December 2025 Newsletter
Warning: Dates in your calendar are closer than they appear. So take advantage of any year-end tax savings and plan ahead for 2026. We’ll show you how.
Dear client,
Happy holidays! This year brought big changes in new tax laws that you need to know. With 2026 rapidly approaching, how can you reduce your tax burden?
Below, you will find key tax law changes, important deadlines, and recommended planning ideas. If you need further guidance, you can always engage us for a year-end planning meeting.
New temporary deductions for tips, overtime, and car loan interest
For 2025-2028, you may be eligible for new deductions:
Up to $25,000 of qualified tips
Up to $12,500 ($25,000 joint) of overtime premium pay
Up to $10,000 of interest on loans for new, US—assembled vehicles
Please note: Some W-2s for the 2025 year will not specify tips. Please try to guestimate the amount in advance of your tax appointment.
While this may sound great, the logistics may leave something to be desired:
No Tax on Tips
Employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips.
The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
No Tax on Overtime
Only the “extra half” portion of time-and-a-half pay required under the FLSA (i.e., for hours worked over 40 in a workweek) qualifies. Overtime paid due to California's daily overtime laws (e.g., hours 8-12 in a workday) does not qualify for this federal deduction unless those hours also exceed 40 for the week. Again, please try to guestimate the amount in advance of your tax appointment.
The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
Car Loan Interest Deduction
To qualify, the vehicle must be purchased for personal use. (Sadly, lease payments do not qualify). The deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:
A loan originated after December 31, 2024
Used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify)
For a personal use vehicle (not for business or commercial use), and
Secured by a lien on the vehicle
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.
Qualified vehicle: A 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 has undergone final assembly in the United States.
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. Alternatively, taxpayers may rely on the vehicle’s plant of manufacture as reported in the vehicle identification number (VIN) to determine whether a vehicle has undergone final assembly in the United States.
The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) provides plant of manufacture information. Taxpayers can follow the instructions on that website to determine if the vehicle’s plant of manufacture was located in the United States.
If you are eligible for the car loan interest, please provide us with your vehicle’s your VIN.
New temporary deduction for seniors
If you are age 65 or older, an additional senior deduction of up to $6,000 is available to those who itemize or claim the standard deduction. This new deduction is in addition to the current additional standard deduction for seniors under existing law. Specifically:
The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify).
The deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
Qualifying taxpayers: To qualify for the additional deduction, a taxpayer must attain age 65 on or before the last day of the taxable year.
This new deduction is in addition to the current additional standard deduction for seniors under existing law.
The $6,000 senior deduction is per eligible individual (i.e., $12,000 total for a married couple where both spouses qualify).
Deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
Who said getting older couldn’t be fun?
Charitable contribution planning
Starting in 2026, filers who do not itemize deductions can claim a charitable contribution of up to $1,000 ($2,000 married – filing jointly) for monetary donations. The bad news: This does not include contributions of old clothes.
If that applies to you and you are in a position to be charitable at year-end, consider waiting until the new year to make that donation.
For those who regularly itemize, in 2026, charitable contribution deductions will be subject to a floor that is .5% of your Adjusted Gross Income (AGI). It works like this:
If your Adjusted Gross Income is $500,000 and you donated $6,000 in 2026, you would be able to deduct $3,500 of your charitable contribution ($500,000 x .005 = $2,500; $6,000 less $2,500 = $3,500).
In this situation, it may be preferable to push your charitable contributions to 2025. Additionally, you may consider grouping your charitable contributions to be larger every other year rather than smaller ones every year.
Qualified charitable distributions (QCDs) are another beneficial option for those who are subject to taking a Required Minimum Distribution (RMD) from a retirement plan. A QCD counts toward your RMD and is excluded from taxable income. (Yes, we know: That’s a mouthful.) We recommend that you contact your retirement plan custodian and possibly your designated charity to make the arrangements.
Consider donating appreciated assets that have been held for more than one year, rather than cash. You benefit from a deduction for the Fair Market Value (FMV) of your appreciated stock and avoid taxes on capital gains from the appreciation.
Opening and funding a Donor-Advised Fund (DAF) is appealing to many as it allows for a tax-deductible gift in the current year and the ability to distribute those funds to charities over multiple years.
It is essential to maintain proper documentation of all donations, including obtaining a letter from the charity confirming that no goods or services were provided in exchange for donations of $250 or more.
Energy tax credits and green incentives
Many federal energy credits, including those for new and used clean vehicles, solar panels, and energy-efficient home improvements, have expired or are set to expire soon. It was good while it lasted. (Sigh.)
Estate and gift tax planning
The federal estate and gift exemption will increase to $15 million per person ($30 million per couple) for transfers after Dec. 31, 2025, with future inflation adjustments. The annual gift exclusion for 2025 and 2026 is $19,000 per recipient.
Qualified Business Income (QBI) deduction
The 20% QBI deduction for certain business income is now permanent, with expanded phase-in ranges and a minimum deduction of $400 for taxpayers with at least $1,000 of qualified business income.
Capital expenditures
“Bonus” deprecation (100% expensing of qualifying property) is permanently extended for property acquired and placed in service on or after Jan. 19, 2025. Section 179 expensing limits are increased to $2.5 million.
State and local tax deduction (SALT)
Here’s something worth its SALT: The cap on the deduction for state and local taxes is temporarily increased to $40,000 for both single and married filing jointly taxpayers ($20,000 for married filing separately) for 2025 through 2029, with a phase-down for higher incomes. The cap reverts to $10,000 after 2029. This may affect whether it is beneficial for you to itemize deductions and your overall tax planning. The Pass Thru Entity Tax is still an option for those taxpayers who qualify.
Digital assets and virtual currency
Beginning with transactions occurring in 2025, the IRS has implemented new reporting requirements. For certain transactions through a broker or certain digital asset platforms, you may receive a new Form 1099-DA in early 2026. It is important to note that you are responsible for accurately reporting all taxable digital asset transactions on your tax return, even if you do not receive a Form 1099-DA. In addition, it’s vital that you maintain detailed records of all digital asset purchases, sales, exchanges, and related transactions to substantiate that reporting.
The IRS is increasing its scrutiny and reporting requirements in this area. Digital assets are defined as any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. Examples of digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
Business meals
As you enter the holiday season and have more social gatherings with your customers and employees, keep in mind the rules for business meal deductions. There are circumstances where certain business meals may qualify for a 100% deduction. It is important to properly categorize your expenses.
Electronic payments to and from the IRS
In March 2025, the president signed an executive order requiring all federal disbursements, including IRS tax refunds to be made electronically rather than by paper check, effective Sept. 30, 2025. According to the IRS, payments to the US Treasury can still be made using the current acceptable methods until guidance is released to provide a timeline for electronic payments.
We do recommend making Federal tax payments on the IRS website — www.irs.gov. If you do opt to mail in your payments, we do recommend sending with proof of mailing.
Additional tax and financial planning considerations
We urge you to review your retirement plans at least annually. That includes making the most of tax-advantaged retirement saving options, such as traditional Individual Retirement Accounts (IRAs), Roth IRAs, and company retirement plans. It is also advisable to take advantage of Health Savings Accounts (HSAs) that can help you reduce your taxes and save for medically-related expenses.
Here are a few more important tax and financial planning items to consider and discuss with us:
Life changes — Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, address changes, starting a business, and significant expenditures (real estate purchases, college tuition payments, etc.). These events often create both tax and planning opportunities.
Capital gains and loss harvesting — Consider the tax benefits related to using capital losses to offset realized gains. Selling underperforming assets before year-end can help manage taxable income.
Education planning — Save for education with Section 529 plans. There can be income tax benefits to do so, and there have been changes in the way these funds can be used. We can help you with any questions.
Coming Soon:
Since you have found your way to the end of this letter, we wanted to remind you to look for your Tax Organizer around the new year. Please make sure to carefully review all the questions on the organizer as some of them may have changed.
Thank you for being a valued client. Your trust is our secret to our success. May the holidays and the new year bring you prosperity, good health, and happiness.
Sincerely,
Ross-Stern & Associates