Year-End Tax Strategies for Seniors
As if year-end tax planning wasn’t complicated enough, the so-called “One Big Beautiful Bill” approved by Congress earlier this year is bringing changes that will have an effect on seniors and retirees for the next couple of years.
New Deductions
“There are a number of new deductions that come into play, especially for seniors,” says Robert Waskiewicz, partner and senior financial advisor at Wescott Financial Advisory Group in Philadelphia, Pennsylvania.
“You have the enhanced senior credit or senior deduction, which was meant to offset some of the tax liability associated with Social Security,” he explains. “And then there are additional changes to itemized deductions. The one thing about that legislation that’s a little odd is there are different times when things take effect. Some are effective for 2025, some for 2026, some are permanent, and some are just temporary.”
This means individuals must adapt their tax strategies to account for these deductions and understand how future changes may impact their financial planning.
Among the changes:
Enhanced Senior Deduction. Effective for 2025 through 2028, individuals aged 65 and older can claim an additional deduction of $6,000 ($12,000 for married couples). This new deduction is in addition to the current additional standard deduction for seniors under existing law. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
Higher limit on state, local, and property tax deductions. In previous years, if you were itemizing, the maximum deduction for state, local, and property taxes was $10,000. “If you were in a state like New Jersey, where real estate and state taxes are high, that deduction was not beneficial,” Waskiewicz notes. Starting in 2025, taxpayers will be able to deduct up to $40,000 of state and local income tax and real estate tax, along with a much higher income limitation.
Changes in charitable deductions. Beginning in the 2026 tax year, a reinstated deduction allows non-itemizers to deduct cash donations to charity—up to $1,000 for single filers ($2,000 for married couples filing jointly). However, itemizers will only be able to claim a tax deduction for charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For instance, a couple with an AGI of $300,000 could only deduct charitable donations over $1,500. Since this reduction in benefits doesn’t start until 2026, Waskiewicz advises taxpayers to consider accelerating charitable deductions this year when the floor doesn’t apply.
Other Things to Consider
Roth IRA Conversion. Financial and tax planners will help clients determine if a Roth conversion makes sense long-term. However, it may also push you into a higher tax bracket, significantly increasing your tax bill for the current year.
Tax Loss Harvesting. “The markets have had three strong years, so we look at tax loss harvesting,” says Lauren Rich, senior wealth advisor at Linscomb Wealth in Houston, Texas. “There are typically some positions where you could realize losses to offset gains this year or in future years.”
Required Minimum Distributions (RMD). As the year ends, ensuring compliance with RMDs is crucial, especially for those taking them for the first time. “They have until April of the following year to meet their RMD, but realistically, that means they would have to take two distributions next year,” Rich explains. It’s important to avoid penalties and consider how to use the RMD, whether for living expenses or charitable contributions.
Qualified Charitable Distributions (QCD). For those taking RMDs, a QCD allows funds to be sent directly from an IRA to a charity, meaning the withdrawal won’t count as taxable income. “That’s a common strategy among our clients,” Rich adds.
Year-Round Tax Planning
Given the complexities and changes in tax law, financial and tax advisors emphasize that tax planning should be a year-round endeavor. Waiting until the end of the year may be too late to implement strategies that could save you money.
“People need to get used to updating their tax strategies to account for these deductions and understand how future changes may affect their planning,” Waskiewicz advises.
YOUR TURN
What do you think of these changes in tax law? Share your thoughts in the comments – but keep it civil!
Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post, and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also the author of “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com
Your use of any financial advice is at your sole discretion and risk. Seniorplanet.org and Older Adults Technology Services from AARP make no claim or promise of any result or success.
As if year-end tax planning wasn’t complicated enough, the so-called “One Big Beautiful Bill” approved by Congress earlier this year is bringing changes that will have an effect on seniors and retirees for the next couple of years.
New Deductions
“There are a number of new deductions that come into play, especially for seniors,” says Robert Waskiewicz, partner and senior financial advisor at Wescott Financial Advisory Group in Philadelphia, Pennsylvania.
“You have the enhanced senior credit or senior deduction, which was meant to offset some of the tax liability associated with Social Security,” he explains. “And then there are additional changes to itemized deductions. The one thing about that legislation that’s a little odd is there are different times when things take effect. Some are effective for 2025, some for 2026, some are permanent, and some are just temporary.”
This means individuals must adapt their tax strategies to account for these deductions and understand how future changes may impact their financial planning.
Among the changes:
Enhanced Senior Deduction. Effective for 2025 through 2028, individuals aged 65 and older can claim an additional deduction of $6,000 ($12,000 for married couples). This new deduction is in addition to the current additional standard deduction for seniors under existing law. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
Higher limit on state, local, and property tax deductions. In previous years, if you were itemizing, the maximum deduction for state, local, and property taxes was $10,000. “If you were in a state like New Jersey, where real estate and state taxes are high, that deduction was not beneficial,” Waskiewicz notes. Starting in 2025, taxpayers will be able to deduct up to $40,000 of state and local income tax and real estate tax, along with a much higher income limitation.
Changes in charitable deductions. Beginning in the 2026 tax year, a reinstated deduction allows non-itemizers to deduct cash donations to charity—up to $1,000 for single filers ($2,000 for married couples filing jointly). However, itemizers will only be able to claim a tax deduction for charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For instance, a couple with an AGI of $300,000 could only deduct charitable donations over $1,500. Since this reduction in benefits doesn’t start until 2026, Waskiewicz advises taxpayers to consider accelerating charitable deductions this year when the floor doesn’t apply.
Other Things to Consider
Roth IRA Conversion. Financial and tax planners will help clients determine if a Roth conversion makes sense long-term. However, it may also push you into a higher tax bracket, significantly increasing your tax bill for the current year.
Tax Loss Harvesting. “The markets have had three strong years, so we look at tax loss harvesting,” says Lauren Rich, senior wealth advisor at Linscomb Wealth in Houston, Texas. “There are typically some positions where you could realize losses to offset gains this year or in future years.”
Required Minimum Distributions (RMD). As the year ends, ensuring compliance with RMDs is crucial, especially for those taking them for the first time. “They have until April of the following year to meet their RMD, but realistically, that means they would have to take two distributions next year,” Rich explains. It’s important to avoid penalties and consider how to use the RMD, whether for living expenses or charitable contributions.
Qualified Charitable Distributions (QCD). For those taking RMDs, a QCD allows funds to be sent directly from an IRA to a charity, meaning the withdrawal won’t count as taxable income. “That’s a common strategy among our clients,” Rich adds.
Year-Round Tax Planning
Given the complexities and changes in tax law, financial and tax advisors emphasize that tax planning should be a year-round endeavor. Waiting until the end of the year may be too late to implement strategies that could save you money.
“People need to get used to updating their tax strategies to account for these deductions and understand how future changes may affect their planning,” Waskiewicz advises.
YOUR TURN
What do you think of these changes in tax law? Share your thoughts in the comments – but keep it civil!
Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post, and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also the author of “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com
Your use of any financial advice is at your sole discretion and risk. Seniorplanet.org and Older Adults Technology Services from AARP make no claim or promise of any result or success.
