2025-2026 Tax Updates to Cut Your Tax Bills

New Tax Rules for 2026Submitting your tax return as early as you can has long been a smart strategy. It serves as the best defense against scammers who might file a fake return using your personal information to snag a refund. Plus, if you're expecting money back from the government, filing promptly

New Tax Rules for 2026

Submitting your tax return as early as you can has long been a smart strategy. It serves as the best defense against scammers who might file a fake return using your personal information to snag a refund. Plus, if you're expecting money back from the government, filing promptly means that cash lands in your account faster.

For this tax year, starting your preparation ahead of schedule carries even greater weight than in previous years. Thanks to a major tax law passed in July 2025, often referred to as the One Big Beautiful Bill (OBBB), individuals preparing their returns must grapple with a host of fresh rules. These span a wide array, from deductions related to vehicle financing to real estate levies and an enhanced write-off specifically for people aged 65 and above.

On a positive note, the OBBB has locked in the lower federal income tax rates originally introduced under the 2017 Tax Cuts and Jobs Act, which were otherwise slated to sunset at the close of 2025. This permanence shields taxpayers from an automatic increase in their 2026 tax obligations.

Beyond that, the legislation has solidified an expanded exemption for estate taxes that was part of the earlier TCJA package. Come 2026, estates valued at up to $15 million for individuals—or $30 million for those married filing jointly—will escape federal estate tax liability. Given the scale of this threshold, the overwhelming majority of Americans will never encounter federal estate taxes, which climb as high as 40% and start at 18%.

This exemption amount will receive yearly adjustments to account for inflation. Absent further legislative intervention, it would have plummeted to roughly $7 million per person by 2026.

While the OBBB secures many taxpayer-friendly elements from the TCJA, it also introduces a variety of new incentives, phase-outs, and adjustments that could easily slip by if you procrastinate on your filing. Delaying until the final weeks might cause you to overlook opportunities that directly impact your bottom line.

In the sections ahead, we'll explore key elements of the bill that stand to boost your 2025 refund or trim what you owe the IRS. We'll also cover essential tips for ensuring you capture every available break as you assemble your return.

New and noteworthy

Outlined below are among the most impactful tax modifications stemming from the 2025 tax and spending legislation.

Senior bonus deduction

A significant number of individuals aged 65 and older stand to benefit from a fresh $6,000 deduction on their 2025 tax filings. Dubbed the senior bonus deduction, this provision is set to run through the end of 2028. It stacks atop an already enhanced standard deduction, which adds $2,000 for single filers over 65, or $1,600 per qualifying spouse for joint filers over that age.

With these boosts combined, a single senior could subtract as much as $23,750 from their taxable income. For married couples filing jointly where both partners are 65 or older, the total could reach $46,700. Importantly, you can access this extra deduction regardless of whether you opt to itemize your deductions or stick with the standard deduction for 2025.

However, this perk targets those whose income surpasses the deduction threshold, meaning seniors with very low earnings won't see any advantage. Conversely, at the upper income levels, the bonus begins to taper off and may vanish entirely. The phase-out kicks in for joint filers with modified adjusted gross income (MAGI) exceeding $150,000, fully disappearing at $250,000. Singles face the same limits starting at $75,000 and ending at $175,000. Remember, MAGI essentially recalculates your adjusted gross income by adding back specific deductions.

This new deduction leaves the taxation of Social Security benefits untouched. Those taxes hinge on your combined income formula, which factors in half your benefits, your adjusted gross income, and nontaxable interest like that from municipal bonds. Depending on the total, up to 85% of benefits could be subject to tax.

Classified as a below-the-line deduction, it lowers taxable income without altering your adjusted gross income. As Catherine Valega, a certified financial planner and enrolled agent based in Burlington, Massachusetts, explains, "While Social Security taxation rules remain unchanged, this deduction can still meaningfully reduce your overall tax liability."

Similarly, high earners paying Medicare surcharges—formally the income-related monthly adjustment amount (IRMAA) on Part B and D premiums—won't find relief here. IRMAA calculations rely on MAGI computed prior to applying the deduction.

Higher deduction for state and local taxes

Itemizers now enjoy a raised ceiling of $40,000 for deducting state and local taxes (SALT), a jump from the $10,000 limit in 2024. This cap will inch up by one percentage point annually until 2029, then revert to $10,000 in 2030.

The SALT deduction lets those who itemize subtract property taxes, encompassing levies on homes, vehicles, and boats. Additionally, you may choose between state and local sales taxes or income taxes—but not both. Residents of high-property-tax states like New Jersey and New York will reap the biggest rewards from this expansion.

Mirroring the senior deduction, high earners face a phase-out. The limit shrinks progressively for those with MAGI over $500,000 ($250,000 for married filing separately), bottoming out at $10,000 for MAGI of $600,000 or higher.

Since the 2017 TCJA beefed up the standard deduction, itemizing has become rare—chosen by only about 10% of filers. Yet, Laurette Dearden, a certified financial planner and CPA in Laurel, Maryland, predicts this SALT hike will nudge more people toward itemizing.

If your 2025 property taxes topped $10,000, consider compiling your charitable gifts, mortgage interest, unreimbursed medical costs exceeding 7.5% of AGI, and similar itemizable expenses. Compare the total against the standard deduction to determine your optimal path.

Expanded tax breaks for families

Parents eligible for the child tax credit (CTC) can now claim $2,200 per qualifying child in 2025, an increase from $2,000 the prior year. The CTC begins phasing out at modified adjusted gross incomes of $200,000 for singles and $400,000 for joint filers.

Other dependents, like elderly parents or supported adult relatives you claim, qualify for up to $500 per person.

Adoptive parents who brought a child into the family in 2025 may deduct up to $17,280 in qualifying costs via the adoption tax credit. Up to $5,000 of that proves refundable, allowing those with limited tax liability to receive cash back up to that figure.

A deduction for car buyers

The $7,500 tax credit for purchasing or leasing qualifying electric vehicles, plus $4,000 for used models, concluded on September 30, 2025.

Buyers who secured the credit upfront by transferring it to the dealer—effectively getting a purchase discount—must still document the deal on Form 8936. Dealers provide a certification of eligibility to support this filing. The form also serves those who didn't claim it at purchase.

Vehicle prices climbed in 2025, with Experian noting average new-car loan payments at $748 monthly and $532 for used. Relief comes in the form of up to $10,000 in deductible auto loan interest for certain purchases. No itemizing required, but it applies solely to new cars assembled domestically, excluding many imports.

Check the final assembly location via the vehicle label at the dealership or by entering the VIN into the National Highway Traffic Safety Administration's decoder tool. This deduction spans purchases from 2025 through 2028 but phases out for individuals earning over $100,000 MAGI or couples above $200,000.

Taxes on your winners

2025 proved a banner year for stock investors, as the S&P 500 surged 18%. Short-term gains—on holdings of one year or less—face ordinary income rates up to 37%. Longer-held assets benefit from preferential long-term capital gains rates of 0% to 20%, scaled to your income bracket.

Market gains extended beyond equities to mutual funds, ETFs, and alternative investments. Here's how taxes apply if you realized profits from these sources:

Cryptocurrency

Bitcoin shattered records in 2025, luring institutional and retail investors. Profits from selling or trading crypto mirror treatment for stocks or bonds: capital gains taxes apply based on holding period.

Even spending crypto triggers a taxable event. Form 1040 now queries digital asset transactions in 2025, underscoring IRS scrutiny.

Gold

Sellers of gold mining stocks, funds, or ETFs pay standard capital gains rates. Physical gold—bars or coins—falls under collectibles taxation, with long-term rates up to 28%.

Physical gold-backed ETFs like SPDR Gold Shares also incur the collectibles rate. While small personal sales might fly under radar, dealers issue Form 1099-B for qualifying bulk precious metal transactions.

Taxes hit the spread between basis (purchase price) and sale proceeds. Gifts carry the donor's basis; inheritances use fair market value at death. Accurate basis tracking prevents IRS taxation of full proceeds, per Los Angeles CPA Miklos Ringbauer.

Gambling

Online sports betting exploded, enabling wagers on myriad events, from college hoops to Super Bowl minutiae. Nearly 60% of Americans gambled last year, per the American Gambling Association.

Winnings count as taxable income. Payouts of $600+ at 300x wager odds typically yield Form W-2G for Schedule 1 reporting. Wins over $5,000 at 300x odds trigger 24% withholding.

Offset with losses if itemizing, capped at winnings amount. A new 2026 rule limits loss deductions to 90% of total losses, notes Valega.

Last-minute tax savers

Prior to finalizing your return, maximize contributions to tax-favored accounts. These not only cut 2025 taxes but bolster retirement and healthcare preparedness.

IRAs

The April 15, 2026, deadline allows 2025 traditional IRA contributions, slashing AGI dollar-for-dollar and potentially unlocking AGI-linked breaks.

Without workplace plans, deduct up to $7,000 ($8,000 if 50+). Plan participants phase out at $79,000-$89,000 AGI (singles) or $126,000-$146,000 (joint). Uncovered spouses deduct fully up to $236,000 joint AGI, partially to $246,000.

Self-employed? SEP IRAs permit up to 20% of net income, max $70,000, by April 15 (October with extension).

Roth IRA contributions by April 15 are after-tax but offer tax-free qualified withdrawals. Limits: full for singles under $150,000 MAGI ($150,000-$165,000 partial); joints under $236,000 full ($236,000-$246,000 partial). SEPs now support Roth options.

Health savings accounts

HSAs provide triple tax advantages: deductible contributions, tax-deferred growth, tax-free medical withdrawals. Deadline: April 15 for 2025 funding, requiring high-deductible coverage by December 1 ($1,650 individual/$3,300 family min deductible).

Limits: $4,300 single, $8,550 family; +$1,000 if 55+.

Planning for 2026

Post-filing, relax briefly—then strategize 2026 savings using fresh data. Key upcoming shifts:

New rules for charitable contributions

Standard deduction takers gain an above-line $1,000 charitable write-off ($2,000 joint) starting 2026, excluding donor-advised funds/private foundations.

Itemizers face a 0.5% AGI floor: deduct only excess over that threshold (e.g., $1,500 min for $300,000 AGI couple). Cash gifts cap at 60% AGI.

Bypass via QCDs for 70½+: up to $111,000 IRA-to-charity transfers cut AGI without floor penalty, per Baird's Tim Steffen.

Larger catch-up contributions for workplace retirement accounts

401(k)/403(b) base rises to $24,500 (under 50) in 2026 from $23,500. Catch-up to $8,000 (50+), totaling $32,500. Ages 60-63 super-catch-up $11,250, max $35,750.

Changing requirements for high earners who contribute to a 401(k)

2026 mandates Roth catch-ups (after-tax) for prior-year earners over $150,000 in 401(k)/403(b)/457(b). Roth perks: tax-free withdrawals post-59½/5 years, no RMDs. But lost traditional deductions may hike AGI, risking other breaks—consult pros.

Where to get free help

IRS Direct File ended, but Free File persists for AGI ≤$84,000 via partners.

AARP Tax-Aide offers free aid at 3,600+ sites for low/moderate-income seniors 50+, locatable via their tool.