Eight Key Reminders for This Tax Season
What you need to know for correct returns and client conversations
This tax season, which officially started on January 26, 2026, will be challenging, as tax year 2025 will be the first in which tax professionals will be managing new provisions under the One Big Beautiful Bill Act (OB3 Act). Taxpayers will have misconceptions about provisions (especially “no tax on Social Security”), which will further complicate matters.
Below are important reminders for 2025 and/or 2026 regarding some new OB3 Act provisions and other essential changes; most of them can open the door to planning conversations and/or advisory engagements.
Electronic Payments Encouraged, But Not Required
The IRS released initial guidance on Executive Order 14247, which requires a complete transition to electronic payments for the federal government.
The quick overview: this year is generally the same as last year, but taxpayers are strongly encouraged to transition immediately to electronic payments for sending and receiving payments from the IRS (e.g., Direct Pay, Individual Online Account, etc.). Paper checks will continue to be processed and issued by the IRS this year.
There is one change to be aware of for individuals who file refund returns without direct deposit information; not using direct deposit will delay refund issuance, per Topic A, Q&A 5 from the guidance:
For all taxpayers with missing information, the IRS will send letters to individuals using their last-known address on record, asking them to update their banking information if they did not provide it on their tax return, or if their financial institution rejected the direct deposit.
The taxpayer will then receive a CP53E notice in the mail requesting a response within 30 days, either to provide banking information or to explain why such information cannot be provided. Additionally, the Where’s My Refund? tool on IRS.gov will provide messaging related to the need for banking information. The taxpayer will be able to use the IRS Individual Online Account to provide this information. For security reasons, IRS employees cannot take direct deposit information over the phone or in person.
Once the taxpayer provides the direct deposit information or exception, the refund will be immediately released via direct deposit or paper check. If there is no response to the notice and there are no other issues with the tax return, the refund will be released as a paper check after six weeks.
Tips Deduction for Non-Employees
For tax year 2025, non-employees whose qualified tips are included as part of the aggregate income reported on Form 1099-K, Form 1099-NEC, or Form 1099-MISC can use reports and other documents to substantiate the qualified tips amount. If the taxpayer does not receive a Form 1099 that includes the tip amounts, they cannot get the deduction for those amounts. See Notice 2025-69, Sec. III.A.2.
Business owners may want to request the issuance of Form 1099-K, even if it is not required and the amounts are below the threshold, to claim the tips deduction.
Overtime Deduction Reporting Problems
The qualified overtime compensation deduction is limited to the premium portion of overtime compensation (i.e., the “half” in “time-and-a-half”) paid for working more than 40 hours per week under the federal Fair Labor Standards Act (FLSA).
For tax year 2025, an employee can use the box 14 reported amount (or a separate statement) if the employer voluntarily reports the qualified overtime compensation amount. If the employer does not report the qualified overtime compensation amount, the employee may use other documentation, such as earnings or pay statements, to determine their deduction. See Notice 2025-69 for calculation methods.
For workers who receive overtime under various provisions that are not FLSA-mandated (e.g., state-mandated overtime for working more than eight hours in one day), reasonable estimates using sound judgment may be required if the final pay statement for 2025 provides insufficient detail to calculate the exact amounts.
Trump Account Elections
A taxpayer can file Form 4547, Trump Account Election(s), with their 2025 Form 1040 to open a Trump Account and receive the $1,000 pilot payment if they have a child born after December 31, 2024. The taxpayer will need to sign Form 8879-TA, IRS e-file Signature Authorization for Form 4547, Trump Account Election(s), if an electronic return originator (ERO) files Form 4547.
Whether or not to make a Trump Account election is something to discuss with every client, and it is inappropriate to either ignore it entirely or file Form 4547 for every client without consulting them in advance.
This prior article goes in-depth on Trump Accounts and potential planning options.
“SALT Spot” Planning
If a taxpayer has MAGI of $500,000 to $625,000+ in tax years 2025 and/or 2026, it is essential to consider AGI planning to get them the largest state and local tax (SALT) deduction possible, if the reduced cap limits their deduction.
This prior edition discusses the “SALT” spot and multiple provisions that apply to this AGI range for tax years 2026 and forward.
Another consequence of the enhanced SALT deduction cap: a lower-income taxpayer may be able to fully deduct their state and local tax payments on Schedule A without the use of pass-through entity taxes (PTET) as outlined in Notice 2020-75. If so, using PTET may actually increase one’s tax liability, since the PTET deduction reduces §199A qualified business income. Only a projection as part of a planning engagement can determine the optimal path forward.
Health Savings Account (HSA) Availability
Starting in tax year 2026, enrollment in any bronze or catastrophic plan purchased on the Health Insurance Marketplace (i.e., the Exchange) will qualify an individual to make HSA contributions. In addition, in Notice 2026-05, Q&A 7, the IRS stated that an individual enrolled in a bronze or catastrophic plan that is available as individual coverage on the individual market, but not on an Exchange, can contribute to an HSA.
HSAs are triple tax-advantaged: a deduction upon contribution, tax-deferred growth of funds in the account, and tax-free distributions if used to pay or reimburse qualified medical expenses. Having funds in an HSA is a powerful short-term and long-term planning opportunity, especially if a taxpayer accumulates funds in the HSA over time.
Using a bronze plan plus an HSA can help mitigate some of the financial challenges individuals face with 2026 health insurance costs due to the expiration of the more generous §36B premium tax credit provisions at the end of 2025.
Charitable Contributions in 2026
Starting in 2026, non-itemizers can deduct cash charitable contributions up to $1,000 ($2,000 for joint filers) in addition to the standard deduction.
However, individual itemizers who donate have 2026 problems: there is a new 0.5% AGI floor on their deduction, and if the taxpayer is in the 37% bracket, the value of their itemized deductions decreases to 35% of the total.
To get past the 0.5% floor, a taxpayer should consider “bunching” donations, using a donor-advised fund (DAF), or converting charitable deductions into business deductions using the rules in Treas. Reg. §1.162-15.
Qualified Production Property
New §168(n) allows for a 100% special depreciation allowance for nonresidential real property used in a qualified production activity if construction began after January 19, 2025, and the building is placed in service before January 1, 2031. The taxpayer must elect the 100% allowance, and the property becomes §1245 property (ordinary gain) instead of §1250 property (capital gain with a maximum 25% rate).
Normally original use of the building must commence with the taxpayer to claim this allowance; however, there is a transition rule for property acquired after January 19, 2025, allowing the deduction if the property was not used in a qualified production activity from January 1, 2021, to May 12, 2025, the taxpayer did not use the property at any time before acquisition, and the taxpayer did not acquire it from certain related-party sales.
The IRS has not issued any guidance on this provision yet; however, it can be a powerful tax reduction tool for businesses (and their owners) looking to produce or transform tangible property in the United States.
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