Year-End Tax Planning for 2026: OBBBA Changes to Know

Even though tax filing season is still several months away, the decisions you make before January 1, 2027, could have a significant impact on your 2026 federal income tax liability. Year-end tax planning is especially important this year because some new changes under 2025’s One Big Beautiful Bill Act (OBBBA) are taking effect. You may also still be getting familiar with OBBBA changes that went into effect last year. Here are the key tax-planning areas to review before the calendar turns to 2027.

Standard Deduction vs. Itemizing in 2026

Taxpayers can itemize certain deductions on Schedule A or take the standard deduction based on their filing status. Itemizing saves tax when the total exceeds the standard deduction, but it makes filing more complicated.

2026 standard deduction amounts:

• $16,100 for single filers (and married couples filing separately)
• $24,150 for heads of household
• $32,200 for married couples filing jointly

Taxpayers who are age 65 or older or blind can claim an additional standard deduction of $2,050 ($1,650 per spouse if married). For taxpayers who are both over 65 and blind, the additional deduction is doubled.

With such large standard deduction amounts, you may not give much thought to itemizing. However, certain temporary OBBBA provisions (covered below) could make itemizing more beneficial for some taxpayers this year.

New limit for high earners. The OBBBA’s new limit on itemized deductions takes effect for the 2026 tax year. It effectively caps itemized deductions for taxpayers in the highest tax bracket (37%) at 35 cents per dollar, down from 37 cents per dollar.

The Senior Deduction (Ages 65 and Older)

Through the 2028 tax year, taxpayers age 65 or older by the end of the tax year may qualify for an additional $6,000 “senior” deduction ($12,000 for joint filers if both spouses qualify). Eligible taxpayers can take it whether they itemize or claim the standard deduction, and it’s in addition to the existing extra standard deduction for seniors.

Income phaseout. The deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $75,000 for single filers or $150,000 for joint filers. It’s reduced by 6% of the MAGI above those thresholds. Married taxpayers must file jointly to qualify, and each eligible individual must have a valid Social Security number.

Ways to reduce MAGI before year end. If your MAGI might exceed the phaseout threshold, you may be able to take steps to reduce it and preserve your senior deduction:

• If your budget allows and you’ve already taken your required minimum distribution for the year (if applicable), consider cutting back on taxable retirement plan distributions for the rest of the year.
• If you’re still working, increasing your 2026 retirement plan contributions can reduce your MAGI.
• Whether you’re retired or still working, loss harvesting (see below) and other investment-related strategies can also reduce your MAGI.

Charitable Giving Deduction Changes

Deduction for nonitemizers. Before the OBBBA, taxpayers who didn’t itemize generally couldn’t deduct charitable contributions. Beginning in 2026, nonitemizers can deduct up to $1,000 in qualifying cash donations ($2,000 for joint filers). The deduction generally applies to cash contributions made directly to qualifying public charities. Donations to donor-advised funds and most private foundations, as well as noncash contributions, aren’t eligible.

Cash donations include actual cash as well as gifts made by check, debit or credit card, payment app, or payroll deduction. If you might be eligible, be sure to substantiate your donations properly. To be deductible, they must be:

• Supported by a bank record, receipt, or written communication from the charity if they’re under $250, or
• Substantiated by the charity if they’re $250 or more.

New 0.5% floor for itemizers. The OBBBA also introduced a new limitation on charitable deductions for taxpayers who itemize. Beginning in 2026, only contributions exceeding 0.5% of adjusted gross income (AGI) are deductible. For example, if your 2026 AGI is $100,000, you can’t deduct the first $500 of your charitable contributions. Amounts disallowed by this floor generally can’t be carried forward unless the taxpayer also has contributions exceeding the applicable percentage-of-AGI deduction limits. (For instance, deductions for cash gifts to public charities generally can’t exceed 60% of your AGI.)

Bunching contributions. These changes make the strategy of “bunching” charitable contributions into a single tax year worth considering. Traditionally, taxpayers have used this approach to accumulate enough itemized deductions to exceed the standard deduction in alternating years. Now, concentrating donations in one year may also help reduce the impact of the new 0.5%-of-AGI floor. The potential benefits depend on your income, other itemized deductions, and the timing of your contributions.

SALT Cap Increase: What to Know for 2026

The OBBBA temporarily increased the limit on state and local tax (SALT) deductions through the 2029 tax year. For 2026, taxpayers who itemize can deduct up to $40,400 ($20,200 for married couples filing separately). Deductible expenses include:

• State and local real estate taxes
• Qualifying personal property taxes
• Either state and local income taxes or general sales taxes, but not both

The SALT cap is scheduled to return to $10,000 ($5,000 for separate filers) in 2030.

Income phaseout. The effect of the higher limit depends on your SALT expenses and MAGI. For 2026, the cap is reduced by 30% of MAGI exceeding $505,000 ($252,500 for separate filers), but it can’t fall below $10,000 ($5,000 for separate filers). Both the higher cap and the income threshold are scheduled to increase by 1% annually through 2029.

Timing payments. If your 2026 SALT expenses are below the applicable cap, consider whether accelerating certain tax payments into 2026 could increase your deduction. For example, you may benefit from paying property taxes before year end, provided they’ve already been assessed, or making eligible state estimated income tax payments.

Tax Loss Harvesting Before Year End

Although economic conditions have been mixed in 2026, the stock market generally has performed well. If you have underperforming investments in your taxable portfolio, consider selling them before year end to harvest capital losses that can offset taxable capital gains you’ve already recognized.

If your capital losses exceed your gains, you generally can deduct up to $3,000 of the excess against ordinary income ($1,500 for separate filers), with unused losses carried forward to future tax years.

Net investment income tax (NIIT). Harvesting losses may also help reduce or eliminate your exposure to the 3.8% NIIT. It applies to some or all net investment income when MAGI exceeds $200,000 per year ($250,000 for joint filers and $125,000 for separate filers). The NIIT thresholds aren’t annually indexed for inflation, so more taxpayers are being hit by this tax.

Wash-sale rule. Be mindful of this rule, which generally disallows a loss deduction if you purchase substantially identical securities within 30 days before or after the sale. It can also apply to purchases made by your spouse or through an IRA. In most cases, a disallowed loss is added to the tax basis of the replacement securities, which defers the tax benefit rather than eliminating it.

Don’t Delay Your Year-End Tax Planning

With the end of 2026 fast approaching, now is the time to act if you want to minimize your tax liability. The OBBBA changes, combined with longstanding tax-saving tactics, create both opportunities and challenges. The most effective approach depends on your income, investments, deductions, and overall financial situation.

Contact us today.