Dear Clients,
As we approach the end of 2026 and begin planning for 2027, now is a good time to review your tax situation and identify opportunities to minimize taxes and maximize cash flow. Proactive tax planning can help you make informed financial decisions and avoid unexpected tax liabilities.
This letter highlights several tax planning strategies and year-end considerations that may benefit you and your family. If you have not yet discussed your 2026 tax planning opportunities with our office, we encourage you to do so before year-end. Please call us at 410-643-4477 and ask for Marie to schedule a consultation. We look forward to helping you develop a tax strategy tailored to your individual circumstances.
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, significantly reshaped U.S. individual tax policy.
Tax Rates – Going forward, everyone will keep the reduced individual income tax rates from the Tax Cuts and Jobs Act (TCJA), now made permanent. The 10%, 12%, 22%, 24%, 32%, 35%, and 37% brackets continue to apply for tax years after 2025.
Tips - If you are an employee or self-employed individual who receives tips in the normal course of your occupation, and tipping is customary and regular in your profession, you may be allowed to deduct up to $25,000 of your qualified tips each year from 2025 through 2028.
Overtime – If you are paid overtime that the federal Fair Labor Standards Act (FLSA) requires, generally time-and-a-half for hours over 40 in a week, you may be eligible for a tax deduction of up to $12,500 for single filers and $25,000 for joint filers from 2025 through 2028. To qualify, the overtime must be appropriately reported to the IRS and meet specific requirements.
Good News for Seniors! – The Senior Deduction introduced in tax year 2025 continues through 2028, allowing a $6,000 (single) or $12,000 (married filing jointly) deduction for taxpayers 65 or older. This deduction is in addition to the existing senior standard deduction that some may already be receiving.
State and Local Tax (SALT) Deduction Increased for 2026 - Taxpayers who itemize deductions may benefit from the increased State and Local Tax (SALT) deduction limit, which rises to $40,400 for 2026 ($20,200 for Married Filing Separately). The increased deduction begins to phase out for taxpayers with Modified Adjusted Gross Income (MAGI) above $505,000 ($252,500 for Married Filing Separately), but generally cannot be reduced below $10,000.
Planning Tip: If you expect to itemize deductions in 2026, consider accelerating deductible state and local tax payments into 2026 when appropriate. For example, paying your fourth-quarter 2026 state estimated tax payment by December 31, 2026, rather than waiting until the January 15, 2027 due date, may increase your 2026 SALT deduction. Property taxes may also be deductible in 2026 if they have been assessed and are paid before year-end. Consult with our office before making any prepayments, as deductibility can vary based on your individual circumstances.
New Car Loans – Did you buy or are you planning to buy a new car in 2026? If the final assembly was in the U.S., you may be able to deduct up to $10,000 in interest on your loan. This benefit phases out at $100,000 MAGI for single filers and $200,000 for married couples filing jointly. The loan must be secured by the vehicle. The vehicle must be for personal use and under 14,000 pounds, and its VIN goes on your return. Leases do not qualify. The deduction runs from 2025 through 2028. A refinanced qualifying loan generally still qualifies, but talk to us before you refinance.
Expired Home Energy Credits – The federal credits for energy-efficient home improvements (such as windows, doors, and heat pumps) and for residential clean energy (such as solar panels) ended for expenditures made after December 31, 2025. A project paid for in 2026 does not earn either credit.
Bunching Deductible Expenses – With the SALT cap now $40,400, more of you may be itemizing again, while others sit just under the 2026 standard deduction ($32,200 married filing jointly, $16,100 single). One strategy to make itemizing worthwhile is bunching: grouping deductible expenses into one year. For example, make charitable donations every other year to increase your itemized deductions. Bunching also means you absorb the new 0.5% charitable floor (see below) once instead of every year.
Top-Bracket Cap on Itemized Deductions – Starting in 2026, if you are in the 37% bracket (taxable income above $640,600 single or $768,700 married filing jointly), each dollar of itemized deductions saves you at most about 35 cents (IRC § 68). Accelerating deductions can still pay, but the payoff is smaller, so let us run the numbers before you prepay.
Beginning in 2026, taxpayers who claim the standard deduction may also deduct up to $1,000 of cash charitable contributions ($2,000 for Married Filing Jointly). To qualify, donations must be made in cash to a qualified public charity and have a receipt with the contribution date and amount. Contributions of property and donor-advised fund contributions do not qualify.
Starting in 2026, taxpayers who itemize deductions must contribute at least 0.5% of AGI to claim a charitable deduction. In general, the first 0.5% of your Adjusted Gross Income (AGI) in charitable contributions is not deductible. For example, with $200,000 of AGI, the first $1,000 of your gifts is not deductible. This is not a limit on charitable giving, but rather a reduction in the amount that may be claimed as an itemized deduction.
The IRS requires adequate substantiation for all charitable contributions:
If you are age 70½ or older, a Qualified Charitable Distribution (QCD) from your Traditional IRA may be a tax-efficient way to give to charity. Eligible taxpayers may transfer up to $111,000 annually directly from their IRA to qualified charities in 2026.
Key benefits of a QCD include:
Please contact our office if you would like to discuss whether a QCD or other charitable giving strategies may benefit your tax situation.
The Maryland Saves Program (Maryland Saves) is a state-sponsored retirement savings program designed for employees whose employers do not offer a qualified retirement plan. Many Maryland employers that do not sponsor a retirement plan (generally, those in business at least two years that run payroll through an automated system) are required to either participate in Maryland Saves or offer another qualified retirement plan to their employees. The program allows eligible employees to save for retirement through payroll deductions into an individual IRA, with minimal administrative responsibilities for employers. Employees may opt out at any time.
If your employer does not currently offer a retirement plan, consider asking whether the company is required to participate in Maryland Saves. If you are self-employed, you may wish to explore retirement plan options such as a SEP IRA, SIMPLE IRA, Solo 401(k), or Traditional/Roth IRA to help build long-term retirement savings.
If your employer offers a 401(k), 403(b), or governmental 457(b) plan, these remain among the most effective ways to save for retirement while reducing current taxable income. For 2026, the IRS contribution limits are as follows:
401(k), 403(b), and 457(b):
Traditional and Roth IRA:
SIMPLE IRA and SIMPLE 401(k):
New for 2026, Roth catch-ups for higher earners: if your 2025 wages from your employer were over $150,000, any 2026 catch-up contributions to that employer’s 401(k), 403(b), or 457(b) plan must go in as Roth (after-tax) contributions. Check that your payroll elections reflect this.
You can now make IRA contributions even after age 70½. However, required minimum distributions (RMDs) must begin at age 73.
Health Savings Accounts (HSAs):
2026 annual contribution limits for those with high-deductible health plans (HDHPs) are:
Digital assets, such as cryptocurrency and virtual currencies, are becoming increasingly popular. If you own any digital assets or have participated in any related activities, including work or transactions involving digital currency, please let us know.
Brokers now issue Form 1099-DA. For 2025 sales it reports gross proceeds only; for certain 2026 sales it will also report your cost basis, but most older holdings will still show proceeds without basis. Decentralized (DeFi) platforms do not issue the form at all. Gaps like these are where we see errors, so send us your 1099-DAs together with your exchange and wallet records and we will reconcile them before anything is filed.
It’s important to discuss the potential tax and reporting implications with us to ensure everything is handled correctly.
If you take out a loan (a mortgage) to buy, build, or substantially improve your main home or a second home, you can generally deduct the interest you pay on that loan from your taxable income if you itemize deductions on your tax return. Please include your 1098 forms for each mortgage when you send us your 2026 tax documents.
Family Matters – New member to the family in 2026 (including adoptions)? Grandparents/Mom and Dad moving in? Are kids getting ready to graduate high school and move on to college or a new job? Let us know. These types of life events may change their and your tax picture.
Trump Accounts – A new tax-advantaged savings account for children under 18 with a Social Security number. The government will deposit $1,000 for each U.S.-citizen child born from 2025 through 2028 if you elect it on Form 4547. Since July 4, 2026, parents and others can add up to $5,000 a year (an employer can fund up to $2,500 of that), but contributions are not deductible. Ask us whether one makes sense alongside a 529 plan.
(Pets still don’t count as dependents – sorry!)
Major Life Events - Are you considering getting married, retirement, starting a small business, selling a major investment or business, or starting up a college savings program? We strongly suggest you contact us for a planning meeting to discuss these types of transactions from a tax perspective.
Thanks for taking the time to review these important items the ones that apply to you! Our goal is to keep you informed and up to date on the ever-changing, often complex tax laws that may affect your financial situation.
As always, if you have questions about these items or any other tax/business questions, please reach out!
Best regards,
Kram, McCarthy, Ayers & Frost, LLC
Main Office 410-643-4477
Christopher Williams, CPA/PFS, CFP®, MST chrisw@kmaf.cpa
Gregory Litvinuck, CPA gregl@kmaf.cpa
Art G. Svrjcek, CPA arts@kmaf.cpa
Sources: IRS FS-2025-03 (July 14, 2025); IR-2025-103 and Rev. Proc. 2025-32 (Oct. 9, 2025); IRC §§ 68, 163(h), 164(b), and 170(b)(1)(I) and (p); IR-2025-111 and Notice 2025-67 (Nov. 13, 2025); Rev. Proc. 2025-19; Instructions for Form 5695 (2025); IRS, Digital Assets (reviewed Sept. 2, 2026); IR-2026-42 (Mar. 31, 2026); MarylandSaves.org; Shulman Rogers (June 12, 2023); The Kiplinger Letter (Jan. 29, Apr. 9, June 4, and June 18, 2026); The Tax Adviser (July 2026); Journal of Accountancy (Jan. 2026).
This article is provided for general informational purposes only and does not constitute tax, legal, or accounting advice. It should not be relied upon as a substitute for consultation with a qualified professional regarding your specific circumstances and was prepared by KMAF with the assistance of AI-powered editing tools.
