Episode Transcript
So you're telling me I might look forward to filing my taxes this year.
It's possible. There's a lot of new rules that can actually allow you to save more money than you might expect.
Talk to me about that SALT cap.
This is something folks should know, but there is more. It's not just what you earn, it's what you keep.
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It could be one of the biggest opportunities to save money in 2026. We're talking about taxes, and there's a lot that's new this year. Hi, I'm Ally Donnelly, and this is Money Unscripted, Fidelity's personal finance podcast. My guest is Fidelity Regional Vice President of Private Wealth Management, Ajay Sarkaria, and he's here to share strategies to help us try and keep more of what we earn. Ajay, thanks for being here.
Thank you for having me, Ally.
Taxes might not be everyone's favorite thing to do, but knowing what to talk to your tax advisor about or what to look for on your form if you're doing it yourself can make a big difference.
As a former CPA, I know that going to visit your tax advisor is about as much fun as going to the dentist.
Yeah.
But when we help folks find a little way to save some money on their taxes, it tends to be a little more enjoyable than they might have thought.
Yeah, I'm sure, music to the ears. So I want to run through what we're going to talk about today. So we're digging into the SALT cap and what that could mean for itemizing versus taking the standard deduction, a new deduction for seniors, an increase in the child tax credit, taxes on tips and overtime, charitable deductions, and ways to reduce your taxable income. And to be clear, these are updates for our 2025 taxes that we file in 2026.
So we should say before we start, everybody's tax situation is different. So what we're talking about today is general education. And if you have a question about your specific situation, you should reach out to your tax advisor. So let's get started with the increase to the SALT cap. Map out the SALT cap. What does it stand for?
So SALT is short for State and Local Tax. And currently, that's capped at $10,000 per taxpayer. It's going up to $40,000 starting in 2026. So for certain taxpayers, that might be an additional $30,000 in eligible expenses they can deduct on their federal tax return.
Yeah.
Now, that SALT cap still, even at the $40,000, is subject to potential phase outs, starting at $500,000 of income. And lastly, it is temporary. It's set to expire in 2029.
What are some of the deductible SALT expenses?
So state and local tax deductions typically include things like income taxes at the state level or sales tax even. It's usually one or the other. But the other things that people might not consider are property tax, so taxes on your home, but also things like your vehicles including boats.
OK. Well, you say boats, so how does it affect high earners?
Well, generally speaking, folks, that have higher income, especially those who live in higher tax states, tend to have more SALT taxes. So it should be more of a benefit or could be more of a benefit, I should say, for those higher earners.
So as I'm looking at that SALT cap increase, it could really make me take a hard look at whether I want to itemize or take the standard deduction.
Absolutely. And so even for folks who've been taking the standard deduction, in recent years, it's probably a time to take a fresh look at whether or not it makes sense to itemize, especially if you do have some of those SALT expenses.
With the increase also in the standard deduction, how does that weigh into my kind of figuring out what I want to do?
Sure. So what you're typically going to want to do is have a sense of whether your collective expenses, SALT and other itemizable deductions, are greater than the standard deduction limits. If you know you're not going to get close to them, you're probably just going to take the standard deduction. But otherwise, it might make sense to collect an inventory whether or not it makes sense to itemize.
So I'm getting that shoebox out again.
I don't know if it's a shoebox anymore, but something like that.
For you, maybe. Let's take a look at the standard deduction numbers for 2025.
For 2025, it's looking like for single filers $15,750 is that standard deduction. For married filers, it's $31,500. And then for a class called head of household, it's $23,625.
I want to dig in just a little bit more here. So when it comes to comparing that standard deduction versus the itemizing, walk us through the expenses like on my tax form that I'm going to be looking at.
Well, generally, there's four categories we're looking at in addition to the SALT expenses. Those are going to be things like medical expenses-- now those are subject to annual limits-- things like mortgage interest expense, charitable contributions, and then in the unfortunate event it applies, things like theft or casualty losses due to a federally declared disaster.
We look at all those things combined. And as long as they tally up to a greater number than that standard deduction, more than likely not, you're going to want to itemize for that year.
I think it's worth reiterating. I mean, you said it earlier, but the SALT cap change is not permanent.
That's correct. So the SALT cap change is set to expire in 2029. But that said, tax rules and regulations can change at any time. So it's important to stay connected with a tax professional to make sure we're on top of your current situation.
On top of the SALT cap increase, there's a new tax break specifically for people 65 and older. Tell me about the senior deduction.
Yeah, so the senior deduction is a new deduction available for those 65 and older to take an additional $6,000 deduction. And that's regardless of whether they itemize or take the standard deduction.
But this is in addition to the $2,000 deduction they already get or $3,200 if they're married filing jointly, right?
It is in addition to that. Now, it is subject to certain phase outs as well. So it's really important to understand your tax situation on whether or not you're going to take that deduction. Another consideration for filers that might be eligible for that senior deduction is whether or not to do Roth conversions this year. And so Roth conversion, as you might know, is a practice of paying taxes ahead of time on tax-deferred plans like IRAs in order to enjoy tax-free growth in the future.
And it can also help lower the required minimum distributions typically associated with traditional IRAs. However, that can push up one's income. And so by doing that this year, it might actually reduce the benefit of that senior deduction. So we really want to make sure we work through decisions like that with a tax professional.
That makes sense. So from seniors to kids, talk to me about the child tax credit.
Well, at first glance, it doesn't seem as exciting. The child tax credit is going from $2,000 to $2,200. But what's really exciting about it is it's now indexed for inflation. So hopefully, it'll keep up with some of those expenses from year to year.
Also, new for taxpayers this year is for those who get tips or get overtime. I mean, this could affect millions of people from waitstaff, bartenders, manicurists. Talk to me about no taxes on tips.
No taxes on tips got a lot of buzz, and we're still going to see how it plays out as it's a completely new rule. But essentially, the new law allows for those earning tips up to $25,000 to be deductible. And for those earning overtime, it's also $25,000 for our married taxpayers and half of that for individual taxpayers. Now depending on how much you make, this deduction can start to phase out.
Is this one permanent?
No, like a lot of the others, this is also temporary. So we want to see folks take advantage of it while we can.
That's good to know. Let's talk about giving. What's new for charitable deductions or donations? So before 2026, charitable donations were really only able to be deducted by those people who itemized. And so one thing that's new is that whether you itemize or are standardized, everyone can take advantage of charitable contributions on a tax return.
And so starting in 2026, you can actually start to take a deduction on top of your standard deduction for charitable contributions up to $2,000 for married filing joint taxpayers or half of that for single taxpayers.
And for itemizers?
For itemizers, you can also do it, but there's a little bit of a caveat. There's a floor. So I think the charitable contributions start to get eligible for deduction after they exceed a half percent of your total income for the year.
OK, OK, all right, so you work with a number of high-wealth management clients, which means they're typically higher earners. What does it mean for them?
So for some of our private wealth management clients or high-earning clients, 2025-- and this year end, in particular, could be an interesting one for charitable giving. Starting in 2026, the maximum benefit on charitable contributions is going to get reduced a little bit. So specifically, earners in our highest income tax bracket, which is 37%, their deduction starting in 2026 is going to get limited to 35%.
So why are we saying that's a good thing if they're going to lose a little bit of oomph?
Well, it's a good thing in the sense that there's an opportunity this year to lock in that 37% benefit before it gets trimmed going forward. And so what a lot of charitably inclined folks are doing, regardless of whether they're high earners or not, is a technique called bunching. And so what that essentially is is making a larger lump sum gift in this year to get a bigger tax benefit, make sure you get to itemize as opposed to spreading out the tax deduction over multiple years.
So I just want to map it out, make sure I've got it. So if I know that every year I give my favorite food pantry $5,000, if I can swing it and give them $25,000, I reap the tax benefits of that amount this year. And they're getting $25,000 that maybe they would have gotten over five years, but now they're getting it this year. So win-win.
Yeah. So the charity is still getting the contributions that you think are important for them to get. And you get the benefit of the tax break as well. Anything else we need to know about bunching or--
Well, I would say there's one more layer that gets interesting, which is using a donor-advised fund.
OK, tell me about that.
What a lot of folks can do is also use something called a donor-advised fund to essentially get the tax deduction today through that bunching, but maintain the pace of giving that they prefer.
So I still have the $25,000. But the donor-advised fund is going to handle meting it out over the next five years--
Exactly.
--in $5,000 increments.
As long as that's a public charity, the donor-advised fund should just follow your instructions to give them $5,000 a year. But you get that $25,000 deduction up front.
All right, Ajay, we've talked about a lot of the new things that are happening. But there are those trusty tried and true strategies to try and help you save more money. So run through those for me.
Well, first and foremost, think about ways to reduce your taxable income. Things like contributing to qualified savings plans, maximizing your 401(k), contributing to an HSA, or even making contributions to an Individual Retirement Account or IRA.
And as we're looking at our end-of-year picture?
Well, the end of the year-- the tax year starts to come more into focus the closer you get to year end. You have a better sense of where you are from a capital gain and loss standpoint, from a total income standpoint. And so you can even start to think about timing decisions, whether it makes sense to accelerate income or delay certain income. Things like tax-loss harvesting and asset allocation can also be a factor.
Tax-loss harvesting, it's one of my favorite things. I don't know why I totally get geeked out about it, but tell me what tax-loss harvesting is.
So essentially, if you look at your whole portfolio, very few of us can say we have all winners. And so the idea of tax-loss harvesting is to turn a tax loss into a tax asset and to essentially sell off some positions that maybe are at a loss and use those to reduce your tax expense. You can actually deduct up to $3,000 in capital losses every year. And anything beyond that, you can carry forward.
We've been talking about potentially saving money, but what about doing something with it? You're an advisor. So what could I potentially do with it to make my money work harder?
Well, of course, there's always the fun answer, which is go enjoy it. Treat yourself a little bit. But I think a lot of us would agree that the best way to treat yourself is to take care of your financial health. So think about setting up that emergency fund if you haven't already. Think about funding an HSA or Health Savings Account if you're able to, again, contributing to some retirement accounts.
Maybe folks now are in a position where they can set up an individual retirement account, enjoy tax-deferred growth for a very long time. For those who are thinking about helping a loved one through school, think about setting up a 529, which in addition to helping with college can also help with any private education expenses before that.
We talked about a lot. Taxes is dense. So as people listen to this conversation or watch this conversation and they're about to sit down with their advisor, getting out their tax forms, what do you really want them to take away?
Well, I always say anytime is the right time to think about your financial plan, but tax time is especially important because you already have a really good sense of where things are. So first and foremost, you always want to look at your long-term financial goals and your financial plan, whether that's with a financial professional, or if you're a DIY-er, set time up with yourself to look through your financial plan. Only then should you think about tax strategies and how they fit into that plan.
I love it, pro tips. Ajay, thank you so much.
Thank you, Ally.
We've covered off on a lot of tax information today, and we have even more resources to help you get ready for and through the new year. It's Fidelity's 2026 Financial Preview, helping you navigate the noise to find opportunities in the year ahead.
From six top investing ideas to what to expect in the market, moves for retirees, and strategies to fast track your financial goals. It's all at Fidelity.com/2026. Thanks for being here. Be sure to like, follow, and share the podcast. We'll see you next time on Money Unscripted. It's your life. Get your money's worth.
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