Individual Tax Planning: What's Changed and What Individuals Need to Know

The passing of Reconciliation Bill H.R.1 (the Bill) in July 2025 brought various changes that will impact individual taxes for 2025 and years to come. In addition to typical year-end tax planning strategies, we have detailed a few of the new updates to provide some idea of what to expect as 2025 comes to a close.

Estimated Tax Payments

Self-employed taxpayers should ensure that they have made any required estimated tax payments throughout the year. Additionally, if you have significant income that is not subject to withholding, you should be sure to make estimated payments to prevent penalties. Review your income and tax payments to date and make any necessary adjustments by January 15^th, 2026.       

Other Year End Items to Consider

Charitable contributions can provide significant tax deductions for certain taxpayers. If you itemize, consider making donations before the end of 2025 to receive the tax benefit before 2026 limits come into effect.

Consider selling any investments that have declined in value to realize capital losses. These losses can offset capital gains, reducing your overall tax liability.

It may be beneficial to max out contributions to a traditional IRA to receive the tax deduction and lower your taxable income. The max amount for 2025 is $7,000 ($8,000 for those age 50 or older in 2025). If you or your spouse are covered by a retirement plan at work, the deduction may be limited. Contributions for 2025 can be made up until April 15, 2026.

Tax Planning Opportunities Under the Bill

Charitable Contributions‍

The Bill restores and modifies an “above the line” deduction for charitable donations beginning in 2026. This means that those taking the standard deduction can still deduct contributions, with certain restrictions. Single filers can deduct up to $1,000 and joint filers up to $2,000. This deduction only applies to cash donations to public charities. Ensure you keep records of any cash donations to charities and speak with your HHM advisor to determine if your contributions qualify.

Beginning with tax year 2026, the Bill introduces a floor of 0.5% of adjusted gross income (AGI) for contributions for itemizers. This means that your donations must exceed 0.5% of your AGI to be tax deductible. For example, if you have AGI of $100,000, only donations over $500 will count towards your itemized deduction. It will be important to monitor your charitable contributions during 2026 to ensure you will receive the tax benefit. In some cases, it may be beneficial to donate a lump sum in a single year rather than spreading gifts over multiple years.

Itemized Deduction Limitations

The Bill introduced a limitation on the dollar amount of itemized deductions a taxpayer can take beginning in 2026. The Bill states that itemized deductions will be reduced by 2/37^ths of the lessor of A) the amount of itemized deductions or B) the taxable income (excluding itemized deductions) that exceeds the threshold for the 37% tax bracket. Simply put, limits will be placed on itemized deductions for those in or near the 37% tax bracket.

The 37% tax bracket for 2026 begins as follows: $768,700 for joint filers and $640,600 for single filers. The new itemized deduction limitation will only impact taxpayers with taxable income (excluding itemized deductions) over these thresholds. It is important to consider these upcoming limitations when planning for year-end. Consult with your HHM advisor to determine if any upcoming charitable contributions or other deductions should be accelerated to 2025 to avoid limitations.

SALT Deduction Limit

The Bill temporarily increases the deduction limitation for state and local taxes (SALT) for itemizers. For 2025, the SALT deduction limitation is $40,000, up from the current $10,000 cap that has been in effect since 2018. The $40,000 limit starts phasing out when a taxpayer’s modified adjusted gross income (MAGI) hits $500,000 ($250,000 for married taxpayers filing separately) but the minimum deduction is $10,000 regardless of MAGI. The increased cap will be in effect through 2029 with minor increases each year beginning in 2026. This change is particularly beneficial for taxpayers living in states with high income or property tax.

You can take advantage of the increased limit by paying early for any property taxes due for the upcoming year. The SALT increase may be a needed push to help some taxpayers reach the itemized deduction threshold.

Qualified Business Income (QBI) Deduction

The Bill made the Qualified Business Income (QBI) deduction permanent. The QBI deduction allows taxpayers to deduct a portion of qualified income from eligible business activities. This is beneficial for taxpayers as it eliminates much of the uncertainty about the future of the deduction.

The Bill also raised the phase-in range for income limitations. Previously, joint taxpayers[BB3]  with taxable income over $494,600 saw limitations on their QBI deduction. However, this range will be raised to $544,600 in tax year 2026 (assuming no inflation adjustment for 2026). This will allow higher income taxpayers to take advantage of more of the QBI deduction. Additionally, the Bill has guaranteed a minimum deduction of $400 for taxpayers with at least $1,000 in QBI. This is designed to ensure small businesses receive some QBI benefit.  

Other Miscellaneous Changes

The maximum child tax credit increased from $2,000 to $2,200 per qualifying child. The refundable portion of the credit was also raised from $1,400 to $1,700.

A new senior deduction allows taxpayers 65 and older to claim an additional deduction of $6,000 ($12,000 for married couples who both qualify). The deduction will be available for tax years 2025-2028.

Beginning in 2026, the Bill allows taxpayers to deduct personal casualty losses from state-declared disasters. Previously, losses were only deductible from federally declared disasters. This includes hurricanes, floods, fires, tornadoes, etc.

Importance of Tax Planning

Tax planning is an important tool every year, but it is especially relevant in years with key legislative changes. The passage of the 2025 Reconciliation Bill brings several tax changes to charitable contribution rules, itemized deduction limits, state and local tax deductions, QBI deduction permanence, and more. Taxpayers should carefully review their tax situation before year-end to determine if any of the changes are applicable to their situation. Tax planning can help reduce surprises and optimize savings under the new law.

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