Tax season has passed for a month, and many families are busy organizing their tax forms or seeking help from tax professionals. In Los Angeles, tax experts suggest that the “Omnibus Budget Reconciliation and Recovery Act” (OBBB) passed last year will provide more benefits for families when filing taxes this year, but there are some details to pay attention to in order to smoothly complete the tax filing process.
Compared to last year, Mr. Xu, a tax professional in Los Angeles, mentioned that this year there has been an increase in the standard deduction and the starting point for federal income tax, bringing more benefits to families.
Regarding the standard deduction, the child tax credit has been increased to $2,200, with dependents aged 17 and above eligible for a $500 credit. Taxpayers aged 65 and above, if they meet certain criteria for income and status, can benefit from an additional deduction of $6,000. For married couples filing jointly, they can receive an additional deduction of $12,000.
This year’s tax policy has introduced new deductible items. Taxpayers who meet the criteria can deduct up to $12,500 for overtime pay, with married couples eligible for a $25,000 deduction. Tips can be deducted up to $25,000, and a certain amount of car loan interest can be deducted, provided that the car is assembled in the United States.
According to the OBBB, the cap for the federal and state local tax (SALT) deduction for California homeowners has been raised to $40,400, compared to $10,000 last year. Taxpayers with an income below $500,000 can enjoy more deductions for property and state income taxes.
Mr. Xu found that some families encounter problems when filing taxes on their own. Some, due to unfamiliarity with tax laws, often forget to bring necessary documents when coming to file their taxes, including:
– Part-time income: For example, if a taxpayer works for Uber in addition to their main job and earns over $600, the company will provide a form for tax reporting. If the income is less than $600, it does not need to be reported.
– Bank interest statements: If accumulated bank interest income exceeds $10, the bank will send a 1099-NT form. This form is usually sent out before the end of January and records the amount to be reported.
– Stock market investment returns: If they exceed $10, they also need to be reported, excluding stock market gains included in retirement accounts.
– Rental income: Rental income is also considered taxable income. Various expenses related to the rented property can be deducted, including mortgage interest, property taxes, insurance, maintenance, depreciation, and utilities paid by the landlord.
In addition to deductible expenses according to tax regulations, taxpayers can also actively plan to reduce taxable income. Mr. Xu gave an example of low-income taxpayers lacking a secure retirement plan, suggesting that before filing taxes, they can lower taxable income by setting up a traditional IRA account or increasing contributions to the account.
As per regulations, the contribution limit for traditional IRAs in 2026 is $7,500 for individuals under 50, and $8,600 for those aged 50 and above (with catch-up contributions increasing from $1,000 to $1,100).
W2 employees with 401(k) retirement accounts can utilize this account to reduce taxable income. The contribution limit for employee 401(k) in 2026 is $24,500, with individuals aged 50 and above able to make additional contributions. This helps reduce current tax pressure and secure future retirement.
Furthermore, Health Savings Accounts (HSAs) offer tax-free deposits, growth, and withdrawals. The funds in the account can roll over for a lifetime, be invested, and follow the account owner when changing jobs. Contribution limits vary based on individual, family, and age. The annual contribution limit for individuals is $4,400, with an additional $1,000 for those aged 55 and above.
Additionally, according to Fidelity Investments, if selling properties, stocks, receiving severance pay, or selling personal valuable items may push you into a higher tax bracket, consider spreading out this income over two years. Before selling a property, previous expenses for property maintenance can be included as costs, reducing capital gains.
Filing income taxes annually is also an opportunity for personal financial planning. As observed by Mr. Xu, many taxpayers tend to make mistakes or overlook details when filing taxes on their own, leading to wasted time and potential overpayment of taxes. He believes seeking assistance from professionals is more time-saving and reassuring, allowing for a more reasonable plan for future living arrangements.