2026 Tax Update Newsletter (Tax Year 2025)
Happy New Year! If you would like to send your tax information via a secure electronic portal, please call the office and we’ll provide you the password and upload link. Alternatively, you can mail it to PO Box 498, Ingleside IL 60041 or drop off (please call first) at 31632 North Ellis Drive, Unit 112, Volo, IL 60073.
Please take a few minutes to review this newsletter. If you have any questions, call me or enclose a note with your tax information. If you didn’t receive an organizer and would like one, please contact my office staff.
The following information includes some, but not all of the major changes, which affect tax year 2025. This update is substantially longer than usual, due to OBBBA (One Big Beautiful Bill Act).
(Not new, but warrants repeating) You may voluntarily opt into the IP PIN program to protect yourself from tax-related identity theft. You will be furnished a new PIN annually. https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin . I strongly suggest this as identity theft is increasing.
Premium tax credit and its expanded eligibility (due to the Inflation Reduction Act) is extended through 2025, meaning there is no income cap on tax credit eligibility through 2025. There are changes for 2026 related to income and repayment of excess credit.
Age for mandatory minimum distributions 401(k) or IRA is 73 currently, increasing to 75 in 2033.
Educator expense deduction is $300 for 2025 (per person) for the “above the line” deduction.
Standard Deduction for 2025 is $15,750 for single, $31,500 for married filing jointly, and $23,625 for head of household. These amounts are adjusted annually for inflation. If your itemized deductions for a year are less than the standard, you will use the standard deduction.
Personal exemption amount is removed permanently by OBBBA. It was originally decreased to $0 in 2017 by TCJA.
Child Tax Credit for 2025- Age limit is 16, max credit per child is $2,200 and part of that may be refundable ( assuming minimum $2,500 earned income and US citizen).
HSA contribution for 2025 (for those in high deductible health plans) the maximum contribution for 2025 is single $4,300 and family $8,550. There is an annual “catch up contribution” available for those age 55 and over of $1,000. To contribute to an HSA, you must be enrolled in an HSA-eligible health plan. You have until the tax filing deadline (April 15 of the following year) to contribute. Annual out of pocket maximums for 2025 cannot exceed $8,300 single and $16,500 family.
Earnings Ceiling for Social Security. Prior to reaching full retirement age, there is a deduction of $1 for every $2 you earn over the limit. For 2026 under full retirement age is $24,480 and for the year full retirement is reached is $65,160. Maximum FICA taxable earnings for 2025 and 2026 are $176,100 and $184,500 respectively. There are separate rules for the year you reach full retirement age.
Standard Mileage Deduction 2025, these rates are (cents per mile) 70 business, 14 charitable, and 21 cents medical and military moving. For 2026 these rates are 72.5, 14 and 20.5 cents, respectively. Deduction is dependent on "contemporaneous" (occurring at the time of the event, not reproduced later) mileage log including who, what, where and when.
Pension and IRA Contribution Limits---Maximum retirement contributions for 2025 IRA limit is $7,000 and 2026 is $7,500 (catch up of $1,000 and $1,100 respectively) and SIMPLE- $17,000 for 2026 and $16,500 for 2025 (catch up $3,500 for 2025 and $4,000 for 2026). 401(k), 403(b) and most 457 plans are $23,500 for 2025 and $24,500 for 2026 (catch up of $7,500 for 2025 and $8,000 for 2026). For defined contribution plans and SEPs, 2025 limits are lesser of $70k or 25% of compensation (max $350k). Please note there is a phase out of deduction/allowable amount, due to income limitations and rules when you have more than one retirement plan, so check with your investment advisor for assistance.
Saver’s Credit income limits You get a credit on your Federal return in addition to reduced taxes caused by making a retirement contribution (IRA, employer sponsored plan, or ABLE account). This credit is eligible for 2025 for all filing statuses, based on income limitations.
Virtual Currency transactions are required to be reported on your return. What schedule to report on depends on what you received it for (capital transactions, business income, etc.). IRS requires brokers to provide reporting statements to individuals with virtual currency transactions. For more information, see Publication 544. https://www.irs.gov/forms-pubs/about-publication-544. Crypto Brokers must file the first Forms 1099-DA for the 2025 tax year by 3/31/26. For 2025 only, gross proceeds are required to be reported. Beginning in 2026, brokers must also report cost basis.
Residential Clean Energy Credit under IRC section 25D is non-refundable, and is available for expenses for qualified solar electric, water heating, fuel cell, small wind energy and related property installed in a taxpayer’s home through 2032. If you use your home for business, the credit is limited. Your seller of your items should have information related to your credit.
Clean Energy Credit for Vehicles is available to buyers of qualifying new vehicles purchased after 4/17/23 and through 9/30/25 (this credit was terminated via OBBBA), subject to phase out at certain adjusted gross income ranges. For a new vehicle, make sure you understand what is eligible. This information is available at https://fueleconomy.gov/feg/tax2023.shtml. Credit is available for some used vehicles as well.
Form 1099-K reporting threshold for 2025 is $20k and 200 transactions. Some issuers may not mail a physical form, and you must retrieve it from their website.
Healthcare Enhancement for Local Public Safety Retirees Act allows a reduction of taxable earnings by $3,000 for medical insurance premiums paid during a calendar year. The premium no longer has to be deducted from the retiree’s pension check. Instructions on claiming the reduction are included in IRS Publication 575 (page 7)
SALT Deduction Deduction for state and local taxes has temporarily increased to $40k (from $10k), reverting in 2030. This increased deduction is applicable for all taxpayers except married filing separately. There is a phase out for high incomes.
Senior Deduction New $6,000 deduction ($12,000 for a married couple where both spouses qualify) for those 65+ phased out for higher incomes. This change is effective for years 2025-2028.
Charitable Giving New $1,000 “above the line” deduction for non-itemizers (starting in 2027 for tax year 2026 returns). For 2025, charitable deductions generally follow current rules.
Federal Estate and Gift Tax Exemption increased to $15 million per individual, starting 1/1/26, indexed for inflation.
No Tax on Tips Effective for 2025 through 2028, employees and self-employed individuals may deduct up to $25,000 qualified tips. Notice 2025-69 clarifies how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips. Listing of occupations for this deduction is at https://www.irs.gov/forms-pubs/occupations-that-customarily-and-regularly-received-tips-on-or-before-december-31-2024. Form 4070 is used by employees who are compensated by tips to report those tips to their employers. Any tips over $20 per month must be reported on the form, which must be submitted by the tenth. Employees document their daily tips on Form 4070A
No Tax on Overtime For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct up to $12,500 per person ($25,000 for joint filers) There is a phase out based on Modified Adjusted Gross Income. The deduction is the amount of pay that exceeds their regular rate of pay (the “half-time portion”) that is reported on a Form W-2, Form 1099, or other specified statement furnished to the individual. Notice 2025-69 includes guidance on this, also.
No Tax on Car Loan Interest Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchase for personal use and meets other eligibility requirements. Qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that undergone final assembly in the United States. The location of final assembly will be listed on the vehicle information label attached to each vehicle on a dealer’s premises. https://www.nhtsa.gov/vin-decoder website for the National Highway Traffic Safety Administration provides plant of manufacture information. Follow instructions on that website to determine if the vehicle’s plant of manufacture was located in the United States. IRS Notice 2025-57 discusses that finance companies must issue loan interest statements.
The Federal Government is Phasing Out Paper President Trump issued an executive order March 2025 requiring all federal agencies to transition from paper checks to electronic funds transfer to the extent permitted by law. IRS began phasing out paper refund checks for individual taxpayers on 9/30/25. The requirement that payments to IRS be electronic will begin in the near future. Individual taxpayers should set up an account. See info at https://www.irs.gov/payments/online-account-for-individuals Through your IRS account, you will be able to access tax records, make and view payments, and view or create payment plans.
Meal expenses -- non deductible Starting 1/1/26 most employer-provided meals are non deductible (OBBBA change).. . Most meals with clients or business partners remain 50% deductible if for a clear business purpose and properly documented. Meals for company-wide events (holiday parties) and that provided to the general public or customers (appreciation parties) are generally deductible. Travelling for business meals also remain 50% deductible. No other meals are deductible. To qualify for the business meal deduction (50% or 100%) there are 7 key requirements for deducting-- 1) ordinary and necessary 2) not lavish or extravagant 3) directly related or associated 4) taxpayer present 5) valid business contact 6) adequate documentation 7) meal must be separately stated if entertainment is paid on the same invoice. Personal meals with family, friends, or meals with no business purpose are not deductible. See Publication 15-B for more guidance on this issue.
Trump Accounts for Children (530a accounts) The government provides a $1,000 deposit. Additional contributions up to $5,000 annually can be made by families or employers. This limit will be adjusted annually for inflation starting in 2028). Eligible parents can initiate these accounts via IRS Form 4547 with 2025 tax returns or through an online portal at https://trumpaccounts.gov/ starting in mid-2026. By completing and submitting the form, you authorize the IRS and Treasury to create the account and deposit the funds if the child is eligible. The funds will then be invested in a diversified portfolio of low-cost index funds. Funds can be used at age 18 for specific purposes like education, home ownership, or business, or rolled into an IRA. Additional information is available at https://www.irs.gov/pub/irs-drop/n-25-68.pdf
100% Bonus Depreciation is permanent for property acquired between January 20, 2025 and December 31, 2028. The eligible property must have a recovery period of 20 years or less (MACRS property).
Qualified Business Income Deduction was set to expire for tax years beginning after 2025. This was made permanent by OBBBA.
Insurance for Illinois residents New for plan year 2026, Illinois is moving from HealthCare.gov to a state based marketplace. See https://getcovered.illinois.gov/ or call 866-311-1119.
AMT Changes OBBBA modifies the phase out mechanism of the AMT which is expected to increase tax for higher income taxpayers.
Miscellaneous Itemized Deductions are eliminated beginning in 2026. These are deductions such as employee business expenses, safe deposit box, etc. They were suspended under the TCJA but now permanently disallowed.
Schedule payments with IRS You can schedule IRS payments up to 365 days in advance using IRS Direct Pay for free, directly from checking or savings accounts. For structured monthly payments, set up a short-term (180 days) or long-term (installment agreement) plan via the Online Payment Agreement tool on https://www.irs.gov/ .
Adoption Credit For 2025, up to $17,280 per child in qualified adoption expenses can be claimed, with up to $5,000 of it being refundable; subject to income limits (phasing out at $299
Circular 230 Disclaimers
Any tax advice contained in this newsletter is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service, or to promote, market, or recommend to another person any tax related matter.
These materials are distributed with the understanding that Jacqueline Black & Associates, Ltd. assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. The reader is also cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated.