Federal income tax deductions lower your taxable income, and for 2026 you have more options than in past years. Every filer starts with a single choice — the standard deduction or itemizing on Schedule A — but a growing list of deductions works either way, including four new breaks created by the One Big Beautiful Bill Act for tips, overtime pay, car loan interest, and seniors. Self-employed filers and small business owners get their own set of deductions on top of everything else.
The First Choice: Standard Deduction or Itemize
The standard deduction is a flat amount based on filing status. For 2026 it is $16,100 for single filers and married filing separately, $32,200 for married filing jointly, and $24,150 for head of household.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If you are 65 or older or legally blind, you add $1,650 per qualifying condition, or $2,050 if you are also unmarried.2Internal Revenue Service. Rev. Proc. 2025-32
Itemizing only pays off when your Schedule A expenses beat that flat amount. The main itemized categories are medical costs above an AGI floor, state and local taxes, mortgage interest, charitable contributions, and casualty losses from federally declared disasters.3Internal Revenue Service. Instructions for Schedule A (Form 1040) Most filers take the standard deduction. Itemizing tends to win for homeowners in high-tax states, filers with large medical bills, and generous givers.
New 2026 Deductions Available to Everyone
Four temporary deductions run through tax years 2025 to 2028. All four are available whether you itemize or not, and all four phase out at higher incomes.4Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
Tips
If you work in a job that customarily receives tips, you can deduct up to $25,000 in qualified tips per year. Qualified tips are voluntary cash or charged tips from customers, including amounts received through tip sharing. Self-employed filers can claim it too, but the deduction can’t exceed net business income. Phase-out starts at $150,000 of 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 earn Fair Labor Standards Act overtime can deduct the premium portion. For time-and-a-half, that’s the extra half above the regular rate. The cap is $12,500 per year, or $25,000 on a joint return, phasing out above the same $150,000 / $300,000 modified AGI thresholds. 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
Car Loan Interest
Interest on a loan used to buy a new personal-use vehicle is deductible up to $10,000 a year. The loan must have originated after December 31, 2024, the vehicle must be new (not used), final assembly must have happened in the United States, and the loan has to be secured by the vehicle. Phase-out begins at $100,000 of modified AGI ($200,000 joint). Business or commercial vehicles don’t qualify.7Internal Revenue Service. Treasury, IRS Provide Guidance on the New Deduction for Car Loan Interest
Senior Bonus
Taxpayers 65 or older by year-end can claim an extra $6,000 deduction on top of the existing age-based add-on to the standard deduction. Two qualifying spouses on a joint return get $12,000. Phase-out starts at $75,000 modified AGI ($150,000 joint), and the deduction is available whether you itemize or not.8Internal Revenue Service. 2026 Filing Season Updates and Resources for Seniors
Above-the-Line Deductions That Reduce AGI
These come off gross income before your adjusted gross income is calculated. They work with the standard deduction, and a lower AGI can also help you qualify for other tax breaks that phase out as income rises.
Traditional IRA Contributions
For 2026, the IRA contribution limit is $7,500, or $8,600 if you’re 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 plan, the full contribution is deductible at any income level.10Internal Revenue Service. IRA Deduction Limits If you’re covered by a plan at work, the deduction phases out between $81,000 and $91,000 (single), $129,000 and $149,000 (joint, contributing spouse covered), $242,000 and $252,000 (spouse covered but you aren’t), or $0 and $10,000 (married filing separately).
Student Loan Interest
Up to $2,500 of interest paid on qualified student loans is deductible each year.11Internal Revenue Service. Topic No. 456 – Student Loan Interest Deduction For 2026, phase-out runs from $85,000 to $100,000 of modified AGI for single filers and $175,000 to $205,000 for joint filers.2Internal Revenue Service. Rev. Proc. 2025-32
Half of Self-Employment Tax
Self-employed filers pay both the employer and employee shares of Social Security and Medicare. You deduct half of the combined amount as an adjustment to income, which puts you closer to parity with W-2 workers whose employers pay the other half.12Internal Revenue Service. Schedule SE (Form 1040) – Self-Employment Tax
HSA Contributions
If you’re covered by a high-deductible health plan, HSA contributions are fully deductible. The 2026 limits are $4,400 for self-only coverage and $8,750 for family coverage.13Internal Revenue Service. Rev. Proc. 2025-19 Money grows tax-free inside the account and comes out tax-free for qualified medical expenses.
Self-Employed Health Insurance
Self-employed individuals with a net profit can deduct 100% of premiums paid for medical, dental, and vision coverage for themselves, a spouse, and dependents, plus qualified long-term care premiums subject to age-based caps. You can’t claim it for any month you were eligible for a subsidized plan through 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 in a K-12 school year can deduct up to $300 of unreimbursed classroom supplies. Two qualifying educators on a joint return can deduct up to $600, but neither may exceed $300.15Internal Revenue Service. Topic No. 458, Educator Expense Deduction
What You Can Itemize on Schedule A
Medical and Dental Expenses
Unreimbursed medical costs are deductible only to the extent they exceed 7.5% of your AGI.16Internal Revenue Service. Topic No. 502, Medical and Dental Expenses With $80,000 of AGI, the first $6,000 of medical costs produces nothing. Qualifying expenses include doctors, dentists, prescriptions, eyeglasses, hearing aids, and premiums paid with after-tax dollars. Medical mileage is 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 don’t qualify.
State and Local Taxes
The SALT deduction covers state and local income taxes (or general sales taxes, but not both) plus property taxes. For 2026, the combined cap is $40,400, or $20,200 for married filing separately, up sharply from the $10,000 cap that applied from 2018 through 2024. The higher cap phases down for filers with modified AGI above $505,000 ($252,500 married filing separately): the limit is reduced by 30% of the income above the threshold, but never falls below $10,000.18Office of the Law Revision Counsel. 26 USC 164 – Taxes
Filers in states with no income tax often benefit from choosing sales tax, especially in a year with a big vehicle purchase. The IRS provides tables to estimate the amount, or you can total actual receipts.
Mortgage Interest
Interest on a mortgage used to buy, build, or substantially improve your main home or a second home is deductible. For loans taken out after December 15, 2017, the deduction covers the first $750,000 of mortgage debt, or $375,000 for married filing separately.19Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction Older mortgages may qualify under the previous $1 million limit. Home equity loan 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 Cash-out proceeds spent on credit cards or a vacation don’t qualify.
Charitable Contributions
Donations to IRS-recognized 501(c)(3) organizations are deductible if you itemize. Cash gifts to public charities can be deducted up to 60% of AGI.21Internal Revenue Service. Charitable Contribution Deductions Gifts to individuals, political campaigns, and non-qualifying organizations don’t count. Donating appreciated property held longer than a year, like stock, lets you deduct fair market value without paying capital gains tax on the appreciation, subject to a 30% AGI limit for most non-cash gifts. Excess contributions carry forward up to five years.
Documentation matters. Cash gifts of $250 or more need a written acknowledgment from the charity, and property donations valued above $5,000 generally require a qualified appraisal. Missing paperwork can void an otherwise legitimate deduction.
Casualty and Theft Losses
Personal casualty and theft losses are deductible only if they result from a federally declared disaster. Everyday events like a break-in or a burst pipe no longer qualify. Each qualifying loss is reduced by $100, and total annual losses are further reduced by 10% of AGI. Qualified disaster losses get better treatment: a $500 per-event reduction and no 10% AGI floor.22Internal Revenue Service. Publication 547, Casualties, Disasters, and Thefts
If You’re Self-Employed or Own a Small Business
Sole proprietors, independent contractors, and freelancers deduct business expenses on Schedule C before the net figure flows to the rest of the return. Every expense must be ordinary (common in your line of work) and necessary (helpful and appropriate).23Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Typical deductions include supplies, advertising, software, professional fees, business travel, and cost of goods sold. The IRS doesn’t accept estimates for travel, meals, and gifts; you need records showing amount, date, business purpose, and business relationship.
Home Office
If you use a dedicated space in your home exclusively and regularly as your principal place of business, you can deduct part of your home expenses. The simplified method gives $5 per square foot up to 300 square feet, capped at $1,500. The actual expense method allocates real costs for rent, utilities, insurance, and maintenance by the business-use percentage of your home.
Section 179
Section 179 lets you fully deduct qualifying equipment in the year you place it in service instead of depreciating it. For 2026, the maximum is $2,500,000, with a phase-out starting at $4,000,000 of total equipment purchases. Property must be used more than 50% for business.
Qualified Business Income
Owners of pass-through businesses — sole proprietorships, partnerships, and S corporations — can deduct up to 20% of qualified business income. It’s taken after AGI and doesn’t 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 the deduction phases down based on W-2 wages the business paid and its depreciable property. 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).2Internal Revenue Service. Rev. Proc. 2025-32
What You Can’t Deduct
Personal living expenses — groceries, clothing, commuting — are never deductible, no matter how they connect to work. Political contributions, fines, and penalties are also off-limits.
Hobby income trips up a lot of filers. If a side activity occasionally produces income, the IRS looks at whether you’re genuinely trying to make a profit, considering factors like whether you keep proper books, have expertise, depend on the income, and have made a profit in prior years.25Internal Revenue Service. 26Internal Revenue Service. Accuracy-Related Penalty Keep receipts, keep records organized, and don’t claim a deduction you can’t document.