Federal income tax deductions lower the income the IRS can tax, which lowers your bill. For the 2026 tax year, you start by choosing between the standard deduction ($16,100 single, $32,200 married filing jointly, $24,150 head of household, $16,100 married filing separately) and itemizing on Schedule A.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 On top of that choice, a set of above-the-line deductions and four new breaks created by the One Big Beautiful Bill Act apply whichever path you take.
Standard Deduction or Itemize
Most filers come out ahead with the standard deduction. Itemizing pays off only when your Schedule A total beats the flat amount for your filing status. The categories on Schedule A are medical costs above a floor, state and local taxes, mortgage interest, charitable contributions, and casualty losses from federally declared disasters.2Internal Revenue Service. Instructions for Schedule A (Form 1040) Homeowners in high-tax states and people with large uninsured medical bills are the usual itemizers.
If you are 65 or older or legally blind, add $1,650 to your standard deduction for each qualifying condition. That amount rises to $2,050 if you are also unmarried.3Internal Revenue Service. Rev. Proc. 2025-32
New Deductions Under the One Big Beautiful Bill
Four temporary deductions are available for tax years 2025 through 2028. All four work with either the standard deduction or itemizing, and all four phase out at higher incomes.4Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
Tips
Workers in jobs that customarily receive tips can deduct up to $25,000 of qualified tips per year. Qualified tips include voluntary cash or charged tips from customers, including amounts received through tip sharing. Self-employed filers qualify too, but the deduction cannot exceed net business income. The deduction phases out above $150,000 modified AGI for single filers and $300,000 for joint filers.5Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
Overtime Pay
Employees who receive overtime required by the Fair Labor Standards Act can deduct the premium portion of that pay. For time-and-a-half, that means the extra half above your regular rate. The cap is $12,500 per year, or $25,000 on a joint return, and it phases out above $150,000 modified AGI ($300,000 joint). You need a valid Social Security number, and married filers must file jointly to claim it.6Internal Revenue Service. What to Know About the No Tax on Overtime Deduction
Auto Loan Interest
Interest on a loan used to buy a new personal-use vehicle is deductible up to $10,000 per year. Several conditions apply: the loan must have been originated after December 31, 2024; the vehicle must be new, not used; final assembly must have occurred in the United States; and the loan must be secured by the vehicle. The deduction phases out above $100,000 modified AGI ($200,000 joint). Business or commercial vehicles do not qualify.7Internal Revenue Service. Treasury, IRS Provide Guidance on the New Deduction for Car Loan Interest
Senior Bonus
Taxpayers who are 65 or older by year-end can claim an additional $6,000 deduction on top of the existing age-based additions. Both spouses on a joint return can qualify, for a combined bonus of $12,000. The phase-out starts at $75,000 modified AGI ($150,000 joint), and the deduction is available whether you take the standard deduction or itemize.8Internal Revenue Service. 2026 Filing Season Updates and Resources for Seniors
Above-the-Line Deductions Anyone Can Claim
These come off your income before AGI is calculated. They work with the standard deduction, and lowering your AGI can help you qualify for credits and deductions that phase out at higher incomes.
Traditional IRA Contributions
For 2026, the IRA contribution limit is $7,500 under age 50 and $8,600 at 50 or older.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 If neither you nor your spouse is covered by a workplace retirement plan, you can deduct the full contribution regardless of income.10Internal Revenue Service. IRA Deduction Limits
If you are covered at work, the 2026 phase-outs are:9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
- Single covered by a workplace plan: $81,000 to $91,000
- Married filing jointly, contributing spouse covered: $129,000 to $149,000
- Not covered, but spouse is covered: $242,000 to $252,000
- Married filing separately, covered: $0 to $10,000
Student Loan Interest
You can deduct up to $2,500 of interest paid on qualified student loans.11Internal Revenue Service. Topic No. 456 – Student Loan Interest Deduction For 2026 the deduction starts phasing out at $85,000 modified AGI for single filers ($175,000 joint) and disappears at $100,000 ($205,000 joint).3Internal Revenue Service. Rev. Proc. 2025-32
Health Savings Account Contributions
If you are enrolled in a high-deductible health plan, HSA contributions are fully deductible. For 2026 the limits are $4,400 for self-only coverage and $8,750 for family coverage.12Internal Revenue Service. Rev. Proc. 2025-19 HSA money grows tax-free and comes out tax-free for qualified medical expenses.
Self-Employment Tax
Self-employed filers pay both the employer and employee shares of Social Security and Medicare taxes. You can deduct half the combined amount as an adjustment to income.13Internal Revenue Service. Schedule SE (Form 1040) – Self-Employment Tax
Self-Employed Health Insurance
If you show a net profit, you can deduct 100% of premiums for medical, dental, and vision coverage for yourself, a spouse, and dependents, plus qualified long-term care premiums subject to age-based caps. You lose the deduction for any month you were eligible to participate in a plan subsidized by your own or your spouse’s employer.14Internal Revenue Service. Instructions for Form 7206
Educator Expenses
Teachers, counselors, principals, and aides who work at least 900 hours during the school year in kindergarten through grade 12 can deduct up to $300 of unreimbursed classroom supplies. Two qualifying spouses on a joint return can claim up to $600, with a $300 individual cap.15Internal Revenue Service. Topic No. 458, Educator Expense Deduction
What Itemizers Can Deduct
Medical and Dental Expenses
Only the portion of unreimbursed medical and dental costs that exceeds 7.5% of your AGI is deductible.16Internal Revenue Service. Topic No. 502, Medical and Dental Expenses With an $80,000 AGI, the first $6,000 produces nothing. Qualifying costs include doctors, dentists, prescription drugs, eyeglasses, hearing aids, and insurance premiums paid with after-tax dollars. Medical mileage is deductible at 20.5 cents per mile for 2026.17Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate Cosmetic procedures, gym memberships, and over-the-counter supplements generally do not.
State and Local Taxes
The SALT deduction covers state and local income taxes (or general sales taxes, if you choose that instead) plus property taxes. For 2026 the combined cap is $40,400, or $20,200 for married filing separately. That is a significant increase from the $10,000 limit that applied from 2018 through 2024.18Office of the Law Revision Counsel. 26 USC 164 – Taxes
The higher cap phases down for high earners. If modified AGI exceeds $505,000 ($252,500 for married filing separately), the $40,400 limit is reduced by 30% of the excess, but it never drops below $10,000.18Office of the Law Revision Counsel. 26 USC 164 – Taxes You choose income tax or sales tax, not both. Filers in states without an income tax often come out ahead with sales tax, especially in a year with a vehicle purchase.
Mortgage Interest
You can deduct interest on a loan used to buy, build, or substantially improve your main home or a second home. For loans taken out after December 15, 2017, the deduction applies to the first $750,000 of mortgage debt ($375,000 if married filing separately).19Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction Older mortgages may still qualify under the previous $1 million limit.
Home equity loan or line of credit interest is deductible only if the money was used to buy, build, or substantially improve the home securing the loan.20Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction A home equity loan used to pay off credit cards or fund a vacation does not qualify. Investment interest, such as a margin loan, is deductible up to your net investment income for the year, with excess carried forward.
Charitable Contributions
Donations to IRS-recognized 501(c)(3) organizations are deductible when you itemize. Cash gifts to public charities can be deducted up to 60% of AGI.21Internal Revenue Service. Charitable Contribution Deductions Contributions to individuals, political campaigns, or groups without 501(c)(3) status do not qualify.
Donating appreciated property held longer than one year, such as stock or real estate, lets you deduct full fair market value without paying capital gains tax on the appreciation. The AGI limit for non-cash contributions is generally 30%. Amounts above the AGI limit carry forward up to five years. Documentation is strict: cash gifts of $250 or more need a written acknowledgment from the charity, and property valued above $5,000 generally requires a qualified appraisal.
Casualty and Theft Losses
Personal casualty and theft losses are deductible only when they stem from a federally declared disaster. A car break-in or a burst pipe no longer qualifies. For qualifying disaster losses, each event is reduced by $100 and your yearly total is further reduced by 10% of AGI. Qualified disaster losses use a $500 per-event reduction instead of $100, and the 10% AGI reduction does not apply.22Internal Revenue Service. Publication 547, Casualties, Disasters, and Thefts
Deductions for the Self-Employed
Running a business as a sole proprietor, independent contractor, or freelancer, you deduct expenses on Schedule C before the income flows into the rest of your return. Each expense must be ordinary (common in your line of work) and necessary (helpful and appropriate for the business).23Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Supplies, advertising, software, professional fees, business travel, and cost of goods sold all qualify. For travel, meals, and gifts, the IRS requires records of amount, date, business purpose, and business relationship.
Home Office
If you use a space exclusively and regularly as your principal place of business, you have two options. The simplified method allows $5 per square foot up to 300 square feet, for a $1,500 maximum. The actual expense method allocates real costs for rent, utilities, insurance, and maintenance based on the percentage of your home used for business.
Section 179 Expensing
Instead of depreciating equipment over several years, Section 179 lets you deduct the full cost in the year you place the asset in service. For 2026, the maximum is $2,500,000, with the deduction phasing out once total equipment purchases exceed $4,000,000. Property must be used more than 50% for business.
Qualified Business Income
Owners of sole proprietorships, partnerships, S corporations, and other pass-through businesses can deduct up to 20% of qualified business income. It is taken after AGI and does not require itemizing.24Internal Revenue Service. Instructions for Form 8995
For 2026, filers with taxable income at or below $201,750 (single) or $403,500 (joint) generally get the full 20% without further limits. Above those thresholds, W-2 wages and depreciable property values start limiting the deduction. Owners of specified service businesses like law, accounting, and consulting firms face stricter limits and lose the deduction entirely once taxable income exceeds $276,750 (single) or $553,500 (joint).3Internal Revenue Service. Rev. Proc. 2025-32
What You Cannot Deduct
Personal living costs — groceries, clothing, commuting — are never deductible, no matter how they relate to your work. Political contributions, fines, and penalties are off-limits too. Hobby expenses are the common trap: if the IRS classifies a side activity as a hobby rather than a business, you still owe tax on the income but cannot deduct related expenses.25Internal Revenue Service. Know the Difference Between a Hobby and a Business
Penalties for Overclaiming
Overstating deductions carries a 20% accuracy-related penalty on the underpayment when the IRS finds negligence or a substantial understatement. For individuals, a substantial understatement means your tax was understated by the greater of 10% of the correct tax or $5,000. For the qualified business income deduction, the threshold drops to the greater of 5% or $5,000.26Internal Revenue Service. Accuracy-Related Penalty Keep receipts, keep organized records, and claim a deduction only when you can document both the expense and that it qualifies.