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 says. “And then there are additional changes to itemized deductions. The one thing about that legislation that’s a little odd is there’s different times where things take effect. Some are effective for 2025 some are effective for 2026, some are permanent, and some are just temporary.” 

That means that people have to get used to making sure they’re updating their tax strategy to think about these deductions and understand how the future may change their tax strategies, he says. 

Among the changes: 

Enhanced Senior Deduction. Effective for 2025 through 2028, individuals 65 and older can claim an additional deduction of $6,000 ($12,000 for a married couple). 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 prior years if you were itemizing, the most you could deduct for your state, local, and property taxes was $10,000,” Waskiewicz says. “If you were in a state like New Jersey, real estate taxes are pretty high and state taxes can be high too. So, that (deduction) was not a benefit to you. Starting in 2025 you have the ability to deduct up to $40,000 of that state and local income tax and real estate tax.” That also comes 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.) But itemizers who make charitable contributions will only be able to claim a tax deduction to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (AGI). For example, 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, “what taxpayers want to do, if it makes sense with your tax plan, is maybe accelerate those charitable deductions this year when that floor doesn’t apply,” Waskiewicz says. 

Other things to consider 

Roth IRA conversion. That’s one of the things the financial and tax planners will help their clients decide if it makes sense. The Roth conversion may make sense long-term, but it may also move you into a higher tax bracket and could dramatically increase your tax bill in 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 do some tax loss harvesting, realize some of the losses and offset either gains this year or gains in future years.” 

Required minimum distributions (RMD). That’s a big focus at the end of the year, making sure that everybody meets what their required minimum is for the year, especially those who are taking it for the first time,” says Rich. “They have until April of the following year to do that, if it’s their first year. But realistically, that means that they would have to take two distributions next year. So, we’re obviously hoping that they’ll avoid any penalties by getting everything done on time – but also encouraging them to think about how they’d like to use that required minimum distribution, whether it’s for living expenses or if they’re charitably inclined.” 

Qualified charitable distributions (QCD). For those taking RMD, the QCD allows you to send funds directly from an IRA to the charity. That means the withdrawal will not count as taxable income. “That’s a pretty common thing that our clients are doing,” says Rich. 

Year-Round Tax Planning

Considering all the complexities and the changes in the tax law, financial and tax advisors warn that tax planning should be a year-round exercise. Do not wait until the end of the year – it might be too late to institute some of the things that may save you money in the current tax year. 

“One of the things that people are going to have to get used to doing is just making sure they’re updating their tax strategy to think about these deductions and also understand how the future may change their tax strategies,” Waskiewicz says. 

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 author of the book “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com

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