Deductions

End-of-year Tax Planning w/ OBBB

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The One Big Beautiful Bill (OBBB), passed earlier in 2025, creates some new end-of-year tax planning opportunities for some taxpayers. In this post, I’ll cover the likely situations where taxpayers should take action. Note that many of these situations only impact a relatively small percentage of taxpayers. Many individuals / families won’t need to take any action at all, though everyone should be aware of the situations where action makes sense.

The OBBB extended the 2025 tax brackets, meaning that with the exception of inflation adjustments, tax rates and income ranges will be the same in 2026 as they are in 2025. The general rule of thumb in years where that is the case is that one should try to defer income and accelerate expenses (i.e. reduce your 2025 taxes, even if it means paying proportionally more in 2026), unless you’re having a high income year, or expenses would otherwise be worth more next year than they are in 2025. There are, however, some OBBB-related exceptions as well as even more reason to defer income / accelerate expenses:

  • SALT Deduction – Because of the OBBB, starting in 2025 the cap on State And Local Tax (SALT) paid that can be deducted is $40k instead of $10k. However, if your income is more than $500k, that extra limit starts to phase out and is fully phased out at $600k, meaning that if you make more than $600k, your deduction is limited to the original $10k. This means that if your income will be below $600k in 2025 and above in 2026, you should make sure you’re getting the most of any state and local tax deductions you can take in 2025. Conversely, if your income is above $600k in 2025 but will be below in 2026, you want to delay any state and local tax deductions until 2026 wherever possible. The most likely state and local tax deductions you can shift from year to year are: 1) Property taxes that are not escrowed and where the bill is published in one year, but you have the option to at least partially pay in that calendar year or the next, 2) your Q4 state estimated tax payment (if you make such payments), or 3) sales taxes on major purchases like cars or boats, but only if you live in a state where you don’t have a state income tax. Note: If you don’t itemize, none of this is relevant to you.
  • Charitable Contribution Deduction – There are numerous ways to try to maximize the tax benefit of charitable contributions.
    • For those who wouldn’t have enough deductions to itemize without charitable contributions, some or all of the tax benefit of your contributions is lost each year just getting up to the standard deduction amount so that you can itemize. In this case, a bunching strategy where you lump contributions into one year in an attempt to get more to count toward your itemized deductions in that year, and then plan to make minimal / no contributions in the next year or next few years and take the standard deduction in those years. One of the best ways to do this is to donate to a Donor Advised Fund (DAF). See this previous post for more info on that.
    • Starting in 2026, non-itemizers can take up to a $1k single / $2k joint deduction for cash charitable contributions. If that means contributions will benefit you in 2026, but not benefit you in 2025 because you don’t itemize, delay end-of-year 2025 cash donations to early 2026 so you get a benefit.
    • Starting in 2026, itemizers will face a 0.5% of AGI threshold on charitable contributions. That means that the first 0.5% of AGI of contributions will not benefit you. For example, if you earn $100k and you donate $1500, you would only get a potential deduction of $1000 because 0.5% of AGI is $500 and therefore only contributions above that amount would count. This means that if you itemize, making your 2026 planned contributions in 2025 will benefit you because you won’t be subject to the 0.5% of AGI threshold.
    • All itemized deductions will be reduced starting in 2026 for those in the highest (37%) Federal tax bracket. The reduction makes it such that deductions for those in that tax bracket only provide a benefit of 35%, rather than 37%. If you’ll be in the 37% tax bracket in 2026, then accelerating 2026’s charitable contributions into 2025 will benefit you.
  • Energy Credit Expiration – two key credits will be expiring on 12/31/2025 per OBBB (one already did… there’s no more credit for purchasing an electric vehicle as of 9/30/2025):
    • The Energy-Efficient Home Improvement Credit – this credit allowed varying amounts for the installation of highly efficient heat pumps, exterior doors and windows, boilers, central air-conditioning systems, etc. Since it expires 12/31/2025, if you have to purchase any of those things and your purchase will qualify for a credit, make sure it gets done and installed in 2025.
    • The Residential Clean Energy Credit – mostly used on solar panels but also available for other types of clean energy, this credit is 30% of the cost of the improvement. Since it expires in 12/31/2025, if you are installing solar panels or other clean energy systems, make sure they are completed by 12/31/2025.
  • New “Below The Line” Deductions – Several of the new deduction for non-itemizers phase out at various levels of AGI. These include the deduction for seniors, the auto loan interest deduction, the “no tax on tips” deduction, and the “no tax on overtime” deduction. See our OBBB summary for details on these deductions and phase-outs. If you may qualify for one of these deduction, but have income near the AGI threshold, you may want to more aggressively attempt to delay income or increase adjustments to AGI. Note that itemized deductions don’t reduce AGI, but “adjustments” (as found on 1040 Schedule 1, Page 2) do. These include Traditional IRA deductions, SEP contributions for the self-employed, and HSA contributions. Additionally, Traditional 401k/403b retirement plan contributions and FSA contributions do reduce AGI by reducing the amount reported in Box 1 of an employee’s W-2.

One Big “Beautiful” Bill

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This post contains a non-exhaustive summary of the most impactful (to my clients) tax and personal finance-related provisions of the One Big Beautiful Bill (OBBB) that was passed into law on 7/4/2025. That’s the actual name of the Bill / Law, by the way, not an editorial on the Bill’s beauty. In fact, I put “Beautiful” in quotes in the title to give just the opposite impression. To be fair though, this Bill is to beauty about as the Inflation Reduction Act of the previous administration was to reducing inflation. Names of Laws don’t imply meaning, intention, or effectiveness of those Laws. That’s as far as I’m going to get into politics on this one. I’m also not going to get into the budget portions, appropriations, cuts to programs like Medicaid, etc. While the importance of those parts of the Bill probably surpasses the importance of tax changes to many Americans, this post is only about taxes and personal finance, where I can contribute most. I leave it to you to dive into the rest of the Bill as you feel is appropriate, using the sources you feel are appropriate. Better yet, give the 870-page OBBB a read yourself.

Many of the provisions are retroactive to the start of 2025 and so they impact taxes this year. Some begin later in 2025, some in 2026, a few even after that. Some provisions are permanent (meaning it would take a new law to change them). Some are temporary (meaning they will revert back to old law at a future date unless a new law is passed to extend them). I tried my best below to include the effective dates for each change. Please keep in mind that this is my personal interpretation of the OBBB after skimming it and cross referencing various other summaries that have been published. It is not guaranteed to be 100% accurate. Lastly, it will take some time to update tax projection software and really get into the details of what, if any, actions clients should take, given their current situation. Unlike other recent tax bills, which were passed in the final days of the tax year, this one gives time to interpret, project, and act. There will be more to come on those actions in the coming months.

Key tax and personal finance provisions of OBBB:

  • Current tax brackets made permanent (would have reverted back to pre-TCJA in 2026).  That includes the 10%, 12%, 22%, 32%, 35%, and 37% rates, as well as their income ranges for Single, Head-Of-Household (HoH), Married Filing Jointly (MFJ), and Married Filing Separately (MFS).  Those income ranges are adjusted upward annually for inflation.  The OBBB adds one additional year of inflation adjustments to the 10% and 12% brackets by setting their “base year” back to 2016 from 2017 starting in 2026. This effectively increases the 10% and 12% brackets for inflation twice in 2026 only, making those brackets higher, and reducing taxes slightly for everyone that pays any Federal tax.
  • Standard deduction made permanent (would have reverted back to pre-TCJA in 2026).  Increased slightly for 2025 to $31,500 for couples, $23,625 for head of household and $15,750 for individuals.  Inflation-adjusted going forward. 
  • New $6,000 personal exemption for those age 65+ (remains $0 for everyone else).  Acts like another standard deduction and phases out by 6% of the amount that MAGI (adjusted gross income plus excluded foreign income in most cases) exceeds $75k single / $150k MFJ.  Effective 2025-2028, only.  This new deduction was Congress’s way of trying to implement President Trump’s “no tax on social security” campaign promise.  Since the Budget Reconciliation process (requires majority vote in the Senate to pass instead of 60 votes) can’t make changes to Social Security, this new deduction is the best they could do.  Social Security taxation rules have not changed at all.  Contrary to the message the administration is putting out there, there is still tax on Social Security income if overall income is above certain thresholds.
  • New phaseout of deductions for those in the top (37%) tax bracket so that their deductions only reduce tax by 35%.
  • Child tax credit raised to $2200 / child + inflation and made permanent (would have reverted back to $1k in 2026).  Still phases out starting at AGI of $200k single / $400k MFJ.
  • $500 Other Dependent Credit made permanent.
  • Gift/Estate tax exemption increases to $15M per person / $30M per couple in 2026 + inflation in future years ($14k now + inflation, so not a huge change, but would have reverted back to pre-TCJA in 2026) and permanent.
  • QBI deduction (this is better known as the 20% “small business deduction” created by TCJA) made permanent (would have ended for 2026).  Phase-in ranges for the §199A limitations increase to $75,000 for non-joint returns and $150,000 for joint returns (from previous $50k/100k).  Other enhancements in the initial House version did not make the final bill.
  • SALT deduction limit (which would have ended in 2026) increases to $40k for 2025 (from $10k) +1% per year.  This higher deduction limit will be in effect for 5 years (ends after 2029).  Applies to single or MFJ (so increases the marriage penalty), but MFS is only $20k (so increases the penalty for married filing separately, which already rarely makes sense).  Reverts back to $10k in 2030.  Phased out by 30% of the amount that AGI is > $500k (so fully phased out at $600k), but can’t go below $10k.  That $500k phase applies to both single and MFJ too (MFS = $250k). The cap is also indexed +1% per year.  A ban on certain state-level workarounds for businesses that were included in the House version of the Bill were NOT included in the final version.
  • Current AMT exemption made permanent but AMT exemption phaseouts reset to 2018 levels ($500k single / $1M MFJ) which backed out a few years of inflation.  Also cuts exemption phaseout to $1 for every $2 of AMTI over the threshold (vs prior $1 for every $4 of AMTI).
  • Mortgage interest deduction limited to $750k of debt made permanent.  Grandfathering of pre-TCJA mortgages at $1M still applies.
  • Mortgage insurance premiums deductible (as they were pre-2022) permanently.
  • Casualty loss deduction limited to Federally declared disaster area made permanent.
  • Elimination of the moving expenses deduction made permanent
  • Elimination of miscellaneous itemized deductions by TCJA (e.g. unreimbursed employee expenses, business mileage, home office deduction) made permanent (i.e. you cannot deduction business mileage, home office, etc. as an employee).
  • Charitable Deduction changes (starting 2026):
    • For non-itemizers a new, permanent deduction of up to $1k single / $2k MFJ.  No income phaseouts. Only direct cash contributions qualify (no property, no DAF, etc.)
    • For itemizers, a new, permanent floor of 0.5% of AGI for deductibility (e.g. if you earn $200k per year, the first $1000 of charitable contributions would not count toward an itemized deduction)
  • Deduction for gambling losses (already limited to gambling gains) limited so that only 90% of losses could be considered.  Means even those with net losses in a year could be taxed on gambling “income”.
  • Dependent Care Credit enhanced to 20-50% of up to $3k/child (max 2) of expenses (from 20-35%).  Permanent.
  • Dependent Care FSA limit increased to $7500 from $5k.  Permanent, but not inflation-adjusted.
  • Tax exclusion for employer-paid student loan assistance permanent
  • “No tax on tips” – New deduction (separate from itemized deductions, but after the calculation of adjusted gross income) for up to $25k (all filing statuses except MFS, which gets $0!) of tips included in income.  Effective 2025-2028.  Tips must be voluntarily paid in customary tipping occupations.  All SSTB (specified service trades or businesses) are excluded.  Deduction phases out at 10% of income over a threshold of MAGI starting at MAGI of $150k single / $300k MFJ.
  • “No tax on overtime”– New deduction (separate from itemized deductions, but after the calculation of adjusted gross income) for up to 12.5k single / $25k MFJ / $0 MFS of overtime pay included in income (shown on W-2).  Effective 2025-2028.  Deduction phases out at 10% of income over a threshold of MAGI starting at MAGI of $150k single / $300k MFJ.
  • Auto Loan Deduction – up to $10k of interest per year would be deductible on auto loans from 2025-2028.  New vehicles purchases only (no leases or used cars), with final assembly in the US. Deduction phases out at 20% of income over a threshold of MAGI starting at MAGI of $100k single / $200k MFJ.
  • Enhanced Affordable Care Act (“Obamacare”) Premium Tax Credits were not extended.  These increased the tax credit for (“the subsidy”) for ACA purchased health insurance and implemented a new, slower phaseout to the credit for those earning more than 4x the federal poverty level in income.  They were increased for 2021 and 2022 and then extended by the Inflation Reduction Act, but have now been allowed to revert back to the original ACA level with a hard cliff at 4x the federal poverty level.  This means that if you purchase your health insurance through a state ACA exchange and you currently receive a subsidy to offset the cost of your insurance, starting in 2026 that subsidy may be reduced and / or you may have to pay part of it back when you file your taxes.
  • HSA Enhancements -the broad HSA enhancements that were part of the initial House version of the OBBB, including doubling the max HSA contribution, were not included in the final Bill.  These changes were included:
    • Telehealth visits with deductible waived, won’t disqualify plans from being HSA eligible.  Starts 2025 when the old laws that allowed this during COVID expired.
    • All ACA Bronze and Catastrophic health plans will be HSA eligible, regardless of whether they would otherwise qualify.  Starts in 2026.
    • Direct Primary Care arrangements with subscription costs not exceeding $150/mo individual / $300/mo family can be HSA-eligible.  Additionally, HSAs can be used to pay those subscription fees.  Starts in 2026.
  • Credit for the purchase of new and used electric cars ends 9/30/2025 instead of 12/31/2032.
  • Credit for energy efficient home improvements ends 12/31/2025 instead of 12/31/2032.  This was the up to $1200/yr for energy efficient doors, windows, HVAC, water heaters, etc.
  • Credit for installing certain residential renewable energy systems such as solar, wind, geothermal, batteries, etc. ends 12/31/2025 instead of 12/31/2032.  This includes the 30% credit for solar installations.
  • 100% Bonus Depreciation restored for business assets purchased on or after 1/20/2025.  Permanent.
  • Section 179 expensing permanently increased from $1.16M to $2.5M, with phase-out starting at $4M.
  • Business loss limitation provision from the TCJA made permanent.
  • Employer credit for paid family and medical leave permanent.
  • Opportunity Zones permanent with several changes including the definition of a low-income community.  Effective 1/1/2027.  More guidance will be necessary on this one as Opportunity Zones were already a very complicated portion of the TCJA.
  • New 100% credit for donations up to $1700/yr to state-approved Scholarship Granting Organizations (SGOs).  Scholarships received from those organizations for qualified elementary or secondary education would be tax-free.
  • Expands the allowable uses of 529 accounts to include K-12 education expenses (previously just tuition, with a cap, now more broad) and allows 529s to be used for “qualified postsecondary credentialing expenses” (seemingly certificate programs).
  • New 1% excise tax starting in 2026 on certain money transfers funded from cash, money orders, cashier’s check, or similar, rather than bank account, credit card, or debit card, sent from the US to an international destination.  A new tax credit is available to offset the excise tax if it is paid by a US citizen or US resident.
  • Many changes to student loan annual and lifetime maximums as well as repayment plan options.
  • “Trump Accounts” – IRAs established for minors that will follow most Traditional IRA rules.  Contributions can start 7/4/2026.  $1k granted per child born between 2025 and 2028 by the Feds.  Additional contributions of up to $5k / yr allowed until child turns 18.  No deduction.  Tax-deferred (not tax-free) growth, with distributions taxed at ordinary income rates.  With few exceptions, can’t be accessed prior to age 18.  Seems to follow the IRA rules for access prior to age 59.5 with penalties unless due to death, disability, home purchase, etc.  Must be invested in a low-cost US mutual fund or ETF.  Employers can contribute up to $2500 pre-tax for the employee.  Withdrawals after age 18 taxed pro-rata (gains and untaxed employer contributions taxed as income, after-tax contributions returned tax-free). 
  • 1099 Reporting changes –
    • The minimum threshold to report payments to individuals engaged in a trade or business (1099-MISC / 1099-NEC) increases to $2000, from $600.  Inflation-adjusted starting in 2026.
    • The minimum threshold to report third-party network transaction via 1099-K (e.g. Venmo, Paypal, etc.) reverts back to $20k or greater than 200 transactions.  That was scheduled to be reduced to $600 starting in 2026.
  • Qualified Small Business Stock (QSBS) – increases the max gain exclusion from $10M to $15M and creates new partial gain exclusions for stock acquired after 7/4/2025 where 50% of the gain can be excluded if held for 3-4 years or 75% if held between 4-5 years. 100% exclusion still occurs at 5 years.

Build Back Better Act, Property Taxes & Q4 Estimated Tax Payments

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Rumor has it the Senate is ending session and heading home for the year tomorrow, and their version of the Build Back Better Act (see my last update for what’s included in the House version of the bill) hasn’t even been drafted, so it seems very very unlikely that anything will pass by end of year. That means at least a temporary end to Advance Child Tax payments, the expanded Earned Income Credit, and host of other pandemic-related programs. It also means no changes to retirement plans for now (i.e. the back-door Roth and mega-backdoor Roth remain), but those are definitely on the chopping block for a future bill. I don’t expect them to survive 2022. Lastly, it means that there won’t be a change to the 2021 State And Local Tax (SALT) deduction, again, for now. Build Back Better will re-emerge in 2022 for certain, perhaps with some provisions that are retroactive to 2021, though with a split Senate and a lack of support from at least two Democratic Senators, it’s a heavy lift to get BBB approved next year as well in it’s current form.

The fact that SALT won’t be changing for 2021 means that for those of you sitting on property tax bills for your residence or vacation home (rentals don’t matter…  property tax is always deductible on rentals) or determining if you should make state estimated tax payments for Q4, you should operate under the assumption that the SALT (State And Local Tax) cap will remain at $10K.  It’s possible that it could be retroactively changed in 2022 for 2021, but at that point, it will be too late to do anything for 2021 anyway.  That means that if both of the following are true:

  1. you already have $10K+ of state income taxes paid (check paystubs + estimated tax payments if you made any to cities/states to confirm) or sales tax paid in the case of a no income tax state (use IRS lookup for that https://www.irs.gov/credits-deductions/individuals/use-the-sales-tax-deduction-calculator) for calendar 2021  + property tax paid for calendar 2021 (check escrow statements if you escrow, otherwise you should know what you’ve paid) AND
  2. your 2022 will look similar to 2021 from an income/deductions/SALT standpoint…

… then there is no incentive for you to pay property taxes or state estimated tax payments in 2021 that could be deferred to 2022 (some municipalities allow this…  if yours doesn’t, then the point is moot for you). 

If you don’t already have $10K+ of SALT for 2021, then paying property taxes or state estimated tax payments in 2021 can still be beneficial if you will itemize your deductions on your taxes 2021.  To itemize, for most people, your SALT + mortgage interest + charitable deductions need to exceed the standard deduction ($12,550 single, $18,800 head-of-household, $25,100 married filing jointly).  If you can’t itemize in 2021, then deferring property taxes / state estimated tax payments to 2022 in hopes of being able to itemize then makes sense.

If you know you will not itemize in 2022 but will itemize in 2021, then you could pay property taxes and/or state estimated tax payments in 2021 even if you’re over the SALT limit.  The thinking there is that you wouldn’t be able to deduct those tax payments in 2022 no matter what, so if you pay them in 2021, it sets you up to take advantage of a retroactive SALT deduction increase if such a thing becomes law in 2022.

If you know that you will not itemize in 2021, but will in 2022, then defer property taxes / state estimated tax payments to 2022.

This fun game of “Will I get a tax deduction” is very likely to continue into 2022. We can only hope that the rules for 2021 are finalized in advance of the April 15th, tax deadline for 2021 and maybe, just maybe, the rules for 2022 could be settled before December 2022.

Special 2021 Deduction For Non-Itemizers Giving To Charity

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Giving Tuesday is coming up at the end of November, so here’s a special reminder about this year’s “bonus” charitable deduction. As part of the CARES Act in 2020, Congress authorized a special charitable deduction for 2020 only for people who aren’t able to itemize due to the standard deduction being higher than their itemized deductions. The limit was $300, and that was the case whether Single, Head-Of-Household, or Married Filing Jointly. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, passed late last year extended this deduction into 2021 and doubles it to $600 for joint filers.

As with last year, to qualify, the donation must be in cash, it must be to a qualifying organization (which is the same as for charitable donations as itemized deductions), it must be made by 12/31 (2021 this year), and appropriate records must be kept. As with itemized deductions, you can check whether the organization qualifies using the IRS’s Tax Exempt Organization Search. A $300 or $600 deduction may not sound like a lot, but many people have already made, or are about to make, some cash contributions for friends, colleagues, or family members that are raising money for various organizations. If you’re going to make the contribution regardless of the tax benefit, you might as well take the tax benefits that are available. In most cases, substantiation simply requires an acknowledgement from the organization (including stating that you received no benefits for your donation) and a cancelled check or credit card statement. (For detailed record keeping requirements and special cases, see Charitable Contributions – Deductions & Recordkeeping in the blog archives.) So save those “thanks for your contribution” acknowledgement emails and keep a running list of your cash donations this year, whether you itemize or not. They will come in handy to the tune of up to $300 or $600 in deductions at tax prep time.

Special 2020 Deduction For Non-Itemizers Giving To Charity

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It’s Giving Tuesday, so here’s a special reminder about this year’s “bonus” charitable deduction. As part of the CARES Act, Congress authorized a special charitable deduction for 2020 for people who aren’t able to itemize due to the standard deduction being higher than their itemized deductions. The limit is $300, and that’s the case whether your Single, Head-Of-Household, or Married Filing Jointly. To qualify, the donation must be in cash, it must be to a qualifying organization (which is the same as for charitable donations as itemized deductions), it must be made in 2020, and appropriate records must be kept. As with itemized deductions, you can check whether the organization qualifies using the IRS’s Tax Exempt Organization Search. A $300 deduction may not sound like a lot, but many people have already made, or are about to make, some cash contributions for friends, colleagues, or family members that are raising money for various organizations. If you’re going to make the contribution regardless of the tax benefit, you might as well take the tax benefits that are available. In most cases, substantiation simply requires an acknowledgement from the organization (including stating that you received no benefits for your donation) and a cancelled check or credit card statement. (For detailed record keeping requirements and special cases, see Charitable Contributions – Deductions & Recordkeeping in the blog archives.) So save those “thanks for your contribution” acknowledgement emails and keep a running list of your cash donations this year, whether you itemize or not. They will come in handy to the tune of up to $300 in deductions at tax prep time.