Legacy Law Blog

Since World War II, there have been only two presidents who passed comprehensive tax reform packages: Ronald Reagan and Donald Trump.

During his first term, the Trump administration passed The Tax Cuts and Jobs Act of 2017 (TCJA) which at the time was the largest tax overhaul since the Tax Reform Act of 1986. It impacted individual and corporate rates, base-broadening rules and international taxation.

Trump’s second term has been no different. In just the first year of his second term, Trump passed a second significant tax reform package: the One Big Beautiful Bill Act (OBBBA).

The 2026 tax year is the first full year when the OBBBA is fully baked into the system. This means many familiar rules that historically impacted individual taxpayers will now behave differently. Standard deductions are bigger, some new deductions are available for the first time, and Michigan has layered its own tweaks on top of the OBBBA for workers who rely on tips and overtime.

Here are 10 practical moves individual taxpayers should consider as they plan for 2026:​

1. Rebuild Your Tax Picture Around the New Standard Deduction

For 2026, the federal standard deduction is $16,100 for single filers, $24,150 for heads of household, and $32,200 for married couples filing jointly. Those numbers are now permanently anchored by the OBBBA, rather than scheduled to drop after 2025. Functionally, this means that for most taxpayers, “defaulting” into the standard deduction will be the norm.​

The planning implications from the increased standard deduction are simple: assume the standard deduction unless you can clearly beat it, then look at whether bunching itemizable expenses (i.e., charitable gifts, medical costs and property taxes) into a single year gives you a better result every second or third year.​

2. Use the New Senior Deduction Strategically

The OBBBA creates an additional $6,000 deduction per qualifying individual age 65 or older from 2025 through 2028, on top of the regular standard deduction for seniors. A married couple where both spouses are 65 or older can claim up to $12,000 of extra deduction, although this benefit phases out for higher‑income households.​

For retirees, this opens a window for Roth conversions, opportunistic capital‑gain realization or accelerating traditional IRA withdrawals into years where your deduction is unusually high. The goal is to “fill up” low brackets in 2026–2028 instead of deferring everything into potentially higher‑tax years.​

3. Take Advantage of New Worker Friendly Deductions

The OBBBA included several deductions that specifically reward active workers, particularly those in the lower- and middle-income ranges. These deductions include the following:​

• A federal deduction for up to $25,000 of tip income, subject to income limits​
• A deduction for up to $12,500 of qualified overtime compensation, doubled for joint filers​
• A deduction for up to $10,000 of interest on certain personal auto loans, again with phaseouts at higher incomes​

If you regularly work overtime or earn a large share of income from tips, these targeted deductions may matter more to your tax bill than generic adjustments like student loan interest ever did.​

4. Understand How Michigan Piggybacks on the Federal Tip & Overtime rules

Michigan adopted the federal definitions of “qualified tips” and “qualified overtime compensation” for state‑level deductions beginning in 2026. For the 2026 through 2028 tax years, state law generally allows a Michigan deduction that mirrors the amount you deduct on your federal return for those categories.​

Practically, that means your paystubs and year‑end forms need to distinguish regular wages from qualified tips and overtime or you risk leaving money on the table. Workers in restaurants, hospitality and other tipped industries should confirm that employers are tracking these amounts correctly for both federal and Michigan reporting.​

5. Re‑evaluate Whether You Actually Itemize in a World With a Higher SALT Cap

The OBBBA temporarily raises the itemized deduction limit for State and Local Taxes (SALT) to $40,000 for most filers from 2025 through 2029, replacing the old $10,000 cap. For high‑income taxpayers, there is also a new cap on the value of itemized deductions so that their benefit does not exceed a 35% effective rate.​

If you own property in a high‑tax jurisdiction or have high state tax payments, the larger SALT cap may make itemizing worth revisiting, even with the elevated standard deduction. At the very top of the income scale, the 35% benefit cap can blunt the advantage of piling up itemized deductions beyond a certain point.​

6. Don’t Ignore the New Charitable Options for Non‑itemizers

One notable change is that starting in 2026, taxpayers who claim the standard deduction can still claim a separate charitable deduction for cash donations, up to $1,000 for single filers and $2,000 for joint filers. This is a modest but meaningful way to get some tax benefit from charitable giving without fully itemizing.​

Itemizers still face the usual percentage of Adjusted Gross Income (AGI) limits, now at a permanent 60% cap for cash gifts, and in some cases you must clear a small AGI “floor” before charitable contributions are deductible. This makes documentation and the timing of larger gifts even more important.​

7. Coordinate Retirement, HSA & Other Saving With Higher 2026 Limits

Inflation adjustments to the annual contribution limits and the OBBBA’s structure push contribution limits higher for 401(k) plans, IRAs and Health Savings Accounts (HSAs) in 2026. For workers 50 and older, catch‑up contributions remain a powerful tool for shifting more income into tax‑favored environments while rates are relatively low.​

Because limits are higher but paychecks may not keep pace for many taxpayers, a practical strategy may be to increase deferral percentages early in the year and then monitor whether you are on track to hit the cap by year’s end to take advantage of the increased annual contribution limits.​

8. Plan Around Permanent Rate Brackets & Eliminated Personal Exemptions

The OBBBA makes the seven‑bracket progressive income tax structure (10%, 12%, 22%, 24%, 32%, 35% and 37%) permanent, with 2026 serving as a reset year for the lowest brackets. At the same time, personal exemptions are permanently repealed with only a narrow exception for some seniors.​

For planning, this means the basic math of income‑shifting such as deciding whether to accelerate or defer income should be based on these permanent brackets, not on a presumed “sunset” after 2025. It also shifts the value of children and dependents firmly into credits rather than exemptions, which will change how families think about AGI thresholds.​

9. Watch the Interactions Among AMT, NIIT & New Deductions

Higher standard deductions and new worker‑focused deductions do not eliminate the Alternative Minimum Tax (AMT) or the 3.8% Net Investment Income Tax (NIIT). In fact, stacking new deductions such as tip or overtime write‑offs with large capital gains can create odd cliff points where NIIT or AMT effectively “claws back” some of the benefit.​

High‑income individuals with stock options, sizable K‑1s or concentrated investment income should model 2026 transactions before execution, particularly large incentive stock option exercises or big gain harvests.​

10. Keep Documentation Tight—Especially for Tips, Overtime & Auto Expenses

The IRS expects a surge in complexity for 2026 individual returns precisely because many of the new deductions require contemporaneous records. For tip and overtime deductions, that means retaining paystubs and employer statements that break out qualifying amounts. For auto‑loan interest deductions, that means loan statements and clear records of which vehicle is eligible.​

Michigan’s reliance on federal definitions for tip and overtime deductions only increases the stakes of accurate recordkeeping, because an error at the federal level will cascade directly to your state return. A simple digital folder—by month, tagged with income type—can save hours of reconstruction when you sit down to prepare your 2026 return.

BONUS TIP:

When in Doubt, Consult a Tax Professional

Of the tax years in recent memory, this is one where taxpayers should strongly consider discussing their tax situation with a tax practitioner or certified public accountant. This is particularly true if you expect to be impacted by one of the OBBBA provisions described earlier in this post.

When there are new tax provisions or uncertainty as to how the IRS will interpret and implement a new comprehensive act like the OBBBA, careful planning and implementation of a tax strategy will pay dividends for taxpayers when they file their 2026 return next year.