Ed Slott: Clients' 2025 Tax Returns Are Key to 2026 Planning

Advisors should be "using the 2025 tax returns to look ahead, planning for future years' taxes," Slott said. The One Big Beautiful Bill Act "made changes that are first showing up on 2025 tax returns now."

If the client's tax return isn't ready, they should file for an automatic extension by the deadline — it's even more important than paying on time, he said.

ThinkAdvisor caught up with Slott to talk about the current tax filing season and what's ahead for the 2026 filing season. Here are highlights of our conversation.

THINKADVISOR: Please explain who should file an extension.

ED SLOTT: Anyone can file for an automatic six-month extension (generally until Oct.15).

Filing an extension (Form 4868 — which can be filed electronically by April 15) is an option if the return cannot be properly completed by April 15.

This is more common lately, especially for business owners waiting for K-1s from pass-through business entities like partnerships, LLCs and S-Corps. Also, some taxpayers don't have all the tax info ready or just need more time. Often, it's procrastination. We have found over the years with our tax practice that we could tell well before tax time which clients would be going on extension, and sure enough, it was almost always the same list filing by the October deadline. Many times, people file an extension because they will owe money. That won't help you.

Here is our annual warning about extensions: It's only an extension to file, not an extension to pay. If it was an extension to pay, everyone would do that.

If you will owe significant money but have not yet calculated how much you will owe, you will need to estimate how much you will owe and pay that by April 15.

It's more important to file the extension than pay the tax. The penalty for not filing is 10 times higher than the penalty for not paying. Even if you cannot pay by April 15, file an extension and at least eliminate a costly failure to file penalty.

Up to April 15, you can still make an IRA (or Roth IRA) contribution for last year (2025), assuming you qualify. Other than that, there is not much more you can change at this point on your 2025 taxes.

THINKADVISOR: How should advisors be helping clients prepare for next year's filing season?

ED SLOTT: The 2025 tax return for many taxpayers will look very different than it did in prior years. That's because this is the first tax return that incorporates some of the new tax deductions from last year's OBBBA law.

There were some surprises based on misinformation on how some of the new provisions would play out.

The biggest one was the provision being touted as "No Tax on Social Security." This is what the new "Enhanced Deduction for Seniors" was being (and is still being) called, but this deduction has nothing to do with Social Security. It's a $6,000 deduction for those age 65 or older ($12,000 for a married couple if both spouses are 65 or older) subject to certain income limits.

It's a good deduction and those who qualified were pleasantly surprised. But others who thought their Social Security benefits would not be taxed, were disappointed. The senior deduction does not reduce the taxable amount of Social Security benefits.

In addition, this deduction, and other new ones, was often referred to as an "above-the-line" deduction, meaning that it would reduce adjusted gross income, which is a key number on the tax return that determines whether you will qualify for certain deductions, credits and other tax benefits. The senior deduction, along with other new deductions for tips, overtime and auto loan interest are below-the-line deductions, meaning that they do reduce taxable income, but not AGI.

The big game-changer for many was the increase in the SALT (state and local tax) deductions from $10,000 to $40,000. This allowed many more taxpayers to itemize their deductions, where they were stuck with the standard deduction for the past several years, mainly due to the $10,000 SALT cap.

An added benefit is that the senior deduction could be claimed even if you itemized. The increased SALT limit helped many in high-tax states to pay less tax than in prior years.

The permanent extension of the reduced tax rates was an added help to lower 2025 tax bills.

THINKADVISOR: What lessons have advisors, and their clients, learned from the 2025 tax filing season?

ED SLOTT: Most people did not really know how their taxes would turn out this year due to many of the new OBBBA provisions effective in 2025. The difficulty in estimating how this would work out is due the different features of these new items. For example, some provisions began in 2025, some will begin in 2026. Some are permanent and some are temporary. Some will expire in 2028 and some in 2029.

For example, the senior deduction expires after 2028, but the SALT deduction ends after 2029. In addition, each of these deductions are based on different levels of AGI, making planning a bit trickier.

But now, with the completion of the 2025 tax return, we have a more accurate guide as to how this all boiled down.

Advisors and taxpayers should use the 2025 tax return as a jumping-off point to better plan for 2026 and beyond. It's a great starting point.

The 2025 tax return can be a good guide to projecting the impact of Roth conversions on AGI and some of these new tax benefits. In addition, the 2025 return can help plan 2026 and later year Roth conversions in order to optimize the lower tax brackets.

THINKADVISOR: What new items should advisors and their clients be watching out for in 2026?

ED SLOTT: There are some new items that are effective for 2026.

For 2026 there is a $1,000 charitable deduction ($2,000 for married-joint) for non-itemizers. But there is also a reduction in the charitable tax benefits for those who itemize. Those in the top 37% tax bracket will only gain a 35% benefit. Plus, charitable itemized deductions will be reduced by .5% of AGI. That does not sound like much, but it will reduce or eliminate some charitable deductions for higher-income taxpayers. For example, if 2026 AGI is $400,000 then charitable deductions will be reduced by $2,000. For example, a donation of $2,500 would be reduced to only $500.

Advisors should look to maximize QCDs (qualified charitable distributions) for those IRA owners who qualify. That may provide a larger tax benefit, and the QCD is an exclusion from income which can reduce AGI, especially for those subject to RMDs where QCDs can offset that income.

Another important planning note is to maximize these new OBBBA benefits now while the low tax rates are extended. While the law says they are extended "permanently," there is no such thing as permanent. When it comes to tax law, "permanent" means until a future Congress changes the rules.

Old CPA saying: "Tax laws are written in pencil."