2026 Tax Planning Update
New Deductions, Louisiana Changes, and Year-End Moves
The tax changes for 2025 and 2026 open new planning opportunities for employees, families, retirees, and business owners. Here is what to know before December 31.
Four new deductions took effect in 2025. You can claim them whether or not you itemize.
Tips. If you work in an occupation that customarily received tips before 2025, you can deduct up to $25,000 of qualified tips each year. The deduction phases out when modified adjusted gross income exceeds $150,000 ($300,000 married filing jointly). Tips must be reported on a W-2, Form 1099, or Form 4137, so report every dollar.
Overtime. You can deduct the premium portion of overtime pay, meaning the “half” in time-and-a-half. The limit is $12,500 ($25,000 joint), with the same phase-out as the tip deduction. Only overtime required under federal wage law qualifies. An extra premium your employer pays voluntarily does not.
Seniors. Each taxpayer age 65 or older gets an additional $6,000 deduction on top of the regular standard deduction. A married couple who are both over 65 gets $12,000. The deduction phases out above $75,000 of income ($150,000 joint).
Car loan interest. You can deduct up to $10,000 a year of interest on a loan for a new, personal-use vehicle assembled in the United States. The loan must have been taken out after 2024 and be secured by the vehicle. Used vehicles and leases do not qualify. The deduction phases out above $100,000 of income ($200,000 joint). Keep your paperwork showing the VIN, purchase date, and final assembly location.
Married couples must file jointly to claim the tip, overtime, and senior deductions, and each person claiming must have a valid Social Security number.
For 2026, the cap on the state and local tax deduction is $40,400, up from $10,000. That is enough to change the math for many homeowners.
Add up your state income tax, property taxes, mortgage interest, and charitable gifts. Compare the total to your 2026 standard deduction:
- $16,100 for single filers
- $24,150 for head of household
- $32,200 for married couples filing jointly
Whichever is larger is the one to use.
At higher incomes, the cap shrinks by 30 percent of modified adjusted gross income above $505,000, but it never drops below $10,000.
If you own a partnership or S corporation, the Louisiana pass-through entity tax election can move state tax to the business level, where the cap does not apply. The election is most valuable if your state and local taxes exceed $40,400 or your income is high enough that your cap shrinks back toward $10,000.
If you take the standard deduction, you can now deduct up to $1,000 ($2,000 joint) of cash gifts made directly to a charity. Gifts to donor-advised funds do not count.
If you itemize, only the portion of your gifts above 0.5 percent of your adjusted gross income is deductible. On $200,000 of income, the first $1,000 of giving produces no deduction. If you are in the top 37 percent bracket, itemized deductions now save at most 35 cents per dollar.
If you are 70½ or older, consider a qualified charitable distribution from your IRA. It counts toward your required minimum distribution and stays out of your taxable income.
Before year-end, collect written acknowledgments for every gift of $250 or more. Donating appreciated stock instead of cash avoids capital gains tax on the appreciation.
The 1099 threshold is now $2,000. For payments made in 2026, you issue a Form 1099-NEC or 1099-MISC only to contractors you paid $2,000 or more, up from $600. Still collect a W-9 from every contractor. If a contractor won’t provide a taxpayer ID, you may be required to withhold.
Payment apps. Platforms such as PayPal and Venmo issue a Form 1099-K only if you receive more than $20,000 across more than 200 transactions. All business income is taxable whether or not you receive a form, so keep your own records.
Equipment purchases. Bonus depreciation is back at 100 percent and is permanent for property acquired after January 19, 2025. For 2026, Section 179 lets you expense up to $2,560,000 of qualifying property. That limit begins to phase out once your total purchases exceed $4,090,000. To claim the deduction, the property must be in service by December 31, meaning ready and available for use in your business. Buying it is not enough.
Call us before a large purchase so we can confirm the timing works for your situation.
If you own a business and have children, putting them on the payroll is one of the best family tax strategies available.
How it works. Say you pay your 13-year-old $16,100 in 2026 for real work in your business. Your child owes no federal income tax, because $16,100 is the 2026 standard deduction for a single filer. You deduct the wages, which can put roughly $6,600 back in your pocket in federal and state taxes, depending on your bracket. The income moves from your high bracket to your child’s zero bracket.
Add an IRA. Your child can earn another $7,500 tax-free by making a deductible traditional IRA contribution. If the wages stay at or below $16,100, a Roth IRA is usually the better choice. A deduction is worth nothing to a child who already pays no tax, while the Roth grows and comes out tax-free.
Your entity matters. If you are a sole proprietor, or in a partnership owned only by you and your spouse, wages to your child under 18 are exempt from Social Security and Medicare tax. Wages to a child under 21 are also exempt from federal unemployment tax. A corporation gets no such break, which costs about $2,500 in payroll taxes on $16,100 of wages. The strategy still pays off for most corporate owners.
Section 199A. Wages to your child reduce your qualified business income, which can lower your 20 percent pass-through deduction. At higher incomes, where the deduction is limited by W-2 wages, paying your child can actually increase it.
Do the paperwork. In one court case, a business owner lost nearly all of her deductions for wages paid to her children and was assessed negligence penalties because she had no W-2s, no payroll records, and no time sheets. The job must be real and the pay reasonable for the work. Pay through regular payroll, keep time sheets, and document how you set the rate.
Let us set it up. We handle the payroll setup, W-4s, time sheets, and pay-rate documentation. If you start now, you can deduct wages for work your child performs between now and December 31. If you would rather start clean, we can have everything in place for your child’s first paycheck on January 1, 2027. Contact our office to get started.
Louisiana rewrote its tax code, and the changes affect nearly everyone.
Individuals now pay a flat 3 percent state income tax. The standard deduction is $12,500 for single filers and $25,000 for married couples filing jointly and heads of household. Taxpayers 65 and older can exclude up to $12,000 of retirement income. If your Louisiana withholding or estimated payments were set under the old rates, you may be overpaying.
Corporations now pay a flat 5.5 percent income tax. The corporate franchise tax is repealed for tax periods beginning on or after January 1, 2026.
Sales tax went the other way. The state rate is 5 percent through 2029, and some items and services that used to be exempt are now taxable. If your business collects sales tax, confirm that your point-of-sale system and invoices use current rates.
A new tax-advantaged savings account for children under 18 launched on July 4, 2026.
$1,000 from Treasury. Every U.S. citizen child born from 2025 through 2028 is eligible for a one-time $1,000 government deposit. This is not automatic. You must elect it on Form 4547, which you can file with your tax return or complete through your IRS Online Account. You can also get information at trumpaccounts.gov.
Contributions. Any child under 18 with a Social Security number can have an account, whether or not the child qualifies for the $1,000. Families can contribute up to $5,000 per year. IRS guidance exempts most family contributions from gift tax reporting. Contributions are not deductible.
Employer contributions. Employers can contribute up to $2,500 per year tax-free to an employee’s child’s account. This amount counts toward the $5,000 limit. For business owners, it can be an inexpensive benefit to offer employees.
Investments and withdrawals. The money is invested in low-cost U.S. stock index funds. Withdrawals are generally not allowed until the child turns 18.
These changes can affect your withholding, estimated payments, charitable gifts, equipment purchases, and business elections. Results depend on your filing status, income, and business structure. Contact us before year-end to review any major transaction.
