Tax Planning for 2025-2026 After the New Tax Bill

If you haven’t thought about your taxes for 2025 and 2026, now is the time. Knowing how tax laws have changed and rules that will be changing in the near future can save you thousands of dollars.

What’s Changing and Why it Matters

The Tax Cuts and Jobs Act (TCJA) which passed in 2017 had many provisions that were temporary and were scheduled to expire at the end of 2015. But the recently passed  “One Big Beautiful Bill Act” (OBBBA) has changed this situation. Most of the provisions in the TCJA were made permanent in the OBBBA and other changes were made. Depending on your tax situation, you can still make changes in 2025 that could save you money. Here are just a few things to look at.

Higher Deductions for Seniors

There is a temporary higher standard deduction for seniors starting in 2026 and in-force for 3 years. Seniors will have an additional $6000 standard deduction above the current standard deduction. Married couples where both spouses are over 65 will add $12,000 to the standard deduction. But there are some income limits that might make seniors need to do some tax planning. The added deduction starts to phase out with Modified Adjusted Gross Income (MAGI) over $75,000 for single filers and $150,000 for married filers.

What kind of tax planning can you do to take advantage of the senior deduction? If you might be close to the income limit, you should try to move income into 2025 instead of 2026. For instance, if you will need to sell stock at a gain or take a larger distribution from a retirement account to fund a purchase, it might be better to do it this year. If you are still working, you might want to plan to fund a traditional retirement account next year that subtracts from current income.

Charitable Deduction Changes

The OBBBA has a new 0.5% floor for itemized charitable contributions. That means the first 0.5% of your AGI will be subtracted from the charitable deduction you can take (similar to the 7.5% floor for medical deductions).

If you itemize your deductions instead of taking the standard deduction and you are planning to make a large charitable donation, 2025 is a much better year for you to complete the contribution. In 2026 you will lose some of the deduction. If your charity is not ready to receive your donation this year or if there are other reasons why you want to delay, consider using a Donor Advised Fund (DAF). As long as you follow the rules for DAF donations, you can make the donation in 2025, and then grant the funds to the charity next year or later.

Another change for charitable donations is a new $1000 (Single) or $2000 (Married) cash deduction if you don’t itemize your deductions. This starts in 2026, so if you are not itemizing deductions, it will be much better for you to delay your charitable contribution to 2026.

Limits on Gambling Losses

You haven’t been able to deduct gambling losses over your winnings for a long time. However, you can currently deduct your losses from your winnings in order to determine your winnings for tax purposes. As an example if you win $110 betting on a horse race, but then lose $100 betting on more horse races, your net winnings are $10 and you owe tax on that $10.

Starting in 2026, the OBBBA limits the deduction for losses to 90% of your losses. So in the above example, you can only offset your $110 winnings with $90 of losses. That means even though you only won a net $10, you will be paying taxes on $20 of winnings. This is an extra tax on gamblers.

Gambling is generally not a good way to make money, but starting in 2026 it will be even worse. So if you want to get some entertainment by gambling, I suggest you get it out of your system in 2025. Don’t think I am giving you an excuse to gamble though. It’s still much more likely you will lose your money.

Increased State and Local Tax Deduction

This provision may be good news for some taxpayers, but like much in the tax code, the benefits may not be as good as advertised for some taxpayers and planning may help. The TCJA had capped the deduction for State and Local Taxes (SALT) at $10,000. The OBBBA has increased this deduction to $40,000 starting in 2025 and it increases by 1% per year for the next 4 years before sunsetting.

But the deduction phases out for those with MAGI above $500,000 in 2025. This threshold also increases by 1% per year. While this deduction does not offer any opportunities for tax planning in 2025, if you might be selling a business or property with an installment sale of the next few years, you definitely will want to make sure your income stays below the phaseout threshold for 5 years.

Retirement Plan Catch-Ups

Great news for those aged 60-63 with a 401(k), 403(b), or a governmental 457(b) plan. Starting in 2025, you can make a catch-up contribution of $11,250 which is higher than the normal $7,500 catch-up contribution those aged 50-59 can make. If you are 60 years old, when you combine the catch-up with the normal contribution, you can contribute $34,750 to your retirement account. If you want to lower your current income, you can use a traditional tax-deferred contribution and if you want to be taxed now, you can use a ROTH contribution where later distributions are tax-free.

But 2026 brings a surprise which may interfere with your tax planning. Starting in 2026, your catch-up contributions must be ROTH (taxed now) if your income is over $145,000 indexed for inflation. If you were relying on catch-up contributions reducing your income below certain thresholds, you may need to explore other techniques.

There is more…..

The tax code is extremely complex and there are many provisions with phaseouts where proper tax planning can cause thousands of dollars in savings on your taxes. While some CPAs and accountants may help you with tax planning, many will simply prepare your taxes from the paperwork you give them and never tell you that if you did something slightly different, you could save money. You also typically see your tax preparer only in the beginning of the year and the most effective tax planning can take place in the 3rd quarter of the year. This is where a CFP® financial planner can come in. If you are interested in tax planning, please contact us at Cereus Financial Advisors.

This article contains my views and opinions, which are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. 

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not consider any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.