The federal tax legislation enacted July 4, 2025 (Public Law 119-21, commonly called the One Big Beautiful Bill Act), changed deductions, credits, and business provisions. The IRS now organizes its guidance under "Working Families Tax Cuts." For taxpayers planning in late 2026, the important question is not just what changed, but which tax year, income limit, and documentation rule applies.
Tax year is not filing year. A 2025 return filed in 2026 uses 2025 rules. A 2026 return generally filed in 2027 uses 2026 rules. This article summarizes selected enacted federal provisions as of November 1, 2026, not every change or a prediction about future legislation.
1. Revisit itemizing and the SALT deduction
The state and local tax (SALT) itemized deduction limit increased to $40,000 for 2025 and $40,400 for 2026, with half those amounts for married filing separately. The higher limit is temporary and subject to an income-based reduction; it is not an automatic deduction for everyone.
The reduction begins above modified adjusted gross income of $500,000 in 2025 and $505,000 in 2026, with half those thresholds for married filing separately. The rules generally preserve a $10,000 floor, or $5,000 for married filing separately, rather than eliminating the SALT cap altogether.
For Washington taxpayers, compare eligible state and local sales taxes with any deductible state income taxes; you cannot deduct both categories on Schedule A. Eligible real property taxes may also count, subject to the combined limit. Compare total itemized deductions with the standard deduction for the applicable year before accelerating payments.
2. New deductions do not mean every dollar is tax-free
For tax years 2025 through 2028, eligible taxpayers may claim new deductions for qualifying tips, overtime compensation, and seniors. These have separate definitions, filing requirements, and income phaseouts and are generally available whether you itemize or take the standard deduction.
Qualified tips
The deduction can be up to $25,000 annually, but not every payment labeled a tip qualifies. Occupation, reporting, voluntary-payment requirements, and other restrictions matter. The deduction begins phasing out above modified adjusted gross income of $150,000, or $300,000 for joint filers. Keep tip logs and payer statements; eligible self-employed taxpayers also face a net-income limitation.
Qualified overtime
The deduction is generally limited to the premium portion of overtime required under the Fair Labor Standards Act, not your entire overtime paycheck. The maximum is $12,500, or $25,000 on a joint return, with phaseout beginning above modified adjusted gross income of $150,000 or $300,000 for joint filers. Contractual extra pay or a state-law premium is not automatically qualifying federal overtime.
Additional senior deduction
Eligible individuals age 65 or older may deduct up to $6,000 per person, separate from the existing age-based additional standard deduction. Phaseout begins above modified adjusted gross income of $75,000, or $150,000 for joint filers. This provision does not repeal the rules that can make Social Security benefits taxable.
These are federal income tax deductions, not a blanket exemption from Social Security, Medicare, or self-employment taxes. Married taxpayers generally must file jointly for these new deductions, and identification requirements apply. Use the applicable year's Schedule 1-A instructions rather than assuming a payroll label proves eligibility.
3. Old energy-credit timelines may no longer apply
The legislation accelerated the end of several clean-energy incentives. The new, previously owned, and qualified commercial clean vehicle credits generally are unavailable for vehicles acquired after September 30, 2025. Acquisition, binding-contract, payment, and placed-in-service rules can matter for earlier transactions.
The energy efficient home improvement credit generally does not apply to property placed in service after December 31, 2025. The residential clean energy credit generally does not apply to expenditures made after that date. Do not rely on an older contractor advertisement or assume a deposit alone preserves a credit. Review the specific credit and completion facts before claiming it on a 2026 return.
4. Small businesses should revisit investment timing
The law restored 100% bonus depreciation for eligible property acquired and placed in service after January 19, 2025, subject to qualification and transition rules. It also changed Section 179 expensing limits and domestic research expenditure treatment. These provisions have different eligibility, election, and timing requirements; a purchase order alone does not establish a deduction.
Before buying equipment, compare immediate expensing with depreciation over time, the effect on taxable income and other deductions, business-use requirements, and possible recapture. For research costs, distinguish domestic from foreign research and review any transition elections or prior-year implications. Federal treatment does not automatically determine state treatment.
5. A practical late-2026 planning checklist
- Project 2026 income. Include wages, equity compensation, capital gains, business income, and foreign income. Several new benefits shrink as modified adjusted gross income rises.
- Recalculate withholding and estimated tax. A deduction does not automatically change amounts already withheld. Check safe-harbor rules and payment timing before reducing payments.
- Collect evidence. Keep payroll detail, tip records, property and sales tax records, energy-project invoices and completion dates, equipment acquisition dates, and business-use documentation.
- Check 2025 separately. If a filed 2025 return omitted an available benefit, assess whether an amendment is appropriate. Do not claim a prior-year deduction on the 2026 return instead.
- Coordinate federal, state, and cross-border rules. New domestic deductions do not remove FBAR, Form 8938, or other international reporting obligations.
Official sources
- IRS: Enacted tax-law provisions and current guidance hub
- IRS: Individuals and workers
- IRS: Business provisions
- Public Law 119-21: Enacted statutory text
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