Plan well before year-end for changes to charitable giving and itemized deductions
By Laura Saunders
It's time for year-end tax planning.
This year hasn't brought a gush of new tax laws. But filers do have to contend with changes enacted last year as part of the One Big Beautiful Bill Act that only took effect in 2026. These involve charitable giving, gambling losses and deductions for top-bracket taxpayers.
Meanwhile, the expanded deduction for state and local taxes (SALT) and breaks for seniors, overtime, and tips, which kicked in last year, remain in effect.
All of this complicates planning.
"There are now so many phase-outs and phase-ins and interlocking provisions that back-of-the-envelope calculations aren't reliable," says Tim Steffen, director of tax planning at Baird. A full-on estimate is a good idea for many, especially if income has changed much this year.
And remember: After year-end, it is difficult to reduce 2026 taxes other than by making deductible contributions to traditional IRAs, SEP IRAs, Solo 401(k)s and health savings accounts. So here are steps to take now.
Check withholding and estimated taxes
To avoid underpayment penalties, filers typically must pay 90% of tax due by year-end or soon after. The deadline is Dec. 31, 2026 for tax on income like wages and IRA payouts that's subject to withholding. It's Jan. 15, 2027 for tax paid through quarterly estimates.
The penalty on underpayments has been 7% for most of 2026. To avoid it, review withholding and quarterly payments, especially if income has been uneven. The IRS has posted a calculator to help figure withholding on wages and pensions.
Filers can also avoid penalties by paying 100% of their prior-year tax if income is $150,000 or less, and 110% if it is more. Note: If you use these safe harbors and pay quarterly, it's important to make equal payments.
Need to pay more? Try to fill the gap by withholding more from a paycheck or taxable IRA payout because these moves can wipe out or reduce penalties.
Standard deduction or itemized?
Filers get to reduce taxable income either by subtracting one overall amount -- the standard deduction -- or by listing itemized deductions for mortgage interest, state and local taxes, donations and others on Schedule A.
For 2026, the standard deduction is $32,200 for married joint filers and $16,100 for singles. Filers ages 65 and older each get an extra $1,650 or more. This is separate from the deduction of up to $6,000 for some seniors enacted in the 2025 tax changes.
Last year, many filers who had been taking the standard deduction returned to itemizing due to the expanded deduction for state and local taxes, or SALT. For 2026 the SALT deduction is up to $40,400 for joint filers and singles with income up to $505,000. Above that, it phases down to $10,000 for filers with income of about $606,000 or more, according to San Francisco CPA Richard Pon.
This year there's also a new limit on itemized deductions for top-bracket filers. It will typically cut the value of these deductions from 37 cents on the dollar to 35 cents on the dollar.
To maximize overall deductions, some taxpayers will find it pays to switch back and forth from standard to itemized in different years, and to "bunch" deductions into years when they're itemizing.
Often the best candidate for bunching is charitable donations (see below), but don't overlook unreimbursed medical expenses. They're deductible above 7.5% of adjusted gross income -- a high threshold. But a wide variety of expenses can count, including Medicare premiums, contact-lens solution and even a swimming pool.
Be aware of changes to charitable deductions
There's good news and bad news on charitable deductions, so plan carefully to maximize benefits.
The good news is that givers who don't itemize can now deduct up to $2,000 (joint filers) or $1,000 (singles and others) for donations to charities. These gifts must be of cash, not property like used clothes, and they can't be to donor-advised funds.
The bad news is that givers who itemize charitable donations now lose an amount of the deduction equal to 0.5% of their adjusted gross income. So if a couple has $300,000 of income, they can only deduct donations above $1,500 -- whether their total donations are $2,500 or $25,000.
As a result, many donors should consider bunching donations even if they itemize every year. The more that total donation deductions exceed the 0.5% threshold, the larger the tax break could be.
In addition, many top-bracket filers get a benefit of only 35% for itemized charitable deductions, rather than 37%, as described above.
Note to seniors: The recent changes to charitable deductions don't alter qualified charitable distributions, or QCDs. For donors aged 70 1?2 or older with traditional IRAs, making gifts of IRA funds via QCDs is often the most tax-efficient way to donate.
Keep an eye on AGI
A key number for tax planning is adjusted gross income, or AGI, found on Line 11a of Form 1040. Congress often uses it as the threshold for a host of phase-ins, phaseouts and other provisions to raise revenue or stanch revenue loss. More than a dozen provisions are tied to AGI thresholds.
These provisions include the deductions enacted in 2025 for SALT, overtime and tips, as well as taxes due on Social Security payments; extra Medicare premiums known as Irmaa; and the 3.8% net investment income tax, among others.
Some AGI thresholds are known as "modified" AGI, or MAGI, because of changes to them. The modifications vary among provisions. For example, tax-free municipal bond income must be added back to MAGI to calculate tax on Social Security payments and Irmaa premiums, but it isn't relevant for the SALT deduction or the 3.8% surtax.
The upshot is that a higher AGI often means more tax traps. Lowering AGI can be hard, however, because itemized deductions like SALT or mortgage interest don't help. Neither do the new deductions for seniors, tips and overtime.
What helps lower AGI? Among other things, says Pon, are pretax contributions to 401(k)s, traditional IRAs, health savings accounts and flexible-spending accounts; deductible business expenses for owners; and realized capital losses.
Managing income could also help, say by dividing a sale of profitable stock between December and January.
Cope with lower gambling-loss deductions
Starting this year, filers can deduct only 90% of their net gambling losses vs. 100% in the past. But, as in prior law, only filers who itemize on Schedule A get this deduction, and it can't exceed the amount of total winnings.
Note: This limit doesn't apply to "professional" gamblers who report winnings and losses on Schedule C. But this is a hard designation to get and can have other drawbacks, such as owing Social Security and Medicare taxes.