08/10/2026
Here are some 2026 Tax Law Changes and Updates
2026 Tax law changes
As we all know, the government likes to change laws, and those changes sometimes don’t make it to the news so us the taxpayers aren’t aware of them.
I wanted to bring some of these items to your attention. This doesn’t mean that they all apply to you but maybe they apply to somebody you know. Always discuss this with your tax preparer to make sure you do qualify.
Here are a few: (read below for details on each)
1. Taxability of Tips
2. Taxability of Overtime
3. Bonus Depreciation for Capital Assets (Business related)
4. Trump Accounts
5. Teacher’s Deductions
6. SALT Limits
7. USA Auto Interest Deduction
8. Deduction of Scams
9. Charitable Contributions
TAXABILITY OF TIPS
This one was on the news but probably not properly stated. There is a Below-the-line deduction for $25,000 of tips earned. Below-the-line means that the deduction is available whether you claim the itemized or the standard deduction. This is good for those taxpayers who don’t own a house or have a lot of write offs you would be able to claim a deduction up to $25,000.
TAXABILITY OF OVERTIME
The same goes for the taxability of overtime there is a limit of $12,500 per taxpayer up to $25,000 for joint filers of qualified overtime. This must be reported on the W-2 If it is not reported properly then you cannot claim the deduction. You should check with your employer to make sure that if you receive either tips or overtime that they are being tracked properly for the upcoming W2 reporting for 2026. Some have misunderstood this and are working a lot of overtime thinking the excess wages are not taxable. NOT TRUE!!! Only the first $12,500.
BONUS DEPRECIATION
For those of you who own a business you will be familiar with Section 179 for depreciation purposes, Also, bonus depreciation which was set to go away but has been locked in and made permanent as 100% deduction for all capital purchases. This means the purchase of tangible property, both new or used assets to the business. This means that you could buy a used piece of equipment and write off the full value as bonus depreciation. Be aware that this only applies on the federal return. California and other states do not have a similar bonus depreciation. This could create a difference in income from federal and state and different taxes owed federal and state, so be careful if you are investing in your business and are taking advantage of the bonus depreciation.
TRUMP ACCOUNTS
Here is another one that has been on the news Trump accounts. This is for a child who is under the age of 18 who is a US citizen and has a Social Security number. You can apply by filing Form 4547 or to Www.trumpaccounts.gov to apply. The government will give you a one-time $1000 “seed contribution” as a form of a federal grant. Those started funding on July 4th, 2026, so if you apply now and are approved it should be funded soon.
You can contribute up to $5,000 per year until the child turns 18. Keep in mind these are after tax dollars just like a Roth IRA there is no deduction for them. You can ask your employer if they Contribute to Trump accounts for your child. A business can deduct up to $2,500 which does not count towards the $5,000 annual limit. Most small businesses won’t take advantage of this but it is worth looking into.
TEACHERS
To all my teachers and educators this one is for you. The above the line deduction which had been limited to $300 has been increased to $350 for 2026. This could go up little by little each year. In addition to that the new change allows for unreimbursed qualified expenses to be deducted on a below-the-line basis. (Look under the Tips section to understand “below-the-line”) These qualified expenses include classroom supplies athletic supplies technology and equipment including computers tablets and software. So as the school year has starting, I am sure you will spend some money to get your classroom going. Make sure you keep track of the amount that you spent as you are able to write off a majority of those expenses.
There is requirement that you work at least 900 hours at an elementary or secondary level school. If you work for a higher education institution, home schooling, or early childhood you do not qualify to take this deduction. The amount of your expenses after the first $350 is the below-the-line deduction but does not have a limit on the amount that you can deduct, which is a major change. Therefore, count every penny exclamation!
SALT
Most people are not familiar with the term SALT. It means state and local income taxes. California and New York or severely hit by a limit of $10,000 Max deduction for those who itemize on your state and local income taxes since those two states have high taxes. Starting in 2025, that increased to $40,000 limit. In 2026 it has been increased to $40,400 limit and goes up about $400 a year through 2029. For 2030, it goes back to $10,000 I would expect this to be updated in the future so do not lock in on that.
What this means for somebody who itemizes their tax returns you can deduct more than $10,000 and up to $40,400 of state and local income taxes. That would be your property taxes, your taxes that you have withheld and pay on your state returns as well as for California that your disability the SDI taxes as well.
AUTOMOBILE INTEREST DEDUCTION
Here is another one that started in 2025 and is good through 2028 The deductibility of auto loan interest. Only individuals can claim this deduction up to $10,000 per tax return if you file a joint return and you both have a vehicle it could be up to $20,000. It is not an itemized deduction again it is a below-the-line deduction reported on FORM Schedule 1- A. This means it is available to both itemizers and those using the standard deduction.
Qualified vehicles which are new or passenger vehicles cars, minivans etc. The vehicle must have final assembly in the United States and must be under 14,000 lbs. You will receive a new form Form-1098-VLIL that will be reported from your lender if you have paid interest of $600 or more.
DEDUCTIBILITY OF SCAMS
A new one, deductibility of scams. Prior you could only deduct the losses if they were not covered by insurance and were a result of a disaster. This new allowance of a deduction if you were scammed while engaging in a transaction with a profit motive you would be able to deduct the amount of loss. This is a new item and will come with much scrutiny please talk to your tax preparer to make sure if you were a victim via a scam that you might be able to take a deduction on your upcoming tax return.
CHARITABLE CONTRIBUTIONS
Another below the line deduction that has been made permanent now is Charitable contribution donations. The limit is $1000 for single return, $2000 for a jointly filed return. If you do itemize your returns, there is a floor deduction of .5%. Example if you are AGI is $100, 000, times .5% that’s $500. For example, if you had $4,000 in donations you would have to reduce it by the $500 and your deductible itemized contributions would be $3500.
