January 2026 Tax Update: Key Changes, New Deductions, and Planning Opportunities You Should Know

As we begin 2026, several important tax law changes and planning opportunities are now in effect. Whether you are an employee, business owner, or investor, these updates could significantly impact on your tax return, deductions, and long-term financial strategy.

This month’s update covers new income deductions, business tax incentives, clean energy credits, expanded disaster loss rules, and major individual tax law changes. Staying informed early in the year gives you time to plan properly and take advantage of available opportunities.

Key Highlights – January 2026 Tax Update

• New federal deductions for tips and overtime income may be available for 2025 earnings, even if you don’t itemize. Income limits, occupation restrictions, and reporting rules apply.

• Clean energy tax incentives for businesses are ending soon, but companies that act in early 2026 may still qualify for valuable deductions and credits related to energy-efficient buildings, clean vehicles, and EV charging equipment.

• Energy-efficient commercial building improvements may qualify for immediate deductions under Section 179D if construction begins by June 30, 2026, with enhanced benefits available for projects meeting wage and apprenticeship requirements.

• Business owners who purchased heavy vehicles (over 6,000 lbs.) in 2025 may qualify for 100% bonus depreciation or Section 179 expensing if the vehicle is used primarily for business.

• Expanded casualty loss deductions starting in 2026 may allow more taxpayers affected by state-declared disasters to claim losses, not just federally declared disasters.

• Major individual tax law changes in 2026 impact charitable deductions, retirement contributions, education savings, alternative minimum tax thresholds, and qualified business income deductions.

• New planning considerations for sudden windfalls emphasize pausing before spending, preparing for taxes, reducing debt, and building long-term financial plans.

• Important January and February tax deadlines apply to individuals and employers, including estimated tax payments, W-2s, 1099s, and payroll filings.

New Federal Deductions for Tips and Overtime Income

If you earned tips or overtime pay during 2025, you may be eligible for new federal income tax deductions when filing your return.

These deductions are available whether or not you itemize deductions, but they come with income limits and occupation restrictions.

Tips Income Deduction

Eligible workers may deduct up to $25,000 per year of qualified tips income. The deduction begins to phase out when your modified adjusted gross income (MAGI) exceeds:

• $150,000 for single filers

• $300,000 for married couples filing jointly

The deduction is fully phased out at:

• $400,000 for single filers

• $550,000 for joint filers

Qualified tips include tips paid in cash, charged on credit cards, or distributed through tip-sharing arrangements. The deduction applies only to occupations where tipping is customary, such as:

• Food and beverage service

• Hospitality and guest services

• Personal appearance and wellness

• Transportation and delivery services

Both employees and self-employed individuals may qualify. However, certain professions — including health, law, accounting, financial services, and investment management — are not eligible.

Overtime Income Deduction

Eligible workers may deduct up to:

• $12,500 of qualified overtime income

• $25,000 for married couples filing jointly

This deduction also begins to phase out at:

• $150,000 MAGI for single filers

• $300,000 MAGI for joint filers

And is fully phased out at:

• $275,000 for single filers

• $550,000 for joint filers

Only overtime pay required under the Fair Labor Standards Act qualifies — meaning only the extra “half” portion of time-and-a-half pay is deductible. Overtime premiums required under state law or union agreements do not qualify.

Important Reporting Rules

Under the new law, qualified tips and overtime income must be reported on Forms W-2 or 1099. However, the IRS has announced that for the 2025 tax year, there will be no immediate changes to federal reporting forms. Updated forms are expected beginning in 2026.

It is also important to note that while these deductions reduce federal income tax, payroll taxes still apply, and state and local income taxes may still be due.

Businesses: Act Quickly to Capture Clean Energy Tax Incentives

Although recent legislation extended or expanded many business tax incentives, several clean energy credits are now being phased out. However, businesses that act early in 2026 may still qualify for valuable tax benefits.

1. Energy-Efficient Building Improvements (Section 179D)

Businesses that improve commercial buildings with energy-efficient upgrades may be able to deduct the cost immediately instead of depreciating it over 39 years.

To qualify:

• Construction must begin by June 30, 2026

• Improvements must reduce energy and power costs by at least 25%

• Certification by an independent contractor or licensed engineer is required

Eligible improvements include:

• Interior lighting systems

• HVAC and hot water systems

• Building envelope improvements

The base deduction for 2026 ranges from 59 cents to $1.19 per square foot, depending on energy savings. Projects that meet prevailing wage and apprenticeship requirements may qualify for bonus deductions ranging from $2.97 to $5.94 per square foot.

2. Clean Commercial Vehicle Credits (Section 45W)

If your business purchased a qualified clean commercial vehicle on or before September 30, 2025, you may still be able to claim the credit on your 2025 tax return.

3. EV Charging and Alternative Fuel Credits (Section 30C)

Businesses that install electric vehicle charging stations or alternative fuel refueling equipment may qualify for a credit of up to $100,000 per item, as long as the property is placed in service by June 30, 2026.

Heavy Tax Breaks for Heavy Business Vehicles

If your business purchased a heavy vehicle in 2025 (SUV, pickup, or van over 6,000 pounds GVWR) and used it more than 50% for business, you may qualify for:

• 100% first-year bonus depreciation

• Section 179 expense (up to $31,300 for many vehicles)

To qualify, the vehicle must have been placed in service by December 31, 2025.

🔹Expanded Casualty Loss Deductions Starting in 2026

Beginning in 2026, casualty loss deductions are no longer limited only to federally declared disasters. Certain state-declared disasters may now also qualify, expanding relief for taxpayers impacted by:

• Fires

• Floods

• Explosions

• Other natural or man-made disasters

This change allows more taxpayers to potentially claim deductions for losses.

Make Smart Choices If You Receive a Sudden Windfall

Receiving a large sum of money — whether from an inheritance, bonus, settlement, or lottery — can feel exciting, but without a plan, it may not last.

Before spending:

• Deposit the funds into a secure account

• Wait at least 30 days before making major purchases

• Set aside money for taxes

• Pay down high-interest debt

• Build or strengthen your emergency savings

Many windfalls are taxable and could push you into a higher tax bracket. A thoughtful financial plan can help ensure your good fortune supports your long-term goals rather than short-term impulses.

Major Tax Law Changes for Individuals in 2026

Several new provisions are now in effect, including:

• A new charitable deduction for non-itemizers (up to $1,000 single / $2,000 joint)

• A new 0.5% AGI floor on charitable deductions for itemizers

• A new 35% cap on itemized deduction benefits for top-bracket taxpayers

• Lower income thresholds for AMT exemption phaseouts

• New tax-advantaged investment accounts for children

• Expanded 529 education withdrawal limits

• New Roth-only rules for higher-income retirement catch-up contributions

• Elimination of certain home energy credits

• Expanded qualified business income deduction rules

These changes may impact both your tax bill and your long-term planning strategy.

Important January and February Tax Deadlines

The newsletter also includes key deadlines for:

• Payroll tax deposits, this depends on filer type. Most due dates fall on or before January 31, 2026.

• Estimated tax payments, 4thQ2025 due on January 15, 2026.

• W-2, February 2, 2026, and 1099 filings, depending on the specific forms and filing method, could fall in January, February or March.

• Employer payroll returns, due on January 31, 2026.

Missing deadlines can result in penalties and interest, so staying organized early in the year is essential.

✅ Staying informed today helps you make smarter tax decisions tomorrow.

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