New 2026 Tax Rules: What They Mean for Individuals and Business Owners
The 2026 tax year will bring several important federal tax changes that were not yet in effect for 2025. Many tax changes take effect based on tax years beginning after December 31, 2025. That means taxpayers should be making decisions now before the full tax impact is felt on a return.
Below is an overview of the major items individuals and businesses should keep on their radar as they plan for the 2026 tax year and beyond.
Key 2026 Tax Changes for Individuals
1.) Itemized deductions limitation (IRC §68)
A limitation that reduces the tax benefit of itemized deductions for certain taxpayers in the top 37% tax bracket.
- What is changing for 2026:
- For tax years beginning after December 31, 2025, itemized deductions are reduced by 2/37 of the lesser of
- (1) itemized deductions, or
- (2) the amount by which taxable income exceeds the threshold where the 37% bracket begins ($640,601 single / $768,701 married filing jointly)
- For tax years beginning after December 31, 2025, itemized deductions are reduced by 2/37 of the lesser of
This is effectively reducing the benefit of itemized deductions at the top rate from 37% to 35%.
- Planning ideas for 2026:
- Revisit the timing of large deductible items (including charitable gifts).
- Model whether you will be in the top bracket in 2026.
- Update estimated tax/withholding assumptions for high-income years.
2.) Charitable deduction for non-itemizers (IRC §170(p))
A deduction for certain charitable cash gifts for individuals who claim the standard deduction (i.e., do not itemize).
- What is changing for 2026:
- Beginning in 2026, non-itemizers may deduct up to $1,000 (or $2,000 for married filing jointly) for qualifying cash gifts to public charities, with certain restrictions (generally excluding donor-advised funds and certain supporting organizations).
- Planning ideas for 2026:
- Standard deduction filers should keep good donation records in 2026.
- Consider whether smaller annual cash gifts now produce a federal benefit even when you do not itemize.
- Consider bunching strategies beginning in 2026.
3.) Charitable deduction for Itemizers subject to new 0.5% AGI Floor
A reduction in charitable contribution deduction for certain cash charitable gifts for individuals who itemize.
- What is changing for 2026:
- Beginning in 2026, itemized charitable contributions for those individuals that do not take the standard deduction are reduced by 0.5% of adjusted gross income (AGI) floor. This essentially reduces the value of charitable giving for high-income clients.
- Example – $200,000 of AGI
- First $1,000 of qualifying donations are not deductible.
- Beginning in 2026, itemized charitable contributions for those individuals that do not take the standard deduction are reduced by 0.5% of adjusted gross income (AGI) floor. This essentially reduces the value of charitable giving for high-income clients.
- Planning ideas for 2026:
- Model out expected AGI for the year and plan timing of charitable deductions.
Navigating these new tax changes can be complex—but the potential savings could be substantial. Learn exactly how the 2026 changes will affect your situation and to develop a personalized tax strategy that maximizes your benefits.
Key 2026 Tax Changes for Businesses
1.) Corporate charitable contribution limits (IRC §170(b)(2))
C-corporations have a set of rules limiting the charitable contribution deduction, including a new 1% floor.
- What is changing for 2026:
- Beginning in 2026, corporate charitable deductions between 1% and 10% of taxable income are deductible. Excess contributions above 10% may generally carry forward five years, and certain amounts disallowed by the 1% floor may receive limited carryover treatment.
- Planning ideas for 2026:
- Budget charitable giving with the 1% floor in mind.
- Consider “bunching” contributions to avoid losing deductions below the 1% threshold.
- Evaluate when a payment may be better treated as an ordinary business expense rather than a charitable contribution.
2.) Business Meal Expenses (IRC §274)
Employer-provided meals become nondeductible (IRC §274(o)), instead of 50% deductible in prior years.
- What is changing for 2026:
- For amounts paid or incurred starting January 1, 2026, no deduction is allowed for the following:
- (a) expenses of operating an employer-operated eating facility,
- (b) food or beverages (including de minimis workplace meals) associated with such a facility, or
- (c) meals furnished on the employer’s business premises for the employer’s convenience under IRC §119(a) (i.e., “convenience-of-the-employer” meals).
- For amounts paid or incurred starting January 1, 2026, no deduction is allowed for the following:
Please note that limited exceptions apply to provide for 100% deductibility.
- Planning ideas for 2026:
- Inventory employer-provided meal programs (cafeterias, shift meals, on-premises meals) and quantify the lost deduction starting in 2026.
- Review whether any arrangements fit within a 100% exception, including a bona fide-sale exception (for applicable businesses).
- Confirm documentation and classification for business meals that remain 50% deductible under the general rules.
3.) Tip and Overtime Reporting for new Individual qualifying Tip and Overtime deductions
Employers must provide employees with qualifying tips and overtime amounts on the new 2026 Form W-2.
- What is changing for 2026:
- Beginning in 2026, qualified cash tips must be reported in Box 12, using code TP. The Treasury Tipped Occupation Code (TTOC) must be provided in a new Box 14b.
- Keep in mind that mandatory service charges are not qualified tips, but must remain reported with regular wages.
- Beginning in 2026, qualified overtime compensation must be reported in Box 12 using Code TT. This qualified amount should be the “half” in time-and-a-half.
- Beginning in 2026, qualified cash tips must be reported in Box 12, using code TP. The Treasury Tipped Occupation Code (TTOC) must be provided in a new Box 14b.
- Planning ideas for 2026:
- Ensure your payroll tracking system can identify the specific qualifying tips and overtime compensation amounts for your employees.
- Maintain documentation to support amounts included on the Form W-2.
Hungerford is Here to Help
Navigating these new tax changes can be complex—but the potential savings could be substantial. Reach out to Hungerford today to learn exactly how the 2026 changes will affect your situation and to develop a personalized tax strategy that maximizes your benefits.
Disclaimer: This blog post is for informational purposes only and does not substitute for personalized advice. Please consult your tax professional for guidance tailored to your situation.
