Optional tax deductions are the ones you have to affirmatively choose, and for most filers the biggest choice on the 2026 return is between taking the standard deduction or itemizing on Schedule A. Beyond that headline decision, several other elections change what you owe: business owners pick how quickly to write off equipment, investors time when losses hit their return, and retirement savers decide how much to contribute to accounts that generate a deduction. Each of these requires you to do something. Skip the election and the default rule applies, which is not always the best result.
Standard Deduction or Itemize
The standard deduction is the fallback. File a 1040 without a Schedule A and the IRS applies the amount for your filing status automatically.1Internal Revenue Service. About Schedule A (Form 1040), Itemized Deductions For 2026 that amount is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Itemizing is worth doing only when your qualifying expenses come in higher than that. You make the choice fresh each year, so a big medical bill or an unusually large charitable gift can push you into Schedule A once without committing you to it going forward.
What Counts on Schedule A in 2026
Three categories drive most itemized returns:
- State and local taxes. The SALT cap rose from $10,000 to $40,400 for 2026. It phases down 30 cents per dollar of modified adjusted gross income above $505,000 but cannot fall below a $10,000 floor.3Office of the Law Revision Counsel. 26 USC 164 – Taxes
- Mortgage interest. Deductible on up to $750,000 of acquisition debt ($375,000 if married filing separately) for loans taken after December 15, 2017. Older mortgages retain the prior $1 million ceiling.4Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
- Charitable contributions. Cash gifts to qualifying charities are deductible up to 60% of adjusted gross income, with a five-year carryover for anything over the limit.
The jump in the SALT cap changes the math for a lot of households. If you stopped itemizing after 2018 because your state and local taxes were capped at $10,000, the combination of $40,400 in SALT plus mortgage interest and charitable gifts may now clear the standard deduction with room to spare. Run the numbers again.
Income Tax or Sales Tax Within SALT
Filers who itemize face a second choice inside the SALT deduction: state and local income taxes, or state and local sales taxes, but not both. If you live in a state without an income tax, sales tax is almost always the better pick. Even in an income-tax state, a year with a large purchase like a vehicle or a boat can flip the answer. You mark the choice on Schedule A.5Internal Revenue Service. Instructions for Schedule A (Form 1040)
Bunching Deductions
If your itemizable expenses land close to the standard deduction, the timing of when you pay them matters. Bunching means concentrating two years of discretionary spending into one year so you comfortably clear the standard deduction, then taking the standard amount in the off year. Charitable giving is the easiest expense to shift because you control the calendar. A donor-advised fund lets you claim the deduction in the funding year while spreading the actual grants to charities over time. Late-year property tax payments and elective medical procedures can be moved the same way.
The Additional Deduction for Seniors
For tax years 2025 through 2028, filers age 65 and older can claim an extra $6,000 deduction per qualifying person, or $12,000 if both spouses on a joint return qualify. It’s available whether you itemize or take the standard deduction. The benefit phases out above $75,000 of modified adjusted gross income for single filers and $150,000 for joint filers.6Internal Revenue Service. 2026 Filing Season Updates and Resources for Seniors Seniors near the phase-out threshold can sometimes preserve the deduction by managing when income lands, including the timing of Roth conversions.
Business Expensing Elections
When a business buys equipment or other tangible property, the default is to capitalize the cost and deduct it over the asset’s recovery period through depreciation. Several elections accelerate that deduction into year one.
Section 179
Section 179 lets a business deduct the full cost of qualifying property in the year it’s placed in service.7Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets You elect it by completing Part I of Form 4562.8Internal Revenue Service. Instructions for Form 4562 For 2026, the maximum deduction is $2,560,000, and the ceiling shrinks dollar-for-dollar once total qualifying property placed in service exceeds $4,090,000.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Heavy SUVs and trucks with a gross vehicle weight rating above 6,000 pounds qualify but are capped at $31,300 for 2026. The deduction cannot exceed your business’s taxable income, though unused amounts carry forward.
Section 179 is genuinely optional in both directions. You can expense part of a purchase, all of it, or none of it, and you can skip the election entirely and depreciate the asset normally. That flexibility is useful when you expect higher income in a future year and want to save the deduction for when it offsets a bigger tax bill.
Bonus Depreciation and the Opt-Out
Bonus depreciation runs the other way. Under the One Big Beautiful Bill Act, 100% bonus depreciation is permanent for qualifying property acquired and placed in service after January 19, 2025, and it applies automatically. The election here is the reverse of Section 179: a business that wants to spread the deduction over the normal recovery period has to affirmatively elect out of bonus depreciation for an entire class of property placed in service that year. Once made, that election is irrevocable.
The two tools work differently in practice. Section 179 lets you pick individual assets and choose how much to expense on each. Bonus depreciation is all-or-nothing within an asset class. Section 179 is capped by business income; bonus depreciation can create or enlarge a net operating loss. Many businesses use bonus depreciation as the default and reach for Section 179 selectively on specific items.
De Minimis Safe Harbor
The de minimis safe harbor election lets a business expense low-cost tangible property that would otherwise have to be capitalized. With an applicable financial statement, the per-item or per-invoice threshold is $5,000. Without one, it’s $2,500.9Internal Revenue Service. Tangible Property Final Regulations – Section: A De Minimis Safe Harbor Election The election is annual and covers all qualifying purchases for the year. For small businesses, it removes the need to track office furniture, small tools, and monitors on a depreciation schedule.
Choosing When a Deduction Hits
Some elections are not about the dollar amount at all. They’re about which year the deduction lands in.
Inventory Method
Businesses that sell physical goods pick an inventory valuation method, and that choice directly shapes cost of goods sold. FIFO assigns the oldest costs to what gets sold. LIFO assigns the newest. When prices are rising, LIFO produces a larger deduction and lower taxable income in the current year. There’s a catch: federal law requires a business using LIFO for tax purposes to also use it in its financial statements. You can’t report higher profits to lenders while showing lower income to the IRS. Once adopted, the inventory method has to be applied consistently.
Releasing Suspended Passive Losses
Losses from rental real estate or from a business you don’t materially participate in are usually passive, meaning they can only offset other passive income. The excess is suspended and carried forward.10Internal Revenue Service. About Form 8582, Passive Activity Loss Limitations The suspended losses unlock when you sell the entire activity in a fully taxable transaction. At that point, they become deductible against any type of income, including wages and portfolio gains. When you sell is the optional part. Investors sitting on large suspended losses sometimes plan the disposition around a year with significant other income to absorb.
Net Operating Losses
If deductions exceed income, the excess becomes a net operating loss. NOLs arising after 2020 generally carry forward indefinitely and cannot be carried back, with farming losses as the main exception. In any carryforward year, the deduction is limited to 80% of that year’s taxable income before the NOL deduction.11Internal Revenue Service. Instructions for Form 172 You always owe tax on at least 20% of income no matter how large the accumulated losses. Non-corporate taxpayers also face an excess business loss cap of $256,000 in 2026 ($512,000 for joint filers); anything above that converts into an NOL carryforward.
Deductions That Require a Contribution
A separate category of optional deductions doesn’t exist until you fund an account. These reduce adjusted gross income directly, which can also protect other benefits that phase out at higher incomes.
Traditional IRA
The 2026 IRA contribution limit is $7,500 for those under 50, with a $1,100 catch-up for those 50 and older.12Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Whether that contribution is deductible depends on your income and on whether you or your spouse is covered by a workplace retirement plan.13Internal Revenue Service. Retirement Topics – IRA Contribution Limits Above the phase-out, you can still contribute but get no deduction. In that case, file Form 8606 to track the nondeductible portion, because it establishes basis the IRS will need when you take distributions.14Internal Revenue Service. About Form 8606, Nondeductible IRAs
Health Savings Account
An HSA contribution is deductible only if you’re enrolled in a qualifying high-deductible health plan. For 2026 the limits are $4,400 for self-only coverage and $8,750 for family coverage, with an additional $1,000 catch-up for those 55 and older. The contribution is deductible, growth is tax-free, and qualified medical withdrawals come out tax-free. A handful of states do not follow the federal treatment, so the state deduction may differ.
Self-Employed Plans
Self-employed filers can deduct much larger retirement contributions. A SEP IRA allows up to 25% of net self-employment income, capped at $72,000 for 2026.15Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs) A SEP can be both established and funded as late as the filing deadline with extensions, so it’s one of the few large deductions you can still create after the tax year closes. Solo 401(k) plans reach similar limits but have to be established by year-end, even though funding can wait until the filing deadline. The amount is entirely discretionary. Business owners with variable income often decide after seeing final-year numbers, balancing current-year tax savings against cash on hand.