Tax Changes for 2026 Filing Season

As we look ahead through 2026, it’s essential to understand how new tax laws will impact your planning. Although these changes will take effect in the 2025 tax year filings, they also apply to your income and tax obligations for the year 2026 and on. This means, the decisions you make today can help you save money and avoid surprises when you file your 2026 tax return next year.

The changes are a mix of higher deductions, updated tax brackets, and new rules for popular credits and business deductions. Whether you’re an individual taxpayer or a business owner, these could make a real difference for your wallet and your business. The tax landscape is evolving, and staying ahead means understanding what’s new, what’s changing, and how it all affects your planning.

Tax Credits and Deductions for the 2025

State and Local (SALT) Deduction

The cap has been raised to $40,000 for most taxpayers ($20,000 for married filing separately) for the 2025 tax year. This higher limit allows individuals to deduct more of the state and local taxes they pay, which can be especially helpful for those living in high-tax states.

However, the deduction amount will gradually decrease for higher-income taxpayers, and after 2029, the cap will return to $10,000. These changes provide temporary relief for many taxpayers, but it’s important to plan ahead, as the higher cap is not permanent.

Qualified Business Income (QBI) Deduction

Also known as the Section 199A deduction, this deduction allows many owners of sole proprietorships, partnerships, S corporations, and some trusts and estates to deduct up to 20% of their qualified business income.

Starting in 2025, the income threshold for phasing in certain limitations is increased to $75,000 for single filers and $150,000 for joint filers, making it easier for more business owners to qualify for the full deduction. Additionally, there is now a $400 minimum deduction for those with at least $1,000 in active business income.

Bonus Depreciation

For the 2025 tax year, bonus depreciation is restored to 100% for most new and used business property acquired after January 19, 2025, and placed in service during the year. This means businesses can fully deduct the cost of qualifying equipment and other tangible property in the first year, rather than spreading the deduction over several years.

However, if the property was acquired before January 20, 2025, the old phase-down schedule applies (40% for 2025). There is also a new provision allowing 100% expense for certain nonresidential real property used in manufacturing or production, subject to specific requirements.

Section 179 Deduction

For 2025, the Section 179 deduction limit increases to $2,500,000, with a phase-out threshold of $4,000,000. This allows businesses to immediately expense the cost of qualifying equipment and certain improvements to nonresidential real property, up to the deduction limit. 

Businesses should prioritize using Section 179 for assets that do not qualify for bonus depreciation or for purchases where immediate expensing is most beneficial. Since this can be selectively applied to specific assets, it’s a valuable tool for strategizing your tax position. For optimal results, planning may coordinate Section 179 elections with bonus depreciation.

Valuable Tax Credits for Businesses and Individuals

Several tax credits remain available for businesses and individuals through 2025 and beyond. These incentives provide opportunities to reduce tax liability while supporting key initiatives, such as workforce development, community investment, energy efficiency, and clean energy infrastructure. By taking advantage of these credits, businesses and homeowners can benefit financially while contributing to broader economic and environmental goals.

Individual Tax Credits – Changes for 2025

Child Tax Credit

For 2025, the Child Tax Credit increased to $2,200 per qualifying child (up from $2,000 in 2024), and the maximum refundable portion rose to $1,700 (up from $1,600 in 2024). Additionally, the taxpayer and the child must have valid Social Security Numbers to claim the credit.

Energy Efficient Home Improvement Credit

This credit remains available for 2025, but it will expire for property placed in service after December 31, 2025 (previously, it was available through 2032). For 2025, the credit continues to cover 30% of qualified costs, with annual limits. Starting in 2025, to claim the credit for windows, doors, and certain HVAC equipment, the product must have a unique Product Identification Number (PIN) from a qualified manufacturer, and this PIN must be reported on your tax returns.

Residential Clean Energy Credit

This credit is available for 2025, but it will expire for property placed in service after December 31, 2025 (previously, it was available through 2034). The credit remains at 30% of qualified costs for solar, wind, geothermal, and battery storage systems, but homeowners must complete installations by the end of 2025 to qualify.

Business Tax Credits – Changes for 2025

Work Opportunity Tax Credit (WOTC)

The WOTC has been extended through the end of 2025 (previously set to expire after 2025). For each eligible employee, businesses can receive a tax credit of up to $9,600, depending on the target group and the individual’s hours worked. The WOTC not only helps reduce tax liability but also supports efforts to build a diverse and inclusive workforce.

Employer-Provided Child Care Credit

For 2025, the credit is increased to 40% of qualified expenses (up from 25%), with the maximum credit raised to $500,000 (up from $150,000). Small businesses can claim a 50% credit and a $600,000 cap.

Energy-Efficient Commercial Buildings Deduction (Section 179D)

The deduction is available for property construction beginning before July 1, 2026. For 2025, businesses should note that the deduction will not be available for property construction beginning after June 30, 2026 (previously available through 2032). Businesses should complete installations by mid-2026 to qualify.

Alternative Fuel Vehicle Refueling Property Credit (Section 30C)

For 2025, the credit remains at 30% of installation costs (up to $100,000 for businesses, $1,000 for individuals), but it will expire for property placed in service after June 30, 2026 (previously available through 2032). Businesses should complete installations by mid-2026 to qualify.

Research and Development (R&D) Credit

For 2025, businesses can once again fully deduct domestic research and experimental (R&E) expenditures in the year incurred (previously, these had to be amortized over five years). Foreign R&E expenditures must still be amortized over 15 years.

Clean Vehicle Credits (New, Used, and Commercial)

Credits for purchasing new or used electric vehicles, as well as commercial clean vehicles, expire for vehicles acquired after September 30, 2025 (previously available through 2032). 

​Engaging in strategic tax planning now can help ensure your business benefits from these incentives while they are still available. At DHJJ, our team of experienced tax professionals provides personalized guidance and strategic tax planning. Let us help you optimize your tax position and secure the financial advantages your business deserves.

New Individual Tax Brackets

For 2025, the IRS has adjusted tax brackets for inflation, impacting the income ranges for each tax rate. These adjustments aim to prevent “bracket creep,” where inflation pushes taxpayers into higher income brackets without an actual increase in real income. Here’s a breakdown of the new tax brackets:

Single Filers:

Understanding these changes is crucial for effective tax planning and optimizing your tax strategy for the year ahead. By incorporating these new rates into your financial plans, you can better estimate your tax liability and explore opportunities to minimize taxes.

Standard Deductions

For the 2025 tax year, the IRS has increased the standard deductions to adjust for inflation, offering taxpayers higher deductions that reduce their taxable income. Here’s a breakdown of the new standard deduction amounts:

• Single Filers: The standard deduction for 2025 increases to $16,100, up from $14,600 in 2024.
• Married Filing Jointly: The standard deduction rises to $32,200, up from $29,200 in 2024.
• Head of Household: For 2025, the standard deduction increases to $24,150, up from $21,900 in 2024.

These amounts reflect the increases enacted by the One Big Beautiful Bill Act. This helps ensure that taxpayers maintain their purchasing power in the face of inflation, providing a bit more relief during tax season. The increase provides meaningful tax relief, especially for those who do not itemize deductions on their tax returns.

Key Retirement Plan Changes for 2025

The IRS has increased the contribution limits for many popular retirement plans for 2025 to help individuals and families save more for retirement and keep up with inflation, providing individuals with enhanced opportunities to save for retirement. Here are the key updates:

Higher Contribution Limits for Retirement Plans:

• The maximum amount you can contribute to a 401(k), 403(b), and most 457 plans increases to $23,500 (up from $23,000 in 2024).
• For SIMPLE IRA and SIMPLE 401(k) plans, the employee contribution limit rises to $16,500 (up from $16,000 in 2024).
• The annual IRA contribution limit (for both traditional and Roth IRAs) increases to $7,000 (up from $6,500 in 2024).

New and Enhanced Catch-Up Contribution Rules:

• If you are age 60, 61, 62, or 63 during the year, you may be eligible for a special, higher catch-up contribution of $11,250 (instead of $7,500) for 401(k), 403(b), and most 457 plans.
• For SIMPLE IRA and SIMPLE 401(k) plans, the catch-up limit for those age 50+ is $3,500, but if you are age 60–63, the special catch-up limit is $5,250.

Mandatory Roth Catch-Up Contributions for High Earners:

• Starting in 2025, if you earned more than $145,000 in wages from your employer in 2024 and make catch-up contributions to a 401(k), 403(b), or governmental 457(b) plan, those catch-up contributions must be made as Roth (after-tax) contributions. This does not apply to SIMPLE or SEP IRAs.

Updated Income Limits for IRA and Roth IRA Contributions:

• The income phase-out range for Roth IRA contributions increases to $150,000–$165,000 for single filers and $236,000–$246,000 for married couples filing jointly.

For 2025, you can save more in your retirement accounts thanks to higher contribution limits. If you’re in your early 60s, you may be able to make even larger catch-up contributions. High earners making catch-up contributions will need to use Roth (after-tax) dollars. Income limits for IRA deductions and Roth IRA contributions have also increased, allowing more people to qualify. These changes make it easier to boost your retirement savings and take advantage of tax benefits.n limits, individuals can bolster their retirement savings and improve their financial security for the future.

Tax Law Changes on the Horizon for 2026

Significant tax law changes are set to take effect in 2026, which will have a substantial impact on both individual and business tax planning. Here are some key changes to consider:

1. Expiration of Key Energy and Clean Vehicle Credits

• The following credits expire and are not available for property placed in service or expenditures made in 2026:
  • Alternative Fuel Vehicle Refueling Property Credit (Section 30C): Expires for property placed in service after June 30, 2026.
  • Clean Vehicle Credit (Section 30D): Expires for vehicles acquired after September 30, 2025.
  • Previously-Owned Clean Vehicle Credit (Section 25E): Expires for vehicles acquired after September 30, 2025.
  • Energy Efficient Home Improvement Credit (Section 25C): Expires for property placed in service after December 31, 2025.
  • Residential Clean Energy Credit (Section 25D): Expires for expenditures made after December 31, 2025.
  • Energy-Efficient Commercial Buildings Deduction (Section 179D): Expires for property where construction begins after June 30, 2026.

2. Provisions that have been made Permanent: 

• Lower Individual Tax Rates: The reduced tax brackets and rates introduced by the Tax Cuts and Jobs Act (TCJA) are made permanent, with no reversion to higher pre-TCJA rates.
• Qualified Business Income (QBI) Deduction (Section 199A): The 20% deduction for qualified business income is made permanent, with higher phase-in thresholds and a new minimum deduction for active business income.
• Section 179 Expensing: The Section 179 expensing limit and phaseout threshold are permanently increased and indexed for inflation. For 2026, the limit is $2,560,000 and the phaseout threshold is $4,090,000
• Increased AMT Exemption and Phaseout Thresholds: The higher alternative minimum tax exemption amounts and phaseout thresholds are made permanent and indexed for inflation
• Permanent New Markets Tax Credit and Enhanced Low-Income Housing Tax Credit: Both credits are made permanent, supporting ongoing investment in low-income communities and affordable housing

3. Lifetime Gifting and Estate Tax Exemption:

• The estate and gift tax exemption increases to $15 million per individual for 2026 (up from $13.99 million in 2025), with inflation adjustments beginning in 2027.

4. Business Meals Expenses Deduction

• The elimination of the deduction for meals provided for the convenience of the employer and for de minimis meals is new for the 2026 tax year. Employers should review procedures and accounting relating to these expenses.

5. Itemized Deduction Limitation for High-Income Taxpayers

• A new limitation on the tax benefit of itemized deductions takes effect for 2026. For high-income taxpayers, itemized deductions are reduced by 2/37 of the lesser of (a) total itemized deductions or (b) the amount by which taxable income exceeds the 37% bracket threshold. 

6. Charitable Contribution Deduction Floor

• Corporations: In 2026, only contributions exceeding 1% of taxable income are deductible, up to the 10% limit. 
• Individuals: In 2026, only contributions exceeding 0.5% of AGI are deductible for individuals who itemize. 

Choose DHJJ to Help Navigate Tax Changes