For roughly the last two years the financial plans we create for our clients have come with a big caveat – we don’t know what federal income tax rates will be starting on January 1, 2026.

Given our conservative nature, we have been assuming that the current favorable income tax rates and brackets would expire on December 31, 2025. Thus, your personal financial plan likely improved when new tax legislation was signed into law on July 4.

Not only does this new law extend the current income tax rates and brackets indefinitely, it also came with some extra retroactive tax reductions that took effect on January 1 of this year.

Here are just a few selected provisions that could impact our clients’ 2025 federal tax liabilities:

1. Additional $6,000 per person tax deduction for taxpayers over age 65 with adjusted gross income (AGI) under $150,000 married filing jointly (MFJ)
2. Higher standard deduction of $31,500 (MFJ)
3. Higher cap on state and local tax (SALT) deductions ($40,000 for taxpayers making under $500,000 MFJ)
4. Larger child tax credit of $2,200 per child
5. Deduct up to $25,000 of tip income for taxpayers with AGI under $300,000 MFJ.
6. Deduct up to $25,000 of overtime premium income for taxpayers with AGI under $300,000 MFJ.
7. Deduct auto loan interest up to $10,000 per year for vehicle with final assembly in the United States for taxpayers with AGI under $200,000 MFJ.

Please keep in mind some of these provisions have additional requirements and may only be available for a limited number of years.

Obviously, there is a political calculation in permitting taxpayers to experience lower tax bills/higher tax refunds when they file their 2025 taxes in early 2026. If Congress would have gone down the normal path and applied these new tax deductions starting in 2026, taxpayers would not have experienced lower taxes until early 2027 – after the mid-term elections.

Retroactively applying new tax laws to January 1, 2025, does not come without challenges. Instead of having 18 months to create new forms, reprogram its software, and provide guidance to tax professionals on how to document all of these new provisions, the Internal Revenue Service (IRS) now only has 6 months to prepare.

It would be prudent to expect that there may be some delays in filing your 2025 income taxes as the IRS grapples with this surge in rulemaking, form creating, and software updating.

While federal tax legislation took most of the headlines over the last week, our Wisconsin clients will also experience lower state income taxes starting in 2026. The newly signed budget expands lower tax brackets and for taxpayers age 67 and older excludes up to $48,000 (MFJ) of annual retirement income from state income taxes.

The good news is that the tax mystery has been solved. Now the real work begins.

Quote of the week: Winston Churchill: “To improve is to change; to be perfect is to change often.”

Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.

Be sure to consult with your tax professional before making any tax-related decisions as each individual’s tax circumstances are unique.