other expenses, such as non-degree credential programs for plumbing, electrical, HVAC and some other trades; certification and licensing expenses; and continuing education required to maintain those licenses.

That means beneficiaries who don’t go to college will have additional ways to benefit from tax-advantaged 529s.

The law permanently allows rollovers from 529 plans to ABLE accounts, where the money can continue to grow tax-deferred for people with disabilities who may not go to college.

Most of the changes related to 529 distributions took effect as soon as the law was signed on July 4, although the increased, $20,000 annual limit for K-12 expenses doesn’t apply until the 2026 tax year.

Keep in mind that not all states have altered their rules to follow the federal expansion. “For example, California doesn’t allow 529 plans to be used for elementary or secondary school expenses,” says Farrington.

Trump accounts for kids

The OBBBA introduces a new investment account — known as a Trump account — for kids younger than 18, and the government will seed the account with $1,000 for children born between January 1, 2025, and December 31, 2028.

Parents and others can contribute up to $5,000 a year to the account until the child turns 18. Contributions are invested in a fund that tracks a broad U.S. stock index, and they grow tax-deferred.

You may have better options for your child’s long-term savings. Annual contributions are not tax-deductible, and earnings are taxed at the beneficiary’s income tax rates when withdrawn.

Unless the money is used for certain expenses, such as education or up to $10,000 for a first-time home purchase, you’ll have to pay a 10% early-withdrawal penalty before age 59½.

“The only advantage of Trump accounts is the $1,000 birthday gift for newborn children. Families should, of course, accept the free money,” says Mark Kantrowitz, a college-savings expert and author of How to Appeal for More Financial Aid.

But for your child’s future college expenses, you’re better off contributing to a 529 plan, because withdrawals for qualified educational expenses are tax-free.

LAST CHANCE TO CLAIM TAX CREDITS FOR THESE ENERGY-SAVING MOVES

The OBBBA speeds up the deadlines to take advantage of certain tax credits related to saving energy.

The Energy Efficient Home Improvement Credit, which provides a 30% tax credit toward the cost of energy-efficient windows, home energy audits, heat pumps and other energy-saving home improvements, was previously scheduled to phase out in 2033. (The law imposed annual limits for certain projects, such as $600 for exterior windows and skylights.)

But now, the credit expires at the end of 2025. The Residential Clean Energy Credit, which provides a tax credit of up to 30% for more-ambitious projects, such as solar electric panels and solar water heaters, will also expire on December 31. The equipment must be installed and operational by year-end to qualify for the credit.

Additionally, the $7,500 EV tax credit to buy or lease qualified electric vehicles, along with the $4,000 credit for eligible used EVs, ends September 30, 2025.

At the same time, however, the OBBBA provides a new tax break for car buyers: a deduction of up to $10,000 in interest on loans for cars purchased between 2025 and 2028.

You don’t have to itemize to claim this deduction, but it’s available only for loans taken out to buy new cars assembled in the U.S., which rules out many popular models. The deduction phases out for individuals earning more than $100,000 or married couples making more than $200,000.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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The 2025 tax landscape has changed due to the GOP tax and spending law, referred to by some as the “big, beautiful bill,” signed by President Trump on July 4, 2025.

This multibillion-dollar legislation impacts everything from car loan interest to overtime pay and reported cash tips.

While it may provide some taxpayers with opportunities to save, the bill also creates some confusion regarding which income types are really non-taxable and what, if any, new rules apply.

So, here’s more to know about non-taxable income and updates from the 2025 tax law that could affect your next tax bill.

Taxable and nontaxable income examples

When people talk about income and taxes, it’s important to distinguish between nontaxable income and tax deductions.

• Nontaxable income is exactly what it sounds like: income that the IRS doesn’t consider taxable.
• It is excluded from your gross income/exempt from federal income tax by law.
• You generally don’t report most of this income on your tax return, since it’s not subject to tax. (More on types of nontaxable income below.)

On the other hand, tax deductions reduce your taxable income but don’t necessarily transform taxable income into nontaxable income.

So, for example, you may have heard about the new car loan interest deduction, which allows eligible taxpayers to deduct up to $10,000 of interest paid on new U.S.-assembled, qualifying vehicle loans.

That tax break will reduce taxable income for those who properly claim it, but it doesn’t mean that car loan interest is “nontaxable income.” (Loan interest isn't classified as income to the borrower — it's an expense, and sometimes, expenses are tax-deductible).

Understanding the difference is key to interpreting tax changes and managing expectations when it comes to your tax burden. So, let’s dive into some types of income the IRS doesn’t tax.

How much of a financial gift is tax-free?

Financial gifts are a well-known category of non-taxable income. That's due in part to the generous annual federal gift tax limit.

The annual federal gift tax exclusion increased to $19,000 per individual for 2025, enabling folks to give that amount to any recipient without triggering gift tax or filing requirements. Recipients also don’t pay tax on these gifts.

• Unfortunately, gifts given by employers to employees that are akin to cash, i.e., gift cards, are usually considered taxable by the IRS.
• Charitable gifts are generally nontaxable (the donor doesn't pay tax on the amount given). Be sure to get receipts and ensure the charities you give to are legitimate, since the gift/donation may reduce taxable income as a deduction.

Related Deduction: Starting in 2026, taxpayers who take the standard deduction can claim an above-the-line deduction for charitable contributions — up to $1,000 for individuals and $2,000 for joint filers. Donations to donor-advised funds and private foundations will be excluded.

Are inheritances taxable?

Inheritances remain non-taxable at the federal level. That includes inheritances of cash, property, etc.

But remember that if the money you receive from an inheritance subsequently generates income, like the earnings from an interest-bearing account, it might be taxable.

Also, states like Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania continue to impose inheritance taxes at varied rates.

• Meanwhile, the current federal estate tax exemption amount for 2025 is $13.99 million per individual and $27.98 million for married couples filing jointly.
• This means estates valued below these thresholds generally avoid federal estate tax in 2025.
• About a dozen states have estate taxes.

Notable: Under the 2025 Trump tax law, the estate tax exemption amount will increase to $15 million per individual and $30 million for married couples beginning in 2026, indexed for inflation thereafter.

Roth account rules

Qualified distributions (i.e., from a Roth account at least five years old since you first contributed and when you're age 59½ or older) are tax-exempt.

The IRS now allows you to make regular contributions to your Roth IRA at any age. You can leave any amount in your Roth IRA for as long as you live.

• Earnings are tax-free if the account has been open for at least five years and the owner is 59½ years old or older.
• Early withdrawal of earnings is taxable and penalized unless exceptions apply (e.g., disability, first-time homebuyer expenses).

Are Roth Conversions Taxable? Roth conversions are taxable. The amount converted is added to your taxable income for the year of the conversion and taxed at ordinary income tax rates. Consult a trusted tax professional with questions or concerns about your retirement savings account(s).

Nontaxable fringe benefits and HSA contribution tax benefits

Employer-paid health insurance remains tax-exempt, along with up to $50,000 of group term life insurance and employer contributions to Health Savings Accounts (HSAs).

Qualified HSA distributions for medical expenses are tax-free; non-qualified distributions face tax and a 20% penalty unless the account holder is age 65 or older.

Is Social Security taxable in 2025?

Disability payments, workers’ compensation, Supplemental Security Income (SSI), and Veterans Affairs disability pensions generally remain non-taxable.

Important: Despite the Trump administration's claims to the contrary, Social Security benefits are not universally tax-free in 2025. Instead, up to 85% of benefits remain subject to federal tax depending on your income level.

For more information, see No Social Security Tax Changes in Trump's New Bill.

Also, some states tax Social Security income in 2025.

Life insurance proceeds

Life insurance death benefits paid to beneficiaries generally escape income tax.

However, interest earned on the proceeds might be taxable, and tax rules can get complex if the policyholder surrenders the policy for cash. Loans against policies are usually non-taxable if policy conditions are met.

Note: The IRS has an online tool that can help determine whether life insurance policy proceeds you've received are taxable.

Capital gains and muni bond interest

Interest from government-issued bonds is mostly tax-exempt, though some municipal bond interest may be taxable. U.S. Treasury securities are taxable federally, while corporate bond interest is taxable at both federal and state levels.

The capital gains exclusion for primary residence is $250,000 for single filers and $500,000 for those married filing jointly, subject to ownership/use rules.

Capital losses can offset gains, with up to $3,000 deductible annually, and excess losses may be carried forward.

What about overtime pay and no tax on tips?

The new tax deductions for overtime pay and reported tips allow some workers to reduce their taxable income by amounts up to set limits.

But it's important to remember that overtime pay and tips are still considered taxable income subject to payroll taxes and reporting.

‘No tax on tips’ explained

Under the 2025 tax bill, eligible workers can deduct up to $25,000 annually from taxable income for “qualified tips" starting in 2025 and through 2028.

The deduction phases out above $150,000 MAGI for singles and $300,000 for joint filers.

The IRS and Treasury Department have identified 68 occupations that typically receive tips, including but not limited to:

• Food and beverage workers (bartenders, wait staff, cooks)
• Entertainment workers (musicians, dancers, DJs)
• Hospitality staff (bellhops, maids, concierges)
• Home service providers (plumbers, electricians)
• Personal care professionals (hairstylists, massage therapists)

Tips must be voluntary cash or equivalent (includes electronic tips).

No tax on overtime pay?

Under the 2025 tax bill, eligible workers can deduct up to $12,500 of overtime pay ($25,000 for joint filers) from their federal taxable income for tax years 2025 through 2028.

The tax break applies to the portion of overtime pay that exceeds your regular hourly rate — typically the half-time premium mandated under federal labor law.

• The benefit phases out for incomes above $150,000 (single) or $300,000 (married filing jointly).
• This deduction applies only to W-2 employees whose overtime meets federal standards and reduces income tax liability without affecting payroll taxes like Social Security or Medicare.

Other types of non-taxable income

Long-Term Care Insurance: Benefits received from tax-qualified long-term care policies are generally tax-free.

Alimony and Child Support: Alimony payments received under divorce or separation agreements executed after 2018 are not taxable income to the recipient, nor deductible by the payer. Child support payments are nontaxable income and aren’t tax-deductible.

Annuities: Generally, annuities purchased with after-tax dollars are not taxed on the principal when withdrawn; only earnings (investment gains) are taxable when payments or withdrawals are made. Annuities funded with pre-tax dollars have different rules.

States with no income tax

As mentioned, some states tax inheritances, estates, or Social Security benefits even though they are federally exempt.

If you live in one of the nine states without personal income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming — you won't be taxed on your earned income at the state level. But worthy of note:

• Washington State has a capital gains tax.
• New Hampshire eliminated its interest and dividend income tax.

Additionally, while some portion of your Social Security benefits might be subject to federal tax, most states don't tax Social Security income.

For more information, see Kiplinger's list of states that still tax Social Security.

Tax changes 2025: Bottom line

New rules and changes in the 2025 tax law mean it’s more important than ever to understand taxable and nontaxable income.

Consult a tax professional for personalized advice to help ensure you take full advantage of federal and state tax incentives available to you and avoid any potential pitfalls that could arise.

Related

• New No Tax on Tips Deduction: What to Know
• What's Happening With Taxes on Overtime Pay?
• The 2025 Gift Tax Exclusion: How Much Is It?
• QUIZ: How Much Do You Know About Income Tax Brackets?

Just when you thought you knew your federal income taxes, here comes a curveball: Key tax breaks have disappeared for 2026.

During his first presidency, Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law. The largest tax bill in recent decades temporarily halted several tax breaks, including deductions for individual investment costs, personal tax preparation fees, and home office expenses for employees.

Now in his second term, Trump and the GOP have extended many of the TCJA tax cuts and enacted several new temporary tax benefits in a law Trump often refers to as the One Big Beautiful Bill (OBBB).

This extensive tax and spending law, enacted on July 4, 2025, includes new incentives such as the car loan interest deduction, while also removing several tax credits and deductions that the TCJA previously suspended.

Here’s a list of tax breaks that have ended as of 2026 (beginning with returns you'll file in 2027) — and what that might mean for your household moving forward.

This article addresses personal income tax breaks on federal returns. Sole-proprietorships, S-corps, limited liability corporations (LLCs) and all other businesses might be subject to different rules under IRS regulations. Consult with a qualified professional for tax advice.

1. Which clean energy tax credits are gone?

Although most clean energy tax breaks were temporary, their expiration dates weren’t until 2032 or later, thanks to the Inflation Reduction Act passed during the Biden administration. Yet the new Trump tax bill eliminated several key residential energy tax breaks, effective 2026 (though some expired earlier).

Here are a few examples:

• Federal Electric Vehicle (EV) Tax Credit worth up to $7,500 (expired after September 30, 2025).
• Residential Clean Energy Credit worth up to 30% of qualifying installations (until December 31, 2025).
• Energy Efficient Home Improvement Credit worth up to $3,200 (until December 31, 2025).

About 1.2 million households have used credits for residential clean energy investments, resulting in $6 billion in savings, according to the latest data released by the U.S. Department of the Treasury. That amounts to an average tax benefit per family of around $5,000.

Without these incentives, some taxpayers who now want to make those same investments will lose tax savings in 2026 compared with just one year earlier.

However, it’s important to note that the federal tax credit for at-home EV charger equipment isn’t ending until June 30, 2026. This means you might be able to save up to $1,000 in federal income taxes if you install qualifying charging equipment by the deadline this year.

Related: Homeowners Rushed to Install Solar Panels Before 'Trump Tax Bill' Cut Credit.

2. Itemized deductions are not allowed, and the home office deduction for employees is gone

Before the TCJA, many miscellaneous itemized deductions could be claimed on your individual federal income tax return.

The deductions below were subject to a 2% adjusted gross income (AGI) floor, meaning you could only claim these tax benefits if the total of these expenses exceeded that threshold.

Here are a few examples of tax deductions that have expired in 2026:

• Unreimbursed work expenses, such as those for travel and transportation.
• Investment expenses, such as custodial fees and safe deposit box rentals.
• Hobby expenses (up to the amount of hobby income).
• Tax preparation fees (personal). (The rules are different if you have business income.)
• Home office deduction for employees.

These tax breaks were to return this year with the expiration of the TCJA, but the 2025 GOP tax bill ended them.

Of all the miscellaneous itemized deductions, unreimbursed employee expenses, non-business tax preparation fees, and investment expenses were the most popular, according to the Tax Foundation. More than 21 million households used these deductions about 13 years ago.

Republican lawmakers initially eliminated the miscellaneous itemized deductions to help fund the increased standard deduction. However, whether the standard deduction truly offsets these itemized deductions might vary from taxpayer to taxpayer (more on that below).

*Note: The moving expense deduction for work, although not a miscellaneous itemized deduction, was also eliminated by the OBBB (exceptions may apply to military personnel).

3. Family tax credits and exemptions: What the trade-off could mean for you

The personal and dependency exemption also ended in 2026.

This exemption, designed to connect tax liability to family size, was worth $4,050 per qualifying person in 2018, though the amount was adjusted for inflation annually.

The year before the TCJA was enacted:

• About 292 million people (PDF) claimed the personal and dependency exemption.
• This resulted in about $1.2 trillion in taxpayer savings, according to the IRS.

As with the miscellaneous itemized deductions, the elimination of this exemption was used to offset the increased standard deduction and higher child tax credit, according to the Tax Policy Center.

Yet, if you claim itemized deductions and have a large family, this trade-off might increase your taxable income compared with the law before the TCJA.

For example, consider a married, filing jointly couple with five children before the TCJA and after the OBBB was enacted.

*Inflation adjustment amount calculated as of September 2025 via USAfacts.org.

In the example, the family’s taxable income increases under the pre-TCJA law compared with the 2025 tax law. That’s because the increased standard deduction didn’t offset the combined itemized deductions and personal and dependency exemptions for the hypothetical household.

However, once the higher child tax credit is factored in, that same family could achieve a lower tax liability if they meet the updated eligibility requirements to claim the credit.

While the example shows a lower tax liability for 2025 than the law before the TCJA, the benefit a taxpayer could see for trading off the personal and dependency exemption for the increased child tax credit and standard deduction varies based on a taxpayer’s circumstances.

For instance, while a married couple with kids might save on income taxes owed with a higher child tax credit, a single filer with no children might not.

As noted earlier, the child tax credit also has new eligibility rules in the 2026 tax filing season. This includes a requirement that qualifying children and at least one parent must have a work-eligible Social Security number. As a result, about 2.7 million children who used to qualify for this tax credit might not be eligible this year.

Note: The personal and dependency exemption was subject to AGI phaseouts, and the child tax credit has a modified adjusted gross income (MAGI) phase-out.

Is the ‘AMT tax’ back from the dead?

Before the TCJA, 5.2 million Americans paid the Alternative Minimum Tax (AMT), per Tax Policy Center data. This "parallel tax system" was implemented to ensure that higher-income taxpayers pay a minimum amount of tax.

However, data from the Tax Policy Center shows that previous AMT rules might have disproportionately affected upper-middle-income taxpayers.

Through the TCJA, the individual AMT threshold was raised in a couple of ways:

• Increasing the exemption amount from $84,500 to $137,000 for married filing joint couples (single filers from $54,300 to $88,100).
• Raising the phase-out threshold from $160,900 to $1,252,700 for married filing joint couples (single filers from $120,700 to $626,350).

The result was that the number of taxpayers who paid AMT dropped from about 5 million to just 200,000 in 2018, according to the Tax Policy Center. Under the OBBB, the individual AMT exemption amounts were made permanent.

Starting in 2026, the phaseout has been lowered to $500,000 for singles and $1 million for married couples filing jointly. Once more, the phaseout rate for every dollar above this threshold was increased from 25% to 50%.

This means more income from higher earners will be subject to AMT this year.

In addition to the permanent elimination of tax breaks on this list, you could qualify to pay AMT for tax year 2026 even if you haven’t in recent years.

Read More

• 10 Tax Breaks for Middle-Class Families Who Claim the Standard Deduction
• IRS Income Tax Refund Schedule 2026: When Will Your Refund Arrive?
• Tax Deadlines by Month for 2026
• 2026 Family Tax Credits: Three IRS Changes You Need to Know Now

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the new tax deduction for tipped income. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. What is the tips deduction?

Question: I work as a hairdresser. I heard that my tips will now be tax-free. Can you explain how this works?

Joy Taylor: The “One Big Beautiful Bill” enacted lots of tax breaks, with some important ones beginning this year. One of these is the deduction for up to $25,000 of tipped income. It’s available for taxpayers taking standard deductions and for those who itemize on Schedule A of Form 1040. The deduction is below-the-line, meaning it’s subtracted from adjusted gross income to arrive at taxable income. This deduction is temporary, first taking effect on 2025 tax returns filed next year and ending after 2028.

There are lots of rules and limitations. For example, there’s an income limit. The deduction begins to phase out at modified adjusted gross income (modified AGI) over $300,000 for joint filers and $150,000 for others. And the taxpayer who received the tips must include a Social Security number on Form 1040.

Only qualified tips are deductible. They must be paid voluntarily without negotiation in an amount chosen by the payer. Tips received through a tip-sharing arrangement are also qualified tips. Service charges or other amounts automatically added to a customer’s bill don’t qualify unless customers can disregard or modify them without consequences. Individuals in certain professional service businesses can’t take the deduction. The tips must generally be reported on IRS Form W-2, 1099 or similar form. Self-employed individuals must include the tips in their Schedule C income.

The tips must be from an occupation that traditionally receives tips. The IRS lists 68 job titles in eight categories that meet this rule. Many of the job titles make common sense. These include bartenders, restaurant wait staff, maids, caterers, casino dealers, parking valets, taxi and rideshare drivers, hairdressers, manicurists, massage therapists, tour guides, chefs, musicians and singers, bellhops, tutors, pet sitters, nannies, golf caddies and tattoo artists. Others aren’t as intuitive, such as digital content creators, home heating and air conditioning mechanics, and home plumbers and electricians.

2. Is the write-off higher for married filers?

Question: I am married and file a joint return with my husband. We both receive tips. Is the $25,000 maximum tips deduction doubled for us?

Joy Taylor: No. The maximum deduction is $25,000, regardless of whether you file a joint return, single return or head-of-household return. Note that if you are married, you must file a joint return with your spouse to claim the tips deduction. Married couples who file separate tax returns cannot take the write-off for tipped income.

3. What is modified AGI?

Question: What is the definition of modified AGI for purposes of the tips deduction?

Joy Taylor: The tips deduction begins to phase out at modified AGI over $300,000 for joint filers and $150,000 for other filers. More specifically, the write-off is reduced, but not below zero, by $100 for each $1,000 by which the taxpayer’s modified AGI exceeds the $300,000 or $150,000 thresholds.

The federal tax law has many different definitions of modified AGI. For this purpose, modified AGI is AGI plus any foreign earned income exclusion, foreign housing exclusion, and certain excluded income because it was received from sources in Puerto Rico, Guam, American Samoa or the Northern Mariana Islands.

4. What does cash tips mean?

Question: I heard that only cash tips are deductible. Is that correct?

Joy Taylor: Yes and no. While the relevant statute defines qualified tips as cash tips received by an individual, the statute and the IRS’s proposed regulations broadly define cash tips. Per the regulations, they include tips paid by cash, check, debit card, credit card, gift card, casino chips that can be readily exchanged for cash, or through an electronic or mobile payment app. Tips received through a tip-sharing arrangement or tip pool also qualify.

5. What about automatic gratuities?

Question: I work as a server at a restaurant, and we add a 20% automatic gratuity to each customer’s check. Can I deduct my share of these gratuities?

Joy Taylor: It depends. Service charges, automatic gratuities or other mandatory amounts automatically added to a customer’s bill aren’t eligible to be deducted as qualified tips unless the customer is expressly provided an option to disregard or modify it without consequences. The IRS’s proposed regulations provide several examples to illustrate this concept.

6. How do I claim the tips deduction?

Question: Where do I report the tips deduction on my Form 1040 or 1040-SR?

Answer: The IRS has released a draft new schedule for eligible taxpayers to claim the tips deduction, as well as the $6,000 senor deduction for filers 65 or older ($12,000 if both filers are age 65 or older), the up-to-$12,500 of overtime pay ($25,000 for joint filers), and the deduction for up to $10,000 of interest paid on loans to buy a new automobile. Eligible taxpayers will use Schedule 1-A titled “Additional Deductions” to calculate the modified AGI and to claim the tax breaks for which they qualify. They will then transfer the total to new line 13-b on the 2025 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 OBBB and more. We will continue to answer these in future Ask the Editor round-ups. 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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