Tax Changes That Could Lower Your 2025 and 2026 Bills
How to make the most of tax changes in President Donald Trump's "big beautiful bill."
Filing your taxes as early as possible has always been a good idea. It’s the most effective way to thwart crooks from submitting a fraudulent return in your name, claiming a refund. And if you are due a refund, the sooner you file, the sooner you’ll have the money in your pocket.
This year, it’s even more important than usual to get a head start on preparing your return. As a result of tax legislation enacted in July 2025, known by some as the One Big Beautiful Bill (OBBB), you’ll need to navigate a thicket of new provisions, covering everything from car loans to property taxes to an extra deduction for those 65 and older.
The good news is that thanks to the OBBB, reductions in federal income tax rates that were included in the 2017 Tax Cuts and Jobs Act — and that were set to expire at the end of 2025 — are now permanent, so taxpayers won’t face a tax hike in 2026.
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In addition, the OBBB made permanent an enlarged estate tax exemption that was included in the TCJA. In 2026, estates worth up to $15 million, or $30 million for a married couple, won’t be subject to federal estate taxes. With an exemption of that size, the vast majority of taxpayers won’t have to worry about paying federal estate taxes at rates that range from 18% to 40%.
The exemption will be adjusted annually for inflation; without congressional action, it would have dropped to about $7 million per person in 2026.
Along with extending TCJA provisions that are favorable for many taxpayers, the OBBB contains several tax breaks, expiration dates and other changes that you might miss if you wait until the last minute to file.
Here’s a look at provisions in the bill that could increase your 2025 refund or lower the amount you owe, along with other information to keep in mind as you prepare your return — including ways to make sure you get all the tax breaks you’re owed.
New and noteworthy
Below are some of the most significant tax-related changes from the 2025 tax and spending bill.
Senior bonus deduction
Many taxpayers who are 65 or older will be eligible to claim an additional deduction of $6,000 on their 2025 tax return. This senior bonus deduction, which is scheduled to expire at the end of 2028, comes on top of an existing increase in the 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 files jointly will qualify for a deduction of up to $46,700, assuming both are 65 or older. You can claim this additional deduction whether you itemize or take the standard deduction on your 2025 tax return.
The bonus deduction will apply only to taxpayers whose income exceeds the amount of the deduction, so low-income seniors won’t benefit from this tax break.
At the other end of the spectrum, high-income taxpayers could see the amount of the bonus deduction reduced or eliminated altogether. The deduction starts to phase out for married couples with modified adjusted gross income (MAGI) of more than $150,000 and is fully phased out at MAGI of $250,000 ($75,000 and $175,000, respectively, for single filers). Your MAGI is your adjusted gross income with certain deductions added back.
The additional deduction won’t affect how your Social Security benefits are taxed. Taxes on Social Security benefits are based on your combined (or provisional) income, which consists of half of your benefits, your adjusted gross income and any tax-exempt interest, such as interest from municipal bonds. Depending on the amount of your combined income, up to 85% of your benefits are taxable.
The senior bonus deduction is a so-called below-the-line deduction, which means it reduces your taxable income but doesn’t lower your AGI.
"Taxation of Social Security hasn’t changed, but your overall tax bill may be lower because of this deduction," says Catherine Valega, a certified financial planner and enrolled agent with Green Bee Advisory in Burlington, Mass.
Likewise, the bonus deduction won’t shield high-income 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 your MAGI, which is also calculated before the deduction applies.
Higher deduction for state and local taxes
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 in 2024. The cap will be increased by one percentage point each year through 2029, then returns to $10,000 in 2030.
The SALT deduction allows taxpayers who itemize to deduct property taxes, including personal property taxes on cars and boats. You can also deduct either state and local sales taxes or state and local income taxes, but not both. The increased SALT cap will primarily benefit taxpayers in states with high property taxes, such as New Jersey and New York.
But like the senior bonus deduction, the cap is phased out for higher-income taxpayers. It’s gradually reduced for taxpayers 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.
Since the 2017 Tax Cuts and Jobs Act expanded the standard deduction, only about 10% of taxpayers have itemized. However, the higher cap for state and local taxes will likely increase the percentage of taxpayers who are better off itemizing, says Laurette Dearden, a CFP and certified public accountant in Laurel, Md.
If your 2025 property taxes exceeded the $10,000 cap, it’s worth taking the time to track down your 2025 spending on charitable contributions, mortgage interest, unreimbursed medical expenses that exceed 7.5% of your AGI, and other expenses that qualify as itemized deductions to see whether it makes sense to itemize instead of taking the standard deduction.
Expanded tax breaks for families
For 2025, eligible parents can claim a tax credit of $2,200 per child, up from $2,000 for 2024. The child tax credit (CTC) 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.
Eligible taxpayers can claim a credit of up to $500 for other dependents, such as an aging parent or another adult relative whom you support and claim as a dependent on your tax return.
If you adopted a child in 2025, you can claim a credit of up to $17,280 of eligible expenses, and up to $5,000 of the adoption tax credit will be refundable. That means taxpayers with a tax liability of less than $5,000 can still claim that portion of the credit, and some of that amount could be returned as a refund.
A deduction for car buyers
A $7,500 tax credit to buy or lease qualified electric vehicles, along with a $4,000 credit for eligible used EVs, ended September 30, 2025. (You can find the complete list of vehicles that qualify for the credit here.)
If you purchased an eligible vehicle before September 30 and claimed the credit when you bought the vehicle — meaning, basically, that you transferred the credit to the dealer, who passed it on to you in the form of a discount — you must report the transaction on Form 8936.
The seller should have given you a document that shows the vehicle’s eligibility for the credit, which you’ll use to complete the form. You can also use Form 8936 to claim the credit if you didn’t receive it when you purchased your EV.
Prices for cars and trucks rose in 2025, pushing the average monthly loan payment to $748 for a new car and $532 for a used car, according to Experian. However, depending on the type of vehicle you bought, you may be able to deduct up to $10,000 of loan interest. 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 United States, which rules out many popular models.
The location of final assembly should be located on the vehicle-information label attached to the car or truck at the dealer’s lot; you can also find out where the vehicle was assembled by plugging the vehicle identification number (VIN) into the National Highway Traffic Safety Administration’s VIN decoder website.
The deduction, which is available for qualified vehicles purchased between 2025 and 2028, phases out for individuals with a modified adjusted gross income higher than $100,000 or married couples making over $200,000.
Taxes on your winners
Last year was a great year for investors in the stock market, with the S&P 500 index rising 18%. If you sold investments held for one year or less, your gains will be taxed at your ordinary income tax rate, which tops out at 37% for high earners. Assets held for more than a year are taxed at long-term capital gains rates, which range from 0% to 20%, depending on the amount of your income.
But stocks, mutual funds and exchange-traded funds weren’t the only big winners in 2025.
If you cashed in on any of these assets or activities, you may also owe the IRS a piece of the pie:
Cryptocurrency
Bitcoin hit a record high in 2025, attracting professional and mainstream investors alike. If you invested in bitcoin or other cryptocurrency and took some of your profits off the table, those gains are taxed the same way that gains from the sale of stocks, bonds and other capital assets are taxed.
You’ll owe taxes on your gains even if you used your bitcoin to buy something. When you fill out Form 1040, you’ll be asked whether you received, sold, exchanged or otherwise disposed of a digital asset in 2025, which indicates that the IRS takes these transactions seriously.
Gold
If you took advantage of record gold prices to sell shares of gold-mining companies, or mutual funds and ETFs that invest in gold-mining companies, you’ll pay the same capital gains tax you’d pay for any investment. But the IRS treats profits from the sale of physical gold — such as gold bars and coins — differently.
Those assets are taxed as collectibles, with a top long-term capital gains rate of up to 28%, depending on your income. If you invested in an ETF that’s backed by physical gold, such as SPDR Gold Shares, you’ll also pay the higher collectibles rate for long-term capital gains.
While you’re supposed to report the profits from any sale of gold, the IRS is unlikely to come after you if you sold your grandfather’s cuff links for a couple of hundred dollars to a "We Buy Gold for Cash" retailer. But dealers are required to report sales of gold bars and coins on Form 1099-B if certain conditions related to purity and quantity are met.
If you receive a Form 1099-B, you’ll owe taxes on the difference between the amount you paid for the items — known as the basis — and the amount you received in the sale. If you received the items as a gift, the basis is the amount the gift-giver paid for the items; for inherited collectibles, the basis is the fair market value of the items on the date of the donor’s death. Tracking down the basis is critical, because otherwise the IRS will tax you on the entire proceeds of the sale, says Miklos Ringbauer, a CPA in Los Angeles.
Gambling
The rapid growth of online sports gambling has made it possible to bet on everything from the outcome of a college basketball game to the length of the national anthem at the Super Bowl. Nearly 60% of Americans participated in some form of gambling in the past year, according to the American Gambling Association.
If your bet paid off, your winnings are taxable. If you received at least $600 and your payout was at least 300 times the amount of your wager, you’ll probably receive a Form W-2G, which you’ll use to report your payout as "other income" on Form 1040. In most cases, if you win more than $5,000 and the payout is at least 300 times the amount of your bet, the IRS requires the payer to withhold 24% of your winnings for income taxes.
You can reduce taxes on your winners by deducting your losses — but only if you itemize, and you can’t deduct losses that exceed the amount of your winnings. For example, if you won $100 and lost $300 at the casino, you can deduct only $100. A provision in the new tax law adds another wrinkle: Starting in 2026, you will be allowed to deduct only 90% of your losses, Valega says.
Last-minute tax savers
Before you send your tax return to the IRS (or instruct your tax preparer to do the same), make sure you’ve made the most of tax-advantaged contributions that could lower your 2025 tax bill while enhancing your retirement and health care security.
IRAs
You have until April 15, 2026, to contribute to a tax-deductible IRA. Deductible contributions to a traditional IRA will reduce your adjusted gross income on a dollar-for-dollar basis, which could also make you eligible for other tax breaks tied to your AGI.
If you’re not enrolled in a workplace retirement plan, for 2025 you can deduct IRA contributions of up to $7,000, or $8,000 if you were 50 or older. Workers who have a company retirement plan but earn less than a certain amount may qualify to deduct all or part of their IRA contributions.
For 2025, this deduction phases out for single taxpayers with AGI between $79,000 and $89,000 and for married couples who file jointly with AGI between $126,000 and $146,000. If one spouse is covered by a workplace plan but the other is not, the spouse who isn’t covered can deduct the maximum contribution as long as the couple’s joint AGI doesn’t exceed $236,000. A partial deduction is available if the couple’s AGI is between $236,000 and $246,000.
If you worked for yourself in 2025 or had a side gig, you can sock away even more money. You have until April 15 — or October 15 if you file for an extension — to set up and contribute to a SEP IRA, a retirement plan designed for self-employed workers, small businesses and sole proprietors. For 2025, you can deduct contributions of as much as 20% of net income, up to a maximum of $70,000.
You also have until April 15 to contribute to a Roth IRA for 2025. Contributions to a Roth are after-tax, so they won’t lower your tax bill. But as long as you’re 59½ or older and have owned your Roth for at least five years, withdrawals are tax-free.
Here, too, there are income limits. For 2025, single taxpayers with modified adjusted gross income of less than $150,000 can contribute the full amount; those with income between $150,000 and $165,000 can make a partial contribution. Married couples who file jointly can make the full contribution if their MAGI is less than $236,000; those with MAGI between $236,000 and $246,000 can make a partial contribution.
In the past, you could make only pretax contributions to a SEP, but legislation enacted in late 2022 allows SEP providers to offer a Roth option.
Health savings accounts
You have until April 15 to set up and fund an HSA for 2025. An HSA offers a triple tax break: Your contributions are tax-deductible (or pretax if made through payroll deduction), the money grows tax-deferred, and withdrawals used to pay qualifying medical expenses are tax-free.
To contribute to an HSA, you must have had an eligible high-deductible health insurance policy that went into effect no later than December 1, 2025. The deductible must have been at least $1,650 for individual coverage or $3,300 for family coverage. You can contribute up to $4,300 to an HSA for 2025 if you had single coverage, or $8,550 if you had family coverage.
Those who were 55 or older in 2025 can stash away an additional $1,000. The money in your account will grow tax-free, and withdrawals to pay medical expenses are also tax-free.
Planning for 2026
Once you’ve filed your 2025 tax return, we wouldn’t blame you for taking a hard-earned break. Walk the dog, go to a movie, or do something else that’s more relaxing than poring over your Form 1099s.
But after that, carve out some time to plan ways you can lower your 2026 taxes. With your tax information readily available, this is the ideal time to do it. Some new provisions could affect your 2026 tax bill:
New rules for charitable contributions
If you usually claim the standard deduction, you may have fallen out of the habit of tracking your charitable contributions. But 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.
Meanwhile, those who itemize on their tax returns will be subject to a new limit on the amount of charitable contributions they can deduct. That amount has long been limited to a percentage of their adjusted gross income, ranging from 20% to 60%, depending on the type of gift and the recipient. The amount of cash gifts donors can deduct will remain at 60% of AGI in 2026.
However, the deduction will be limited to the amount of charitable contributions that exceeds 0.5% of your adjusted gross income. For example, a couple with an AGI of $300,000 can only deduct charitable donations in excess of $1,500.
If you’re 70½ or older, one way around this new cutoff is to use qualified charitable distributions to benefit your favorite charities, says Tim Steffen, director of advanced planning at Baird.
In 2026, taxpayers who are 70½ and older can transfer up to $111,000 from a traditional IRA directly to charity. QCDs can be done only from an IRA, either one that you own or an inherited IRA. A QCD will reduce your adjusted gross income, and it isn’t subject to the 0.5% haircut on charitable contributions.
Larger catch-up contributions for workplace retirement accounts
The total employee contribution limit to all 401(k) and 403(b) plans for those younger than 50 will increase from $23,500 in 2025 to $24,500 in 2026. The limit for catch-up contributions will rise from $7,500 in 2025 to $8,000 in 2026, so if you’re 50 or older, you can contribute up to $32,500 in 2026.
Participants who are between ages 60 and 63 in 2026 are eligible for a special catch-up contribution of $11,250, meaning they can contribute a total of $35,750.
Changing requirements for high earners who contribute to a 401(k)
Starting in 2026, if you earn more than $150,000 in the previous calendar year, all catch-up contributions at age 50 or older will need to be made with after-tax dollars to a Roth 401(k), 403(b) or 457(b).
There are a lot of good reasons to add a Roth to your retirement portfolio. Withdrawals are tax-free as long as you’re at least 59½ and have owned the account for five years. And you won’t have to take required minimum distributions from a Roth account.
But if you’re a high earner and lose the ability to deduct catch-up contributions to a traditional 401(k), that may cause your 2026 adjusted gross income to increase, which could make you ineligible for tax breaks tied to your AGI. You may want to consult with a tax professional about strategies to offset the loss of this deduction.
Where to get free help
The Trump administration shut down the IRS Direct File program, which allowed taxpayers in more than two dozen states to file their 2024 tax returns directly with the IRS at no cost. However, IRS Free File, a partnership between the IRS and private tax-preparation companies, will still be available to eligible taxpayers.
This year, taxpayers with 2025 adjusted gross income of $84,000 or less can prepare and electronically file their federal tax returns for free through one of the participating Free File programs.
If you need help preparing your return, the AARP Foundation Tax-Aide service provides free assistance from IRS-certified volunteers at more than 3,600 libraries, malls and other locations around the U.S., with a focus on taxpayers older than 50 who have low to moderate income. Use the AARP Tax Locator to find a site near you.
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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