Tax season might feel like it’s still a ways off, but experts believe it’s a great time to prepare for the new changes brought on by the extensive tax and spending bill that was enacted in early July.
While there are no new taxes on overtime and the $6,000 bonus deduction for seniors is well-publicized, it’s worth noting that there are numerous other modifications to the tax code. Highlights include deductions for charitable contributions, interest deductions on certain auto loans, and increases in family deductions and credits.
As Brian Gray, a Certified Public Accountant and Tax Partner, pointed out, unlike the tax landscape after the 2017 Tax Cuts and Jobs Act, taxpayers now have various opportunities to strategize their taxes.
Charitable contributions don’t just apply to items anymore
Starting in 2026, the OBBB will reinstate the charitable contribution deduction for those taking the standard deduction.
During the pandemic, the CARES Act had allowed deductions for cash contributions—up to $300 for individuals and $600 for married couples. However, this provision has since expired.
With the new bill in place, Gray suggests that contributing to charity towards the year’s end could offer a financial advantage, allowing deductions of up to $1,000 per individual or $2,000 for couples without needing to itemize.
Taking advantage of these deductions might reduce your adjusted gross income. Ultimately, this lowers your tax liability, allowing you to qualify for other deductibles or credits.
Interest deductions on personal car loans
Brian Schultz, also a CPA, mentioned that the OBBB allows first-time buyers to deduct interest on new car loans.
Previously, these interest payments were only able to be deducted as an itemized expense. However, the new law permits deductions of up to $10,000 from 2025-2028, contingent upon meeting certain criteria.
For instance, applicants must purchase a new, U.S.-assembled vehicle for personal use, with restrictions based on income. If you can navigate these criteria, the numbers could significantly influence whether one should buy or lease a vehicle.
Additional family benefits
Even for families claiming the standard deduction, there are notable benefits under the OBBB, according to Schultz.
- If your employer provides a flexible spending account for dependent care, your contributions come from pre-tax income and can cover care for both children and incapacitated adults.
The OBBB permanently raises the annual maximum contributions from $5,000 to $7,500 ($3,750 for married couples), effective next year, although registration for these accounts will start soon in 2025.
The previous temporary increases during the COVID period allowed for a maximum of $10,500 in 2021, making a significant impact. According to insurance brokerage NewFront, these updates are part of a broader effort for families to access quality childcare and early education options.
- Additionally, the Child and Addiction Care Credit (CDCC) is set to see enhancements in 2026.
The credit rate will jump from 35% to 50% for qualifying expenses, with maximum claims reaching $3,000 for one child or $6,000 for two or more. There’s also an increase in income thresholds for the credits, which could greatly benefit families.
Sara Litling, executive director of a nonprofit focused on childcare, noted that these changes could effectively boost benefits by around $900 for families handling tight finances.
Ultimately, strategizing your 401(k) contributions might position you for larger credits as well. A lot is changing, and it’s essential to stay sharp about income levels to make the most of the new provisions.
