NEW Tax Law Changes for 2025 and 2026 – What You Should Know

What should you know about the tax law changes for 2025 and 2026? In this episode of Friends Talk Financial Planning, John and Bridget discuss the new tax law changes that you should be aware of for the final quarter of 2025 and the entirety of 2026. There are numerous tax planning strategies to consider at this time of year, especially given the recent tax law changes. Don’t miss this opportunity to learn how you can make the most of these changes!

Key Tax Law Changes to Consider

Understanding the SALT Deduction

The first major change is the SALT deduction. If you’re paying state and local income tax, you’ll want to pay attention to this. Previously, in 2024, the maximum you could deduct was $10,000. Now, that limit has increased to $40,000. This applies whether you’re single or married filing jointly. However, if your income is high, this deduction phases out.

The phase-out range is between $500,000 and $600,000 in income. For many in Illinois, where the state tax is about 5%, this change can make a significant difference. For example, if a single person earns $300,000, they could pay around $15,000 in state and local tax. This amount alone could push them into itemizing deductions, especially if they own a home or make charitable contributions.

Itemized Deduction Limitations

Next, let’s talk about itemized deduction limitations. If you’re in the 37% tax bracket, starting next year, your itemized deductions will only count as 35%. This means you won’t get full credit for them. It’s a subtle change but one that could impact your tax planning significantly.

Senior Citizen Deduction

Another important change is the $6,000 deduction for everyone over 65. This isn’t a credit; it’s a deduction. However, there are income limitations. For singles, the phase-out starts at $75,000, and for married couples filing jointly, it begins at $150,000. This deduction can be beneficial for those considering Roth conversions, as it impacts taxable income.

Planning for Retirement

As we approach retirement, many of us are looking at how to maximize our tax situation. If you’re retired and not required to withdraw from your IRAs yet, you might want to consider Roth conversions. This strategy can help you take advantage of lower tax brackets.

Additional Tax Changes

There are also changes regarding no tax on tips and overtime, as well as auto loan interest. Each of these has specific income limits that you’ll need to consider.

Child Tax Credits

Let’s not forget about child tax credits. There’s an increase, but there are no actions you can take to benefit from this change unless you’re planning to have a child.

The Importance of Staying Informed

It’s crucial to stay informed about these changes. Tax laws can be complex and vary greatly based on individual circumstances. You might find that a rule applies to you one year but not the next. This is why it’s essential to review your tax situation annually.

Conclusion

In summary, there are significant tax changes coming in 2025 and 2026. Understanding these changes can help you make informed decisions about your financial planning. If you have questions or need assistance, don’t hesitate to reach out to a financial advisor.

Resources:

• Alliance of Comprehensive Planners: https://www.acplanners.org

• John's firm website: https://www.trinfin.com

• Find us on Facebook: https://www.facebook.com/friendstalkfinancialplanning

• Link to article mentioned in video: https://www.kitces.com/?s=OBBA&submit=&by-author=&by-category=&from-date=&to-date=

  
  

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois, serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.