If you had significant medical expenses last year, you may be wondering what you can deduct on your 2025 income tax return. Income-based thresholds and other rules can make it hard to claim the medical expense deduction. At the same time, more types of expenses may be eligible than you might expect.

Limits on the deduction

Medical expenses are deductible only if they weren’t reimbursable by insurance or paid via tax-advantaged accounts (such as Flexible Spending Accounts or Health Savings Accounts). In addition, they’re deductible only to the extent that, in aggregate, they exceed 7.5% of your adjusted gross income (AGI).

For example, if your 2025 AGI was $100,000, your eligible medical expenses during the year would have to total more than $7,500 for you to claim the deduction — and only the amount in excess of that floor would be deductible. If you had $10,000 in eligible expenses, your potential deduction would be $2,500.

In addition, medical expenses are deductible only if you itemize deductions. For itemizing to be beneficial, your itemized deductions must exceed your standard deduction. Due to changes under the Tax Cuts and Jobs Act that were made permanent by last year’s One Big Beautiful Bill Act (OBBBA), many taxpayers no longer itemize.

However, some taxpayers who hadn’t been itemizing recently may benefit from itemizing for 2025 because of the OBBBA’s quadrupling of the state and local tax deduction limit. If you fall into that category, you should also revisit whether you can benefit from the medical expense deduction on your 2025 income tax return.

What expenses are eligible?

If you do expect to itemize deductions on your 2025 income tax return, now is a good time to review your medical expenses for the year and see if you had enough to exceed the 7.5% of AGI floor. Eligible expenses include many costs besides hospital and doctor bills. Here are some other types of expenses you may have had in 2025 that could be deductible:

Transportation. The cost of getting to and from medical treatment is an eligible expense. This includes taxi fares, public transportation or using your own vehicle. Your vehicle costs can be calculated at 21 cents per mile for medical miles driven in 2025, plus tolls and parking. Alternatively, you can deduct certain actual vehicle-related costs, including gas and oil, but not general costs such as insurance, depreciation and maintenance.

Insurance premiums. The cost of health insurance is a medical expense that can total thousands of dollars a year. Even if your employer provides you with coverage, you can deduct the portion of the premiums you paid — as long as it wasn’t paid pretax out of your paychecks.

Long-term care insurance premiums also qualify, subject to dollar limits based on age. Here are the 2025 limits:

• 40 and under: $480
• 41 to 50: $900
• 51 to 60: $1,800
• 61 to 70: $4,810
• Over 70: $6,020

Therapists and nurses. Services provided by individuals other than physicians can qualify if they relate to a medical condition and aren’t for general health. For example, the cost of physical therapy after knee surgery qualifies, but the cost of a personal trainer to help you get in shape doesn’t. Also qualifying are amounts paid for acupuncture and those paid to a psychologist for medical care. In addition, certain long-term care services required by chronically ill individuals are eligible.

Eyeglasses, hearing aids, dental work and prescriptions. Deductible expenses include the cost of glasses, contacts, hearing aids, dentures and most dental work. Purely cosmetic expenses (such as teeth whitening) don’t qualify, but certain medically necessary cosmetic surgery is deductible. Prescription drugs qualify, but nonprescription drugs such as aspirin don’t, even if a physician recommends them.

Smoking-cessation programs. Amounts paid to participate in a smoking-cessation program and for prescribed drugs designed to alleviate nicotine withdrawal are deductible expenses. However, nonprescription gum and certain nicotine patches aren’t.

Weight-loss programs. A weight-loss program is a deductible expense if undertaken as treatment for a disease diagnosed by a physician. This could be obesity or another disease, such as hypertension, for which a doctor directs you to lose weight. It’s a good idea to get a written diagnosis. In these cases, deductible expenses include fees paid to join a weight-loss program and attend meetings. However, foods for a weight-loss program generally aren’t deductible.

Dependents and others. You can deduct the medical expenses you pay for dependents, such as your children. Additionally, you may be able to deduct medical expenses you pay for an individual, such as a parent or grandparent, who would qualify as your dependent except that he or she has too much gross income or files jointly. In most cases, the medical expenses of a child of divorced parents can be claimed by the parent who pays them.

Determining if you can benefit

After reviewing this list of eligible expenses, do you think you had enough in 2025 to exceed the 7.5% of AGI floor? Or do you have questions about whether specific expenses qualify? Contact us. We can determine if you can benefit from the medical expense deduction — and other tax breaks — on your 2025 income tax return.

Every year, severe storms, flooding, wildfires and other disasters affect millions of taxpayers. Many experience casualty losses from damage to their homes or personal property. The One Big Beautiful Bill Act (OBBBA), signed into law last year, generally made permanent the Tax Cuts and Jobs Act (TCJA) limitation on the personal casualty loss tax deduction. But it also expanded the deduction in one way.

What’s deductible

For losses incurred from 2018 through 2025, the TCJA generally restricted deductions for personal casualty losses to those due to federally declared disasters. This is the rule that applies to your 2025 income tax return due April 15, 2026. (Before the TCJA, personal casualty losses were also potentially deductible if due to various other types of incidents, such as theft, vandalism and accidents as well as to fires, floods, etc., not attributable to a federally declared disaster.)

The OBBBA generally has made the disaster requirement permanent. But, effective January 1, 2026, it expands eligible disasters to include certain state-declared disasters. This applies to the tax return you’ll file next year for 2026.

There’s an exception to the general rule, however: If you have personal casualty gains because your insurance proceeds exceed the tax basis of the damaged or destroyed property, you can deduct personal casualty losses that aren’t due to a declared disaster up to the amount of your personal casualty gains.

Additional limits

Even when the cause of a personal casualty loss qualifies you for the deduction, additional limits apply. First, your deduction for the loss from the declared disaster is reduced by any insurance proceeds received. If insurance covered your entire loss, you can’t claim a casualty loss deduction for that loss. If insurance didn’t cover your entire loss, then $100 (per casualty event) must be subtracted from the uncovered amount.

Finally, a 10% of adjusted gross income (AGI) floor applies. So you can deduct only the uncovered loss (reduced by $100 per casualty event) that exceeds 10% of your AGI for the year you claim the loss deduction. If, say, your 2025 AGI is $100,000 and your casualty loss (after subtracting insurance proceeds and $100 per event) is $11,000, you can deduct only $1,000 on your 2025 return.

Also keep in mind that you must itemize deductions to claim the casualty loss deduction. Since 2018, fewer people have itemized because the TCJA significantly increased the standard deduction amounts — and the OBBBA has increased them further. For 2025, they’re $15,750 for single filers, $23,625 for heads of households, and $31,500 for married couples filing jointly. For 2026, they’re $16,100, $24,150 and $32,200, respectively. So even if you qualify for a casualty deduction under the rules and limits, you might not get any tax benefit because you don’t have enough total itemized deductions to exceed your standard deduction.

Have questions?

The rules for the personal casualty loss deduction are complex, so contact us for more information. We can help you determine whether you qualify for — and will benefit from — this deduction on your 2025 income tax return.

A new year brings many new tax-related figures for businesses. Here’s an overview of key figures for 2026. Be aware that exceptions or additional rules or limits may apply.

Depreciation-related tax breaks

• Bonus depreciation: 100%
• Section 179 expensing limit: $2.56 million
• Section 179 phaseout threshold: $4.09 million

Qualified retirement plan limits

• 401(k), 403(b) and 457 plan deferrals: $24,500
• 401(k), 403(b) and 457 plan catch-up contributions for those age 50 or older: $8,000
• 401(k), 403(b) and 457 plan additional catch-up contributions for those age 60, 61, 62 or 63: $3,250
• SIMPLE deferrals: $17,000
• SIMPLE catch-up contributions for those age 50 or older: $4,000
• SIMPLE additional catch-up contributions for those age 60, 61, 62 or 63: $1,250
• Contributions to defined contribution plans: $72,000
• Annual benefit limit for defined benefit plans: $290,000
• Compensation defining highly compensated employee: $160,000
• Compensation defining key employee (officer) in a top-heavy plan: $235,000
• Compensation triggering Simplified Employee Pension contribution requirement: $800

Other benefits limits

• Health Savings Account (HSA) contributions: $4,400 for individuals, $8,750 for family coverage
• Health Flexible Spending Account (FSA) contributions: $3,400
• Health FSA rollover: $680
• Child and dependent care FSA contributions: $7,500
• Employer contributions to Trump account: $2,500
• Monthly commuter highway vehicle and transit pass: $340
• Monthly qualified parking: $340

Miscellaneous business-related limits

• Income range over which the Section 199A qualified business income deduction limitations phase in: $201,750 – $276,750 (double those amounts for married couples filing jointly)
• Threshold for the excess business loss limitation: $256,000 (double that amount for joint filers) — note that this is a reduction from 2025
• Limitation on the use of the cash method of accounting: $32 million (also affects other tax items, such as the exemption from the 30% interest expense deduction limit)

Planning for 2026

We can help you factor these changes and others into your 2026 tax planning. Contact us to get started.

Did you know there’s a tax-advantaged way to save for the expenses of a person with a disability that’s similar to saving for college expenses with a Section 529 plan? Achieving a Better Life Experience (ABLE) accounts can help fund qualified disability expenses for an eligible beneficiary. The SECURE 2.0 Act, signed into law in 2022, made changes that will allow more people to be eligible for ABLE accounts beginning in 2026. The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, has made certain enhancements to them permanent.

The benefits

ABLE accounts can be created by eligible individuals to support themselves, by family members to support their dependents, or by guardians for the benefit of the individuals for whom they’re responsible. Anyone can contribute to an ABLE account.

The OBBBA made permanent the ability of the designated beneficiary to claim the saver’s credit for contributions he or she makes to his or her ABLE account. The maximum saver’s credit for an individual for 2025 and 2026 is $1,000.

While contributions aren’t tax-deductible, the funds in the account are invested and grow tax-deferred. Distributions used to pay eligible expenses are tax-free. (If distributions are used for nonqualified expenses, the portion of the distribution that represents earnings on the account is subject to income tax — plus a 10% penalty.)

Having an ABLE account generally won’t affect the beneficiary’s eligibility for the government benefits to which he or she is entitled. ABLE accounts have no impact on Social Security Disability Insurance (SSDI) payments or Medicaid eligibility.

However, ABLE account balances in excess of $100,000 are counted toward the Supplemental Security Income (SSI) program’s $2,000 individual resource limit. Therefore, an individual’s SSI benefits are suspended, but not terminated, when his or her ABLE account balance exceeds $102,000 (assuming the individual has no other assets). In addition, distributions from an ABLE account to pay housing expenses count toward the SSI income limit.

Expanded eligibility

Eligible individuals must be blind or disabled. For 2025 and prior years, the individual must have become so before turning age 26. But under SECURE 2.0, this age increases to 46 beginning on January 1, 2026.

To be eligible, individuals generally must be entitled to benefits under the SSI or SSDI programs. Alternatively, individuals can become eligible if a disability certificate is filed with the IRS.

Qualified expenses

Distributions from an ABLE account are tax-free if used to pay for expenses that maintain or improve the beneficiary’s health, independence or quality of life. These expenses include:

• Education,
• Housing,
• Transportation,
• Health and wellness,
• Assistive technology, and
• Personal support services.

Employment support expenses also qualify.

Setting up an account

Like 529 plans, ABLE accounts are established under state programs, and there are many choices. An account may be opened under the program of a state other than the one where the individual resides (as long as the state allows out-of-state participants). The funds in an account can be invested in a variety of options, and the account’s investment directions can be changed up to twice a year.

Be aware that an eligible individual can have only one ABLE account. Also, there’s an annual contribution limit of $19,000 for 2025 and $20,000 for 2026. The OBBBA made permanent the ability to roll over 529 plan funds to an ABLE account without penalty, as long as the ABLE account is owned by the beneficiary of the 529 plan or a member of the beneficiary’s family. Such rolled-over amounts count toward the annual contribution limit.

However, if the beneficiary works, he or she can also contribute part, or all, of his or her income to the account. (This additional contribution is limited to the poverty-line amount for a one-person household.)

A new opportunity

If you or someone in your family became disabled or blind after turning 26 but before age 46, the expansion of ABLE account eligibility in 2026 provides a new opportunity for tax-advantaged savings. To learn more about the tax benefits and other financial considerations, contact us.

Beginning in 2026, individuals who itemize deductions and donate to charity will face a new limit on their charitable deductions. And in some cases, they’ll face two new limits. But there’s some good news for nonitemizing individuals who make charitable donations.

New charitable deduction floor

Under the One Big Beautiful Bill Act (OBBBA), starting in 2026, if you itemize deductions, your otherwise allowable charitable deduction will be reduced by 0.5% of your adjusted gross income (AGI). Put another way, your 2026 charitable deduction will be limited to the amount that exceeds 0.5% of your 2026 AGI.

AGI includes all taxable income items and is reduced by above-the-line deductions like the write-offs for traditional IRA contributions, self-employed retirement plan contributions, self-employed health insurance premiums, 50% of self-employment tax, qualified education loan interest expense and Health Savings Account contributions.

Let’s look at an example: You and your spouse file jointly in 2026. Your AGI is $400,000 and you make charitable donations of $10,000. Your allowable itemized charitable deduction for 2026 is limited to $8,000 [$10,000 − (0.5% × $400,000)].

New itemized deduction limitation

Also under the OBBBA, beginning in 2026, itemized deductions — including charitable deductions — for individuals in the top federal income tax bracket of 37% will be reduced by the lesser of: 1) 2/37 times the amount of otherwise allowable itemized deductions, or 2) 2/37 times the amount of taxable income (before considering those deductions) in excess of the applicable threshold for the 37% tax bracket.

That sounds complicated, but generally the limitation will mean that the tax benefit of itemized deductions for taxpayers in the 37% bracket will be as if they were in the 35% bracket.

When a taxpayer has charitable deductions, the charitable deduction floor rule will be applied before the itemized deduction limitation. However, only high-income individuals will be affected by the itemized deduction limitation.

Planning tips for 2025 and beyond

If you’ll itemize this year and next, consider advancing some charitable donations that you normally would make in 2026 into this year to avoid the impact of the new 0.5%-of-AGI charitable deduction floor that will take effect next year.

In future years, consider taking steps to reduce your AGI to minimize the impact of the charitable deduction floor. For instance, you can recognize capital losses from securities held in taxable brokerage accounts and make bigger deductible or pretax retirement plan contributions.

Another option is to bunch your charitable giving into alternating years. For example, instead of donating $10,000 to charity every year, donate $20,000 every other year. Because the charitable deduction reduction is based on AGI, not the amount of the deduction, you can increase your tax benefit with this strategy (assuming your AGI is steady from year to year).

In the previous example, if you make $10,000 in donations in 2026 and another $10,000 in 2027 and your AGI remains at $400,000 for both years, each year your deduction will be reduced by $2,000, for a total deduction over two years of $16,000. But if you bunch your donations into 2027, your 2027 $20,000 deduction will be reduced by that same $2,000. You won’t have an itemized charitable deduction for 2026, but your total deduction for the two-year period will be $18,000.

It’s important to review your overall tax picture before implementing a bunching strategy. For example, if not being able to claim an itemized charitable deduction on your 2026 income tax return would push you into a higher income tax bracket, then bunching may not be beneficial.

New charitable deduction for nonitemizers

If you don’t have enough total itemized deductions — including charitable donations — to exceed your standard deduction, you’ll save more tax by claiming the standard deduction. In recent years, including 2025, nonitemizers haven’t been allowed to deduct any charitable contributions.

But starting in 2026, the OBBBA reinstates the COVID-era deduction for cash donations by nonitemizers, subject to an increased annual limit of $1,000, or $2,000 for joint filers. (The limits were $300 and $600, respectively, for 2021 when this nonitemizer deduction was last available.)

The definition of “cash contribution” may be broader than you think. It includes gifts made by debit or credit card, check, ACH, online payment platform, and payroll deduction. But be aware that this deduction doesn’t reduce your AGI.

This year and next

Limits to charitable deductions are nothing new. Limits beyond the ones discussed here have long applied. For example, only donations to qualified charities are eligible, proper substantiation is required, and other AGI-based limits apply in certain situations. Contact us to discuss what you can deduct on your 2025 return, last-minute 2025 planning opportunities and your 2026 donation strategy.

You likely have a lot of things to do between now and the end of the year, such as holiday shopping, donating to your favorite charities and planning get-togethers with family and friends. For older taxpayers with one or more tax-advantaged retirement accounts, as well as younger taxpayers who’ve inherited such an account, there may be one more thing that’s critical to check off the to-do list before year end: Take required minimum distributions (RMDs).

Why is it important to take RMDs on time?

When applicable, RMDs usually must be taken by December 31. If you don’t comply, you can owe a penalty equal to 25% of the amount you should have withdrawn but didn’t.

If the failure is corrected in a “timely” manner, the penalty drops to 10%. But even 10% isn’t insignificant. So it’s best to take RMDs on time to avoid the penalty.

Who’s subject to RMDs?

After you reach age 73, you generally must take annual RMDs from your traditional (non-Roth):

• IRAs, and
• Defined contribution plans, such as 401(k) plans (unless you’re still an employee and not a 5%-or-greater shareholder of the employer sponsoring the plan).

An RMD deferral is available in the initial year, but then you’ll have to take two RMDs the next year.

If you’ve inherited a retirement plan, whether you need to take RMDs depends on various factors, such as when you inherited the account, whether the deceased had begun taking RMDs before death and your relationship to the deceased. When the RMD rules do apply to inherited accounts, they generally apply to both traditional and Roth accounts. If you’ve inherited a retirement plan and aren’t sure whether you must take an RMD this year, contact us.

Should you withdraw more than required?

Taking no more than your RMD generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.

Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) reduce or eliminate the benefits of other tax breaks with income-based limits, such as the new $6,000 deduction for seniors.

Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT because the thresholds for that tax are based on MAGI.

Do you have to take any RMDs in 2025?

The RMD rules can be confusing, especially if you’ve inherited a retirement account. If you’re subject to RMDs, it’s also important to accurately calculate your 2025 RMD. We can help ensure you’re in compliance. Please contact us today.

Year-round tax planning generally produces the best results, but there are some steps you can still take in December to lower your 2025 taxes. Here are six to consider:

1. Postpone invoicing. If your business uses the cash method of accounting and it would benefit from deferring income to next year, wait until early 2026 to send invoices.

2. Prepay expenses. A cash-basis business may be able to reduce its 2025 taxes by prepaying certain 2026 expenses — such as lease payments, insurance premiums, utility bills, office supplies and taxes — before the end of the year. Many expenses can be deducted even if paid up to 12 months in advance.

3. Buy equipment. Take advantage of 100% bonus depreciation and Section 179 expensing to deduct the full cost of qualifying equipment or other fixed assets. Under the One Big Beautiful Bill Act, 100% bonus depreciation is back for assets acquired and placed in service after January 19, 2025. And the Sec. 179 expensing limit has doubled, to $2.5 million for 2025. But remember that the assets must be placed in service by December 31 for you to claim these breaks on your 2025 return.

4. Use credit cards. What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, expenses paid by credit card are deductible when charged, even if you don’t pay the credit card bill until next year.

5. Contribute to retirement plans. If you’re self-employed or own a pass-through business — such as a partnership, S corporation or, generally, a limited liability company — one of the best ways to reduce your 2025 tax bill is to increase deductible contributions to retirement plans. Usually, these contributions must be made by year-end. But certain plans — such as SEP IRAs — allow your business to make 2025 contributions up until its tax return due date (including extensions).

6. Qualify for the pass-through deduction. If your business is a sole proprietorship or pass-through entity, you may be able to deduct up to 20% of qualified business income (QBI). But if your 2025 taxable income exceeds $197,300 ($394,600 for married couples filing jointly), certain limitations kick in that can reduce or even eliminate the deduction. One way to avoid these limitations is to reduce your income below the threshold — for example, by having your business increase its retirement plan contributions.

Most of these strategies are subject to various limitations and restrictions beyond what we’ve covered here. Please consult us before implementing them. We can also offer more ideas for reducing your taxes this year and next.

If you have a flexible spending account (FSA) through your employer to help pay for health or dependent care expenses, now’s a good time to check your balance. FSAs save taxes, but they generally require you to incur expenses to use the funds by year end or forfeit them. Here’s a refresher on the rules and limits.

FSAs for health care

A maximum pretax contribution of $3,300 to a health care FSA is permitted in 2025. (This amount is annually adjusted for inflation and will increase to $3,400 in 2026.) You use the pretax dollars to pay for medical expenses not covered by insurance.

An FSA allows you to save taxes without having to claim a medical expense deduction. This is beneficial because, to claim the deduction, you must itemize deductions on your tax return and the expenses are deductible only to the extent that they exceed 7.5% of your adjusted gross income. This threshold can be hard to meet. An added benefit of FSA contributions is that they aren’t subject to Social Security or Medicare taxes.

However, the “use-it-or-lose-it” rule means you must incur qualifying medical expenses by the last day of the plan year (December 31 for a calendar year plan) — unless the plan allows a grace period. A grace period can’t extend beyond the 15th day of the third month following the close of the plan year (March 15 for a calendar year plan). Alternatively, your FSA might allow you to roll over a balance of up to $660 to 2026. (The limit for rollovers from 2026 to 2027 will be $680.)

Take a look at your year-to-date FSA expenditures now to see how much you still need to spend. What are some ways to use up the money? Before year end (or the extended date, if permitted), schedule certain elective medical procedures, visit the dentist or buy new eyeglasses. Even over-the-counter medications and health-related supplies may be eligible.

FSAs for dependent care

Some employers also allow employees to set aside funds on a pretax basis in dependent care FSAs. A $5,000 maximum annual contribution is permitted ($2,500 for a married couple filing separately) in 2025. (This amount isn’t annually adjusted for inflation. But under the One Big Beautiful Bill Act, the limit will increase to $7,500 beginning in 2026.)

Dependent care FSAs can be used to pay dependent care expenses for:

• A child who qualifies as your dependent and who is under age 13, or
• A dependent or spouse who is physically or mentally incapable of self-care and who has the same principal place of abode as you for more than half of the tax year.

Like health FSAs, dependent care FSAs are subject to a use-it-or-lose-it rule, and grace period relief may apply. But rollovers to the next year aren’t allowed. Therefore, it’s a good idea to check your dependent care expenses to date.

Wrapping up 2025

As 2025 wraps up, be sure to review your FSA balance and check whether your plan offers a grace period or rollover option. Then take steps before year end to ensure you don’t forfeit any FSA funds. Ask your HR department any questions you have about your specific plan. We can answer your tax-related questions and provide more year-end tax planning tips.

Beginning in 2026, taxpayers in the top federal income tax bracket will see their itemized deductions reduced. If you’re at risk, there are steps you can take before the end of 2025 to help mitigate the negative impact.

The new limitation up close

Before the Tax Cuts and Jobs Act (TCJA), certain itemized deductions of high-income taxpayers were reduced, generally by 3% of the amount by which their adjusted gross income exceeded a specific threshold. For 2018 through 2025, the TCJA eliminated that limitation. The One Big Beautiful Bill Act (OBBBA) makes that elimination permanent, but it puts in place a new limitation for taxpayers in the 37% federal income tax bracket.

Specifically, for 2026 and beyond, allowable itemized deductions for individuals in the 37% bracket will be reduced by the lesser of: 1) 2/37 times the amount of otherwise allowable itemized deductions or 2) 2/37 times the amount of taxable income (before considering those deductions) in excess of the applicable threshold for the 37% tax bracket.

For 2026, the 37% bracket starts when taxable income exceeds $640,600 for singles and heads of households, $768,700 for married couples filing jointly, and $384,350 for married taxpayers filing separately.

Generally, the limitation will mean that the tax benefit from itemized deductions for taxpayers in the 37% bracket will be as if they were in the 35% bracket.

Some examples

The reduction calculation is not so easy to understand. Here are some examples to illustrate how it works:

Example 1: You have $37,000 of otherwise allowable itemized deductions in 2026. Before considering those deductions, your taxable income exceeds the threshold for the 37% federal income tax bracket by $37,000.

Your otherwise allowable itemized deductions will be reduced by $2,000 (2/37 × $37,000). So, your allowable itemized deductions will be $35,000 ($37,000 − $2,000). That amount will deliver a tax benefit of $12,950 (37% × $35,000), which is 35% of $37,000.

Example 2: You have $100,000 of otherwise allowable itemized deductions in 2026. Before considering those deductions, your taxable income exceeds the threshold for the 37% bracket by $1 million.

Your otherwise allowable itemized deductions will be reduced by $5,405 (2/37 × $100,000). So, your allowable itemized deductions will be $94,595 ($100,000 − $5,405). That amount will deliver a tax benefit of $35,000 (37% × $94,595), which is 35% of $100,000.

Tax planning tips

Do you expect to be in the 37% bracket in 2026? Because the new limitation doesn’t apply in 2025, you have a unique opportunity to preserve itemized deductions by accelerating deductible expenses into 2025.

For example, make large charitable contributions this year instead of next. If you aren’t already maxing out your state and local tax (SALT) deduction, you may be able to pay state and local property tax bills in 2025 instead of 2026. And if your medical expenses are already close to or above the 7.5% of adjusted gross income threshold for that deduction, consider bunching additional medical expenses into 2025.

In addition, there are steps you can take next year to avoid or minimize the impact of the itemized deduction reduction. These will involve minimizing the 2026 taxable income that falls into the 37% bracket (or even keeping your income below the 37% tax bracket threshold). There are several potential ways to do this. For instance:

• Recognize capital losses from securities held in taxable brokerage accounts.
• Make bigger deductible retirement plan contributions.
• Put off Roth conversions that would add to your taxable income.

If you own an interest in a pass-through business entity (such as a partnership, S corporation or, generally, a limited liability company) or run a sole-proprietorship business, you may be able to take steps to reduce your 2026 taxable income from the business.

Will you be affected?

If you expect your 2026 income will be high enough that you’ll be affected by the new itemized deduction limitation, contact us. We’ll work with you to determine strategies to minimize its impact to the extent possible.

Are you thinking about making financial gifts to loved ones? Would you also like to reduce your capital gains tax? If so, consider giving appreciated stock instead of cash. You might be able to eliminate all federal tax liability on the appreciation — or at least significantly reduce it.

Leveraging lower rates

Investors generally are subject to a 15% tax rate on their long-term capital gains (20% if their income exceeds certain thresholds). But the long-term capital gains rate generally is 0% for gain that would be taxed at 10% or 12% based on the taxpayer’s ordinary-income rate.

In addition, taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for married couples filing jointly and $125,000 for married filing separately) may owe the net investment income tax (NIIT). The NIIT equals 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold.

If you have loved ones in the 0% bracket, you may be able to take advantage of it by transferring appreciated assets to them. The recipients can then sell the assets at no or a low federal tax cost.

Case study

Faced with a long-term capital gains tax rate of 23.8% (20% for the top tax bracket, plus the 3.8% NIIT), Ed and Nancy decide to transfer some appreciated stock to their adult granddaughter, Emma. Just out of college and making only enough from her entry-level job to leave her with $30,000 in taxable income, Emma qualifies for the 0% long-term capital gains rate.

However, the 0% rate applies only to the extent that capital gains “fill up” the gap between Emma’s taxable income and the top end of the 0% bracket. For 2025, the 0% bracket for singles tops out at $48,350 (just $125 less than the top of the 12% ordinary-income tax bracket).

When Emma sells the stock her grandparents transferred to her, her capital gains are $20,000. Of that amount $18,350 qualifies for the 0% rate and the remaining $1,650 is taxed at 12%. Emma pays only $198 in federal tax on the sale vs. the $4,760 her grandparents would have owed had they sold the stock themselves.

More to consider

If you’re contemplating a gift to anyone who’ll be under age 24 on December 31, check whether they’ll be subject to the “kiddie tax.” Also consider any gift and generation-skipping transfer (GST) tax consequences. We’d be pleased to answer any questions you have. We can also suggest other ways you can reduce taxes on your investments.