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Dear [First Name],
The 2026 tax season is here, and there are several important updates you should know. Thanks to new deductions and credits from the “One Big Beautiful Bill,” many taxpayers could see bigger refunds this year. In this newsletter, we’ll walk you through key changes, important dates, and opportunities to save on your 2025 tax return.
2026 Tax Filing Season Update
The 2026 tax filing season is underway! The IRS already started accepting 2025 returns on January 26, 2026. While filings are opening on schedule, phone and correspondence responses may be slower than usual due to a 25% reduction in IRS staff over the past year. This year, many taxpayers could see larger refunds thanks to new tax breaks from the “One Big Beautiful Bill”: higher standard deductions, a $6,000 senior deduction ($12,000 if both spouses are 65+), up to $25,000 for tips, up to $12,500 for overtime ($25,000 joint), a $10,000 deduction on new car loan interest, and an increased $40,000 SALT deduction cap.
2025 Standard Deduction Amounts
- $15,750 – Single or Married Filing Separately
- $31,500 – Married Filing Jointly / Qualifying Surviving Spouse
- $23,625 – Head of Household
$10,000 New Vehicle Loan Interest Deduction
The IRS allows a temporary deduction of up to $10,000 for interest on loans used to buy a new qualified passenger vehicle for personal use. This applies to vehicles purchased in 2025 or later, for tax years 2025–2028, and the vehicle must have its final assembly in the U.S. Taxpayers can claim the deduction whether they itemize or take the standard deduction. The deduction phases out for joint filers with AGI between $200,000 and $250,000 ($100,000 and $150,000 for others).
S Corporation Stock Basis and Taxes
A shareholder’s stock basis determines how much loss can be deducted and how distributions are taxed. Losses are allowed only up to the stock basis plus any loans made to the S corporation. Distributions are taxed as ordinary income if from accumulated E&P, are tax-free up to the stock basis, and are treated as capital gains if they exceed it. Losses and related items are reported on Schedule E (Line 28, Column e) and Form 7203. Although IRS enforcement campaigns are currently inactive, base reporting rules still apply.
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Special Depreciation for Production Property
The IRS allows a 100% deduction on qualified production property placed in service between July 5, 2025, and Dec. 31, 2030. This applies to nonresidential property used in manufacturing, chemical, agricultural, or refining activities.
Coverdell Education Savings Accounts
Coverdell ESAs let you contribute up to $2,000 per year per child, with income limits of $190,000 (joint) and $95,000 (single). Contributions stop at age 18 (except for special needs). Distributions for education are tax-free. Excess funds must be withdrawn by age 30 or rolled over to a family member’s ESA. Earnings on excess funds are taxed and penalized, and unlike 529 plans, funds cannot be transferred to a Roth IRA.
Premium Tax Credits (PTC)
Premium Tax Credits (PTC) are a common focus for IRS audits. The PTC, part of Obamacare, helps eligible individuals afford marketplace health insurance.
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Most people have the credit paid in advance to their insurer to reduce monthly premiums.
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If you received advance PTC payments in 2025, you must file a 2025 federal return and attach Form 8962 to reconcile the advance with the actual credit.
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If your PTC exceeds the advance, you can claim the extra credit on your 1040.
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If your PTC is less than the advance, you may need to repay part or all of the excess.
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Failure to file prevents you from receiving advance PTC payments in future years
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Social Security and the New Senior Deduction
| Category |
Provisional Income / Phase-out |
Tax Treatment / Deduction |
| Social Security Taxation – Single Filers |
< $25,000 |
Tax-free |
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$25,000 – $34,000 |
Up to 50% of Social Security is taxed |
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> $34,000 |
Up to 85% of Social Security is taxed |
| Social Security Taxation – Joint Filers |
< $32,000 |
Tax-free |
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$32,000 – $44,000 |
Up to 50% of Social Security is taxed |
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> $44,000 |
Up to 85% of Social Security is taxed |
| New Senior Deduction – Individuals 65+ |
Phase-out $75,000 – $175,000 |
$6,000 deduction; claim via Schedule 1-A |
| New Senior Deduction – Couples 65+ |
Phase-out $150,000 – $250,000 |
$12,000 deduction; claim via Schedule 1-A |
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Tax Deduction for Qualified Overtime Pay
From 2025 through 2028, individuals can deduct up to $12,500 ($25,000 for joint filers) of qualified overtime pay, whether taking the standard deduction or itemizing. The deduction phases out for modified AGI over $300,000 joint / $150,000 for others. Qualified overtime is the portion of pay above your regular rate, like the extra for time-and-a-half. Claim it on Schedule 1-A and transfer to Form 1040.
Important Updates to Itemized Deductions for 2025–2026
Recent changes from the “One Big Beautiful Bill” have updated itemized deductions for 2025 and 2026, affecting fewer taxpayers who itemize.
SALT Deduction Cap
For 2025 returns, the state and local tax (SALT) deduction cap is $40,000 for joint filers ($20,000 for married filing separately). Phaseouts begin at $500,000 AGI ($250,000 for separate filers), reducing the cap by 30% of the excess, and drop back to $10,000 at $600,000 AGI. For 2026 returns, the cap rises slightly to $40,400, with phaseouts starting at $505,000 AGI.
Charitable Contributions
Itemizers in 2026 can deduct only contributions exceeding 0.5% of AGI, with excess carryforward up to five years. Non-itemizers can deduct up to $1,000 ($2,000 joint) in charitable cash gifts without itemizing.
High-Income Limitation
For 2026, total itemized deductions for high earners are reduced by 2/37 of the lesser of total deductions or taxable income above the 37% bracket, limiting the effective benefit to about 35%.
How Do 2025 Disaster Losses Affect Your Taxes?
If you were affected by a federally declared disaster in 2025, you may deduct personal losses even if you don’t itemize.
Qualified Loss: Property damaged in a federally declared disaster. Loss = lesser of property’s adjusted basis or decline in value, minus insurance received or expected. Applies to disasters with incident periods Dec. 28, 2019, and July 4, 2025.
Key Benefit: Uninsured personal losses over $500 can be deducted as an additional standard deduction.
How to Report: Use Form 4684. Itemizers: transfer to Schedule A, line 16 (“Net Qualified Disaster Loss”). Non-itemizers: follow Form 4684 instructions, line 15. Losses from disasters after July 4, 2025, are only for itemizers, reduced by $100, and limited to amounts over 10% of AGI. For more details, see the official Form 4684 Instructions and IRS Publication 547.
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Saver’s Credit: A Boost for Low-Income Retirement Savers
| Feature |
Details |
| Eligible Accounts |
IRA, 401(k), 403(b), SEP, or similar retirement plans |
| Maximum Credit (2025–2026) |
$2,000 (joint filers), $1,000 (others) |
| Credit Rate |
50%, 20%, or 10% of contributions (depends on income) |
| AGI Phaseouts (2025) |
Single: $39,500
Head of Household: $59,250
Joint: $79,000 |
| AGI Phaseouts (2026) |
Single: $40,250
Head of Household: $60,375
Joint: $80,500 |
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Note:
How to Claim: Form 8880 → Schedule 3, Form 1040. For more details, check our Latest Saver’s Credit blog.
2027 Changes: Replaced by a 50% government match on up to $2,000 per person. Match directly deposited into retirement account AGI limits adjusted only for inflation (SECURE 2.0 Act of 2022).
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American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC) gives up to $2,500 per student for the first four years of college, with $1,000 refundable. It covers 100% of the first $2,000 and 25% of the next $2,000 in qualified expenses like tuition, books, and fees for students enrolled at least half-time. The credit phases out at $160,000 AGI (married filing jointly) and $80,000 (single/head of household). You cannot use the same expenses for both AOTC and tax-free 529 funds. Starting with 2026 tax returns (filed in 2027), both the filer and student must have a Social Security Number. ITINs will not qualify.
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Stay connected with us! Follow SK Financial CPA on social media for the latest updates, tips, and tax news. If you have any questions or need assistance with your 2025 tax return, don’t hesitate to get in touch. We’re here to help.
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SK Financial CPA
2210 Ashley Oaks Cir #101, Wesley Chapel, FL 33544, US
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