Rupa Pereira
By Rupa Pereira
Writing is a form of expression, which, while swimming through numbers, formulas and percentages in a financial universe, expressing thoughts and ideas through writing is truly an art that I’ve grown to appreciate.
I had to pause my Saathee contributions due to a busier-than usual tax season and a flurry of clients keen on tax-planning as they explore greener pastures. Whether it was marketing of reputed tax software companies or a higher bonus or college bill, I sensed angst and uncertainty among my clients. Their angst wasn’t unwarranted.
Every tax season comes with its share of challenges, but what was unique about 2025-2026 was the permanence of certain tax provisions to bring stability. The United States Tax Code was founded on principles of simplicity, transparency, neutrality and stability. While the system is technically built on those original principles, the execution has become significantly more complex over the decades. The 2026 tax year is uniquely pivotal because it serves as the “great stabilizer.” For years, taxpayers were bracing for a massive “tax cliff” at the end of 2025, when the individual provisions of the 2017 Tax Cuts and Jobs Act (TCJA) were set to expire. In 2026, it’s estimated that Americans spend over 7 billion hours annually on tax compliance. The founding idea of simplicity didn’t account for a 75,000-page tax code. In 2026, this comparison is particularly stark due to recent legislative changes, such as the “One Big Beautiful Bill” (OBBB), which made many temporary tax provisions permanent. As a refresher, listed below are the key provisions that will be in full effect in 2026.
The “Permanence” of Lower Rates
Originally, 2026 was supposed to see income tax rates jump back up (the 37% top bracket was going to revert to 39.6%). Under the OBBB, the lower tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) have been made permanent. For the first time in nearly a decade, taxpayers aren’t planning around a looming expiration of their core tax rates.
The Great SALT Expansion
One of the most significant shifts in 2026 is the overhaul of the State and Local Tax (SALT) deduction. What changed? The controversial $10,000 cap on SALT deductions (which had been in place since 2018) is replaced in 2026. The cap has been drastically increased to $40,400 for most taxpayers, though a new income-based phase-out applies to those in the highest (37%) tax bracket. This is a massive win for homeowners in high-tax states like New York, California, and New Jersey.
Lifestyle Deductions
2026 introduces several unique ‘lifestyle’ deductions that weren’t available in previous years.
Senior Deduction: A new temporary deduction of up to $6,000 for taxpayers aged 65 and older.
Car Loan Interest: Homeowners aren’t the only ones getting interest breaks; 2026 marks the ability to deduct up to $10,000 in car loan interest for new vehicles, provided they were assembled in the US.
Tip & Overtime Deductions: In a major shift for service and hourly workers, a portion of qualified tips (up to $25,000) and certain overtime pay are now eligible for federal tax deductions.
Family and Education Incentives
Child Tax Credit (CTC): Set at $2,200 per child (up from $2,000). The refundable portion—the amount you can get back even if you owe no tax—is capped at $1,700.
Trump Accounts (TAs): A new tax-advantaged savings accounts for minors. Babies born in the US between 2025 and 2028 receive a one-time $1,000 deposit from the federal government.
Parents and relatives can contribute up to $5,000 per year toward these accounts.
K-12 Education: The limit for tax-free 529 plan withdrawals for K-12 tuition have doubled to $20,000 per year.
Expansion of the “Charitable Floor”
The 2026 tax year changes how we give. While non-itemizers can now claim a special deduction for donations (up to $1,000 for singles), there is a new “deduction floor” of 0.5% of AGI. This means your first few hundred (or thousand) dollars of donations won’t count toward your itemized deductions, only the amount above that floor is deductible.
If choosing to take the standard deduction, a cash or check gift can fetch a deduction of $1000 to $2000 depending on filing status.
Estate Tax Certainty
For high-net-worth individuals, the “cliff” was most terrifying in the realm of inheritance. Instead of the estate tax exemption dropping from $14 million to $7 million as originally feared, the OBBB permanently locked in the higher exemption, which rises to $15 million per person in 2026. You may be familiar with the stark reminder that ‘ Death and Taxes are inevitable’. In my 4-part series in 2025 on mortality, I touched on its intersection with financial planning and tax planning, particularly for families with cross-border ties.
Referring to my previous series on Estate planning, the US tax code doesn’t address this scenario when assets, income, trustees and beneficiaries are ex-US, i.e. overseas. This is where the rubber meets the road, i.e. highly subjective and contentious.
In summary, 2026 is the year the “temporary” perks of the last decade became the “new normal,” while adding a few extra layers of complexity to encourage American manufacturing and support seniors – campaign goals of the current administration. Whether we embark on another ‘normal’ and ‘permanent’ path in a different campaign trail in two years, time will tell. Meanwhile, I’ll continue to write about the changes, developments and areas of interest in the world of taxation and planning. Watch this space.
Rupa Pereira is a CFP, EA, CSLP and an Advice-Only Planner and Tax Professional based in North Carolina. She specializes in cross-border matters and all things financial planning. Contact: info@fwjplanning.com
