Tax season is here, and we are currently supporting our clients and their tax preparers on filing for the previous year. Most people are familiar with filing taxes; however, they may not be as knowledgeable about tax planning. While tax filing focuses on only one calendar year, tax planning involves looking over multiple years and includes optimizing tax strategy through different chapters of their lives.
Tax planning is an essential part of financial planning, and often informs life decisions such as when to retire, whether to take a new job, or even getting married. This year, there are significant changes to Federal taxes due to the recently passed tax law. With these changes, working with the right professional for careful, proactive planning is more critical than ever. Below we highlight a few key provisions of the new bill and share examples of how they may impact tax planning.
SALT Deduction Cap
One of the most widely talked about parts of the new law is the State and Local Tax (SALT) deduction cap. Individuals and married couples earning less than $600,000 can now deduct up to $40,000 of their state and local taxes[1]. Previously, taxpayers could only deduct up to $10,000, which remains unchanged for households making more than the threshold. Californians and residents of other high-tax states are expected to benefit from the ability to deduct a larger share of their state income and property taxes. This change is temporary and is expected to revert to the lower amount in 2030.
When we work with clients on decisions, such as diversifying appreciated stock or selling a longtime family home, our team pays extra attention to income. Due to the new law, we weigh the impact of losing the expanded SALT deduction cap against the benefit of selling, in addition to other income thresholds that have been in place and may affect your taxes.
Enhanced Senior Deduction
Another key provision of the new tax bill is a deduction for seniors. Taxpayers 65 years old and above, making less than $75,000 single or $150,000 joint, enjoy an additional $6,000 per person tax deduction on top of the standard or itemized deduction.[2] All else equal, many taxpayers who qualify will see their taxes decrease compared to last year. This provision will expire in 2028, making the next few years a particularly good time to take advantage of relatively lower taxes.
As we consider the overall tax landscape for clients who qualify, we may explore converting more of their pre-tax retirement accounts into a post-tax Roth IRA account, which grows tax-free. This strategy effectively lets them “pre-pay” taxes in a year where the rates are relatively lower in exchange for tax-free growth in the future.
Charitable Giving
With the new tax law, we anticipate more people will itemize their deductions each year, making planning for charitable giving even more important. When itemizing deductions, your charitable giving generally helps to reduce taxes. If you’re still taking the standard deduction, you are now able to take a charitable deduction starting in 2026[3].
In recent years, we have advised some clients to group several years’ worth of their charitable contributions into one donor-advised fund (DAF) contribution. This allows them to take advantage of a larger itemized deduction in a single year and take the standard deduction in other years. With this new tax law in place, we may recommend clients smooth out their giving over multiple years rather than a larger amount in a single year. These giving strategies are often paired with broader charitable planning techniques, such as Qualified Charitable Distributions (QCD) for those who qualify.
Proactive Planning
Despite many changes in Federal taxes, there are no material changes to the California tax code. State taxes are regulated differently from Federal taxes, and California does not conform to the One Big Beautiful Big Act. For business owners, there are additional provisions in the new tax code that may be relevant. For our clients, we connect them with qualified tax professionals and work collaboratively to align long-term financial planning with current tax opportunities.
There is never one-size-fits-all advice with personal finance and tax planning. As we approach the April tax filing deadline, our team is supporting clients and their tax preparers with document gathering and communication. We also take a longer-term view through personalized tax planning, working alongside our clients to help them make important life decisions with clarity and confidence.
Resources
[1] Section 70120. H.R.1 – full text of House Bill. Congress.gov.
[2] Tax deductions for working Americans and seniors. IRS.gov
[3] Section 70424. H.R.1 – full text of House Bill. Congress.gov.
