Major Tax Changes for 2025 and 2026
Tips Deduction: Up to $25,000 deduction
If you earn tips, you can now deduct up to $25,000 in tip income for tax years 2025-2028. This deduction phases out for those with modified AGI above $150,000 (single) or $300,000 (married filing jointly). Note that tips from certain specified service businesses won’t qualify.
Overtime Pay Deduction: Keep More of What You Earn
Working overtime? You can now deduct up to $12,500 of your qualified overtime pay (up to $25,000 for joint filers) from 2025-2028. This is limited to the extra “half” only. Like the tips deduction, this benefit phases out at higher income levels ($150,000 single/$300,000 married).
Senior Savers: Extra $6,000 Deduction
Taxpayers aged 65 and older receive an additional $6,000 deduction for tax years 2025-2028. This valuable benefit gradually reduces for those with modified AGI exceeding $75,000 (single) or $150,000 (married filing jointly).
SALT Cap Relief: Room to Breathe
The state and local tax (SALT) deduction limit has jumped from $10,000 to $40,000 for 2025, with annual 1% increases through 2029. This increased deduction begins phasing out for taxpayers with income over $500,000
Charitable Giving Gets Easier—With a Catch
Starting in 2026, even if you take the standard deduction, you can claim a permanent deduction for charitable donations: $1,000 for single filers and $2,000 for married couples filing jointly.
However, itemizers face a new hurdle: a 0.5% AGI floor. This means you’ll need to donate at least 0.5% of your adjusted gross income before any charitable contributions become deductible.
Permanent QBI Deduction: Offers Stability for Small Businesses
One of the most significant wins for small business owners is the permanent extension of the Qualified Business Income (QBI) deduction. Previously set to expire, this deduction allows eligible business owners to deduct up to 20% of their qualified business income, subject to certain income limitations.
Starting in 2026, the Act adds a new minimum $400 deduction for taxpayers with at least $1,000 in aggregate QBI. The income thresholds for qualification will also increase, allowing more business owners to take advantage of this valuable tax break. This permanence provides much-needed certainty for business planning purposes.
Enhanced Bonus Depreciation: Returns Fully and Permanently
Bonus depreciation has been reinstated at 100% for qualified property placed into service after January 19, 2025. This allows businesses to immediately deduct the full cost of eligible assets rather than depreciating them over several years. Qualified property includes most assets with a recovery period of 20 years or less.
