Tax Planning Update: 5 Things That Changed This Week (And What It Means for Your Refund)

New Haven, CT : February 4, 2026 : Tax professionals across Connecticut are fielding urgent questions from filers this week as clarifications on the 2026 One Big Beautiful Bill provisions continue to reshape tax planning strategies. Five major updates have direct implications for your refund, and understanding these changes now can prevent costly mistakes before the April deadline.

If you filed early or are preparing to file, review these updates immediately. The changes affect standard deductions, charitable contributions, dependent care benefits, retirement savings, and state tax deductions: each carrying significant refund implications.

1. Standard Deduction Increases Are Larger Than Expected!

The Internal Revenue Service (IRS) confirmed this week that standard deduction amounts for Tax Year 2026 exceed preliminary estimates. The final figures are:

• Single filers: $16,100 (up from $14,600 in 2025)
• Married filing jointly: $32,200 (up from $29,200 in 2025)
• Head of household: $24,150 (up from $21,900 in 2025)

What This Means for Your Refund: Your taxable income drops by the standard deduction amount, which directly increases your refund or reduces what you owe. For a single filer in the 22% tax bracket, the $1,500 increase translates to approximately $330 in additional tax savings.

Action Required: If you filed early using preliminary deduction amounts, check your return immediately. Many early filers used outdated software versions showing lower deduction figures. File an amended return (Form 1040-X) if necessary to claim the correct standard deduction amount.

Do not assume your tax preparation software updated automatically. Verify the exact deduction amount on Line 12 of your Form 1040 matches the official figures above.

2. New Charitable Deduction for Standard Deduction Filers Takes Effect

A significant policy shift allows taxpayers claiming the standard deduction to deduct cash charitable contributions for the first time since 2021. The limits are:

• Single filers and married filing separately: $1,000 maximum deduction
• Married filing jointly: $2,000 maximum deduction

This provision applies only to cash donations made to qualified charitable organizations. Non-cash contributions (clothing, household items, vehicles) do not qualify under this provision.

What This Means for Your Refund: If you donated $1,000 to your church, local food bank, or other qualified charity in 2026, you can claim both the full standard deduction AND the charitable deduction. For taxpayers in the 22% bracket, this creates an additional $220 in tax savings ($440 for joint filers).

Action Required: Gather documentation for all cash charitable contributions made in 2026. Acceptable documentation includes:

• Bank statements showing withdrawals or checks
• Credit card statements
• Written acknowledgment from the charity
• PayPal or Venmo transaction records for online donations

Enter the total qualifying cash donations on Schedule 1 (Additional Income and Adjustments to Income), Line 12b. Double-check that your donations went to IRS-qualified 501(c)(3) organizations using the IRS Tax Exempt Organization Search tool.

3. Dependent Care Benefits Expanded Significantly

The dependent care flexible spending account (FSA) limit increased from $5,000 to $7,500 for 2026. Simultaneously, the Child and Dependent Care Tax Credit rate rose from 35% to 50% of qualifying expenses.

The maximum qualifying expenses remain at $3,000 for one dependent and $6,000 for two or more dependents.

What This Means for Your Refund: Parents and caregivers can realize substantial savings through strategic planning. The 50% credit rate means:

• One child: Up to $1,500 credit (50% of $3,000)
• Two or more children: Up to $3,000 credit (50% of $6,000)

If you contributed to a dependent care FSA through your employer, coordinate your tax credit claim carefully. You cannot claim the credit on expenses reimbursed through the FSA. However, expenses exceeding your FSA contribution may qualify for the credit.

Action Required: Calculate whether maximizing your FSA contribution or claiming the tax credit provides greater savings. For most middle-income families, combining a partial FSA contribution with the tax credit optimizes total savings.

File Form 2441 (Child and Dependent Care Expenses) with your return. Include the provider's name, address, and tax identification number (TIN) for each care provider. Missing or incorrect provider information can delay processing or trigger IRS correspondence.

4. Retirement Contribution Limits Reach New Highs

Retirement account contribution limits increased for 2026, expanding opportunities for pre-tax savings:

• 401(k), 403(b), and most 457 plans: $24,500 (up from $23,500 in 2025)
• Traditional and Roth IRAs: $7,500 (up from $7,000 in 2025)
• Catch-up contributions (age 50+): $7,500 for 401(k) plans; $1,000 for IRAs

What This Means for Your Refund: Traditional 401(k) and IRA contributions reduce your taxable income directly. If you maximize your 401(k) contribution, you reduce taxable income by $24,500: creating tax savings of $5,390 for someone in the 22% bracket.

For high earners, these increased limits provide critical tax planning opportunities as income phase-outs approach.

Action Required: Review your year-to-date retirement contributions. If you have not maximized contributions, contact your employer's benefits administrator to increase withholding for remaining pay periods.

If you made 2026 IRA contributions before the April deadline, ensure they are properly designated as 2026 contributions with your financial institution. Contributions made between January 1 and April 15, 2027, can apply to either 2026 or 2027: verify the tax year designation to avoid errors.

5. SALT Deduction Cap Increases to $40,400

The state and local tax (SALT) deduction cap increased substantially to $40,400 for 2026, up from the long-standing $10,000 limit. The phase-out begins at $505,000 modified adjusted gross income (MAGI).

This change primarily benefits taxpayers in high-tax states like Connecticut, New York, New Jersey, and California.

What This Means for Your Refund: Connecticut residents paying significant state income tax and property tax can now deduct substantially more. For New Haven homeowners, this is particularly relevant given average property tax bills exceeding $8,000 annually.

A taxpayer paying $15,000 in Connecticut state income tax and $12,000 in property tax (totaling $27,000) can now deduct the full amount instead of being capped at $10,000. The additional $17,000 deduction creates $3,740 in federal tax savings for someone in the 22% bracket.

Action Required: Gather documentation for all state and local taxes paid in 2026:

• Property tax bills and payment receipts
• Connecticut estimated tax payments (Form CT-1040ES)
• State income tax withheld (shown on W-2, Box 17)
• Vehicle property tax bills (if applicable in your municipality)

Complete Schedule A (Itemized Deductions) to claim SALT deductions. Compare your total itemized deductions to the standard deduction amount: itemize only if your total deductions exceed the standard deduction for your filing status.

Critical Filing Deadlines and Next Steps

File your 2026 tax return by April 15, 2027. Connecticut residents can file state returns simultaneously using Form CT-1040.

If these updates affect your tax situation, take action immediately:

1. Review returns already filed for accuracy regarding standard deduction amounts and charitable contribution deductions
2. Gather all required documentation including charitable receipts, dependent care provider information, and SALT payment records
3. Calculate whether itemizing or claiming the standard deduction provides greater tax benefit
4. Maximize remaining retirement contributions before year-end if possible

For personalized guidance on how these changes affect your specific situation, contact Jose's Tax Service in New Haven. Our tax professionals specialize in Connecticut tax preparation and can identify additional opportunities to maximize your refund. Schedule your consultation at josestaxservice.com or call our office directly.

Do not rely on generic tax software to identify these optimization opportunities. Professional review ensures you claim every deduction and credit available under the new law.

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