Understanding Tax Deductions
How the 2026 standard deduction, SALT cap, and itemizing rules actually work.
What Are Tax Deductions?
Deductions reduce taxable income. They are not the same as credits, which cut the tax bill dollar for dollar. Most households now take the standard deduction because it is large enough that itemizing only pays when mortgage interest, charitable gifts, and state taxes add up to more than the floor.
2026 standard deduction
IRS inflation adjustments for tax year 2026 (Rev. Proc. 2025-32) set the standard deduction at:
- Single / married filing separately: $16,100
- Married filing jointly / qualifying surviving spouse: $32,200
- Head of household: $24,150
Taxpayers age 65 or older, or legally blind, add $2,050 (unmarried) or $1,650 (married) per qualifying condition. A separate temporary senior deduction of up to $6,000 for those 65 and older (2025–2028) can stack on top, subject to income phase-outs.
When itemizing still wins
- Medical and dental expenses above 7.5% of AGI
- State and local taxes (SALT): the cap is $40,400 for 2026 ($20,200 if married filing separately). It phases down for MAGI above $505,000, but not below $10,000. The higher cap is scheduled through 2029, then reverts to $10,000 unless Congress extends it
- Mortgage interest on acquisition debt, generally up to the $750,000 limit for loans after 2017
- Charitable contributions, with substantiation for cash and non-cash gifts
- Casualty and theft losses from federally declared disasters
Business and self-employed deductions
If you file a Schedule C or run an S corporation, the deductions that usually matter are ordinary and necessary expenses, home office (exclusive-use test), qualified business income (Section 199A), health insurance premiums, retirement contributions, and depreciation or Section 179. Meal deductibility is still limited; keep contemporaneous logs.
Practical rules we use with clients
- Run both standard and itemized every year. California filers in particular should not assume the federal standard deduction is the winner after SALT.
- Bunch charitable gifts or medical procedures into alternating years if you are close to the standard-deduction line.
- Keep records now. The IRS does not accept reconstructed bank statements as a substitute for invoices when a deduction is examined.