Tax Strategy: 2026 year-end tax planning

Mel Musto/Bloomberg

2026 year-end tax planning includes the usual planning opportunities plus some new issues presented by 2025 tax legislation and the mid-term elections.

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1. Itemizing or not. Taxpayers will want to review at year-end the relative merits of claiming the standard deduction as compared to itemizing deductions. Non-itemizers will want to consider claiming the new charitable contribution deduction up to $1,000 for single filers and $2,000 for joint filers. Itemizers will want to take into account the new itemized deduction limitation that limits the deduction for taxpayers in the 37% tax bracket to only a benefit as if in the 35% tax bracket. Itemizers will also want to take into account the new 0.5% floor on itemized charitable contribution deductions. 

Also important is the higher state and local tax limitation in determining whether or not to itemize. Charitable deductions and to some extent other itemized deductions can be timed to maximize itemized deductions through bunching into every other year and claiming the standard deduction in the off years.

2. Qualified tip and overtime reporting. Although also a factor in 2025 tax returns, for 2026 taxpayers must now be sure that what is claimed as qualified tips and qualified overtime matches reporting on Form W-2, Box 12, with code TP for qualified tips and TT for qualified overtime. Information may also come from Forms 1099-MISC, 1099-NEC, and 1099-K.

3. Retirement plans. Contribution limits for retirement plans keep changing with inflation adjustments and law changes. Taxpayers can use 401(k) contributions to stay below a higher tax bracket. Maximum 401(k) employee contributions for 2026 are $24,500, plus catch-ups of $8,000 for those age 50 and older and $11,250 for those age 60 to 63. IRAs have a contribution limit of $7,500 plus a catch-up of $1,100 for those age 50 and older. 

Certain employees age 50 and over with 2025 FICA taxable wages of $150,000 or more must make catch-up contributions to Roth accounts. Roth conversions could be considered if the taxpayer is temporarily in a lower tax bracket in 2026 or to fill the remainder of a current tax bracket. Taxpayers should also be alert to make required minimum distributions by year-end.

4. Investments. As usual, year-end is a time to consider capital loss harvesting if beneficial to offset capital gains for the year or look for possible gain harvesting.

5. HSAs and FSAs. Taxpayers should also consider maximizing contributions to health savings accounts and flexible spending accounts. Taxpayers should also be alert to deadlines for making FSA withdrawals and details in the FSA for carryovers to 2027 and withdrawal grace periods. 

6. AGI. Be alert to adjusted gross income cliffs and phase-outs to ensure the maximum benefit of various deductions and credits.

7. Gifts. Taxpayers should also consider making gifts before year-end to maximize use of the annual gift tax exclusion or to make contributions to 529 plans. Direct tuition or medical payments can also avoid gift taxes.

8. Businesses. Business owners should consider making equipment purchases before year-end to take advantage of Code Sec. 179 expensing or bonus depreciation. Pass-through entities should also plan to maximize use of the qualified business income deduction.

9. QOZs. Investors in qualified opportunity zones may have potential gain to report on 2026 tax returns. Capital loss harvesting or charitable giving can help offset that gain. Taxpayers may also benefit from undertaking appraisals to establish Dec. 31, 2026 fair market values. The new OOZ provisions under the One Big Beautiful Bill Act for QOZs beyond 2026 may warrant setting up working capital plans to be in place by the end of 2026.

10. Last-change tax changes? With the mid-term election results ending Republican control of Congress in 2027, there may be an increased likelihood of Republicans attempting to enact another budget reconciliation bill at the end of 2026 while they still have at least a majority in the Senate. 

A year-end bipartisan tax package is also possible. Topics could include expiring provisions, technical corrections, disaster provisions, and implementation problems with the OBBBA. Additional tax changes at year-end in the lame duck session could also impact year-end tax planning.