Saving on Taxes & Tax Planning

For years, tax planning came with an asterisk. Most of the 2017 tax cuts were set to expire after 2025, and nobody knew what the rules would be in 2026. That question is now answered. The One Big Beautiful Bill Act, signed July 4, 2025, made the 2017 rate brackets, the larger standard deduction, the higher child credit, and the large estate exemption permanent. It also added some new breaks, a few of them temporary, and changed others.

That makes this a good time to plan. The ideas below are grouped by who they help most, but read them all. A retiree may have a grandchild headed to college, and a young family may be supporting a parent. Where we have a fuller article on a topic, we link to it.

The 2026 numbers at a glance

These are the figures that come up most often. Each one is explained in the sections below.

At work and at home

The tax breaks hiding in benefits enrollment

If you work for someone else, the best tax savings you’ll get all year are decided during open enrollment, and most people click through it in ten minutes. Three benefits deserve a closer look.

• Paying your health premiums through payroll. Most employers let you pay your share of the health insurance premium before tax. If yours does and you’ve opted out, you’re paying that premium with after-tax money.
• A health flexible spending account (FSA). You can set aside up to $3,400 in 2026 for deductibles, co-pays, prescriptions, dental work, and glasses.
• A dependent care FSA. Up to $7,500 per household for day care, preschool, before- and after-school care, and summer day camp for children under 13.

What makes these better than most deductions is that the money comes out of your paycheck before federal income tax, Social Security and Medicare tax (7.65%), and usually Colorado income tax. For a family in the 22% bracket, every dollar run through one of these accounts saves roughly 34 cents. And unlike a 401(k), which only postpones tax, this tax is never owed at all.

The catch is that FSAs are use-it-or-lose-it. Money you don’t spend by the end of the plan year goes back to the employer, unless your plan offers either a grace period of up to two and a half months or a carryover of up to $680 (plans can offer one or the other, not both). So estimate on the conservative side: start with the costs you know are coming, like the orthodontist or the day care bill.

If your employer offers a high-deductible health plan, a health savings account can be even better than an FSA, because the money carries over forever. See Health Savings Accounts: The Deduction People Miss Every Year.

Child care: the FSA or the credit?

The 2025 law improved both ways of getting a tax break for child care. Starting in 2026, the dependent care FSA limit rose from $5,000 to $7,500, the first increase in almost 40 years. The child and dependent care credit also got richer: it’s now worth up to 50% of up to $3,000 of care costs for one child or $6,000 for two or more. The percentage starts at 50% for very low incomes, drops to 35% for most middle-income families, and phases down further, toward 20%, once income passes $75,000 for single filers or $150,000 for joint filers.

You can’t use the same dollars for both. Every dollar you run through the FSA reduces the expenses you can count for the credit, so a family that puts the full $7,500 in the FSA usually has nothing left for the credit.

Which is better? It’s closer than it used to be. For a higher-income family, the FSA almost always wins, because it saves income tax, Social Security and Medicare tax, and Colorado tax on up to $7,500, while the credit is only 20% of up to $6,000. For a family in the 12% bracket, the credit can come out ahead. In the middle, it’s worth running both ways. One more point: the $7,500 limit only helps if your employer has updated its plan to allow it. Ask HR before you enroll.

Should both spouses work? Run the real numbers

When a family is stretched, sending a stay-at-home spouse back to work looks like the obvious answer. It may be. But a second paycheck is taxed at the family’s top rate from the first dollar, it adds Social Security and Medicare tax, and it brings costs of its own. People are often surprised by how little is left.

Here’s a rough example. A married couple in Parker has two children in day care. One spouse already earns enough to put the family in the 22% bracket. The other is offered a job paying $45,000.

That doesn’t mean the job isn’t worth taking. It builds Social Security credits and retirement savings, keeps skills current, and the day care years don’t last forever. The point is to make the decision with the real number in front of you, not the salary figure. Higher family income can also shrink other breaks, like the education credits, so it’s worth having us look at the whole picture.

Head of household: the filing status people miss

If you’re unmarried and support someone, check whether you qualify as head of household. Compared with filing single, it brings a standard deduction of $24,150 instead of $16,100 and a 12% bracket that runs to $67,450 of taxable income instead of $50,400. For many people, that’s more than $1,500 a year.

You generally qualify if you’re unmarried at the end of the year, you pay more than half the cost of keeping up a home, and a qualifying person lives with you for more than half the year. That can be a child, but it can also be a relative you support, like a grown child who’s out of work, a sibling, or a niece or nephew.

There’s one important exception to the living-together rule: a parent doesn’t have to live with you. If you can claim your mother or father as a dependent and you pay more than half the cost of their home, you can file as head of household. Their home can be their own house or apartment, or an assisted living facility or nursing home. To claim a parent or other relative as a dependent, you have to provide more than half their support, and their gross income has to be under $5,300 for 2026. Social Security that isn’t taxable doesn’t count toward that limit, so many parents living mostly on Social Security can qualify.

Credits for children and other dependents

The child tax credit is $2,200 for each child under 17 in 2026, and up to $1,700 of it is refundable. It starts to phase out at $200,000 of income ($400,000 for married couples filing jointly). The 2025 law made it permanent and tied it to inflation.

For dependents who don’t qualify for the child credit, there’s a $500 credit. This covers children 17 and older, college students under 24, a parent you support, and other relatives or household members who meet the dependent rules. It’s easy to overlook, particularly in the year a child turns 17.

Taxpayers 65 and older

The new $6,000 senior deduction

For 2025 through 2028, everyone who is 65 or older by the end of the year gets an extra $6,000 deduction, or $12,000 for a married couple who are both 65. You get it whether you itemize or not, and it’s on top of the extra standard deduction seniors already receive.

For a married couple who are both 67 and take the standard deduction, that adds up to $47,500 of deductions for 2026: the $32,200 standard deduction, $3,300 of extra standard deduction for age, and $12,000 of senior deduction. For many retirees living mostly on Social Security and modest IRA withdrawals, that means little or no federal income tax.

The deduction shrinks by 6 cents for every dollar of income above $75,000 ($150,000 for joint filers), so it’s gone for single filers at $175,000 and joint filers at $250,000. Married couples must file jointly to claim it, and each person needs a valid Social Security number. Because it’s a deduction rather than a reduction of income, it doesn’t lower your adjusted gross income, so it won’t reduce how much of your Social Security is taxable or your Medicare premium surcharges.

Your Medicare premiums may be deductible

Many retirees never add them up, but Medicare premiums count as medical expenses: Part B, Part D, Medicare Advantage, and Medigap supplement policies. Part B and Part D premiums are usually taken out of Social Security, so they appear on your year-end SSA-1099 instead of in your checkbook. For a married couple, premiums alone can easily run $8,000 to $10,000 a year.

Premiums for qualified long-term care insurance count too, up to an age-based limit per person. For 2026, the limit is $4,960 for someone 61 to 70 and $6,200 for someone over 70.

Medical expenses are deductible only if you itemize and only to the extent they exceed 7.5% of your adjusted gross income, so this works best in a year with large medical bills, or when combined with other itemized deductions. See Itemized Deductions vs. the Standard Deduction. There’s a better route if you have self-employment income: Medicare premiums can count toward the self-employed health insurance deduction, which you take whether you itemize or not.

Paying a parent’s medical bills

If you’re helping support an aging parent, you may be able to deduct the medical bills you pay for them. For the medical deduction, your parent counts as your dependent if you provide more than half their support, even if their income is too high for you to claim them as a dependent otherwise. Their medical bills, insurance premiums, and long-term care costs then add to your own when figuring the deduction.

Pay the doctor, hospital, or care facility directly rather than giving your parent the money. A direct payment is clearly your expense, and payments made directly to a medical provider don’t count as gifts for gift tax purposes, no matter how large.

Moving into a continuing care community

Continuing care retirement communities, sometimes called life care communities, charge a large entrance fee and a monthly fee in exchange for housing now and care later, from independent living up through assisted living and skilled nursing. Part of what you pay is really prepaid medical care, and that part can be deducted as a medical expense, including part of the entrance fee in the year you pay it.

The community should be able to tell you what percentage of its fees goes to medical care; most send residents a letter each year with that figure. A few cautions:

• If the entrance fee is refundable, the refundable portion generally isn’t deductible, because it’s closer to a deposit or loan than a payment.
• If you deduct part of the fee and later get some of it back, the refund can be taxable income.
• Pools, fitness centers, and other amenities don’t become medical expenses because they’re good for you.

The first-year deduction can be large enough to make itemizing worthwhile even for people who normally don’t, and an adult child who pays the fees for a parent they support can use the same deduction.

Giving to charity straight from your IRA

Once you’re 70½, you can have your IRA send money directly to a charity, up to $111,000 per person in 2026. This is called a qualified charitable distribution, or QCD. The money never shows up in your income, and once you’re old enough for required minimum distributions, it counts toward your required amount.

For anyone who gives regularly, this is usually the best way to do it, and the 2025 law made it better. Most retirees take the standard deduction and get no tax benefit from a check written to their church. Itemizers now lose the first 0.5% of their income in charitable deductions. A QCD avoids both problems, and because it keeps your adjusted gross income lower, it can also reduce the tax on your Social Security, protect the senior deduction, and help you stay under Medicare premium surcharges.

A few rules: the check must go straight from the IRA custodian to the charity (a check made out to you doesn’t count), it can’t go to a donor-advised fund or private foundation, and you can’t receive anything in return. QCDs from a Roth IRA are allowed but rarely make sense, because Roth withdrawals are usually tax-free already.

Colorado’s breaks for retirees

Colorado taxes retirees more gently than its flat income tax rate suggests:

• Social Security. If you’re 65 or older, Colorado doesn’t tax your Social Security at all. If you’re 55 to 64, it’s fully exempt if your adjusted gross income is $75,000 or less ($95,000 for joint filers).
• Pensions, annuities, and IRA withdrawals. Colorado lets each spouse subtract pension, annuity, and IRA income: up to $24,000 a year at 65 or older and up to $20,000 at 55 to 64. Social Security you subtract counts against the same limit.

The legislature has been changing these rules, so check the current Colorado instructions before you plan around a particular number. One trap: early IRA withdrawals that are hit with the federal 10% penalty don’t qualify for the Colorado subtraction.

Retirement accounts

2026 contribution limits

You can put $24,500 into a 401(k), 403(b), or government 457 plan in 2026, plus an $8,000 catch-up at 50 or older. If you’re 60, 61, 62, or 63, the catch-up is $11,250. IRAs allow $7,500, plus $1,100 at 50 or older. New for 2026: if you earned more than $150,000 in wages from your employer last year, your 401(k) catch-up contributions must go in as Roth contributions. For how to choose between traditional and Roth, and the other ways to save, see Tax Breaks for Retirement Savers and Roth IRAs.

Getting money out early without the 10% penalty

Withdrawals before age 59½ are usually taxed and hit with a 10% penalty. But there are more exceptions than most people realize, and they’re different for IRAs and for workplace plans like 401(k)s. That difference matters before you roll money from one to the other.

Exceptions that apply to both include medical bills over 7.5% of income, disability, terminal illness, up to $5,000 for the birth or adoption of a child, one emergency withdrawal of up to $1,000 a year, a withdrawal for a victim of domestic abuse, and a series of roughly equal payments over your life expectancy. Income tax is still due on most of these; only the penalty goes away.

The practical lesson: if you’re 55 to 59½ and leaving a job, think twice before rolling the 401(k) into an IRA. Once it’s in the IRA, you lose the age-55 exception.

Rollovers done right

When you change jobs or consolidate accounts, move the money directly from one custodian to the other. Ask for a direct rollover or a trustee-to-trustee transfer. It’s simple and nothing is withheld.

The alternative, taking a check and depositing it yourself within 60 days, causes two common problems:

• Withholding. A check from a 401(k) made out to you has 20% withheld for federal tax. To roll over the full amount, you have to make up that 20% from other money within the 60 days. Whatever you don’t put back is taxable, and may be penalized.
• One per year. You can do only one 60-day IRA-to-IRA rollover in any 12-month period, counting all your IRAs together. A second one is a taxable withdrawal, and the money can’t go back in. Direct transfers between custodians and Roth conversions don’t count toward this limit.

Inheriting an IRA: the 10-year rule

Children and most other heirs who inherit an IRA or 401(k) can no longer stretch withdrawals over their own lifetimes. They have to empty the account by the end of the tenth year after the year of death. If the original owner had already started required minimum distributions, the heir must also take a withdrawal each year during that period.

The exceptions are a surviving spouse, a minor child of the owner (until 21), a beneficiary who is disabled or chronically ill, and someone no more than ten years younger than the owner, such as a sibling.

The danger is that a large inherited IRA, emptied in a few years on top of the heir’s own wages, pushes them into a much higher bracket. Some ways to soften it:

• The heir spreads withdrawals out over the ten years instead of waiting until the end, filling up lower brackets each year.
• The owner converts to Roth in retirement, in years when their own bracket is lower than their children’s will be. Heirs still have to empty an inherited Roth within ten years, but the withdrawals are generally tax-free.
• The owner leaves the IRA to charity and other assets to the children. A charity pays no tax on the IRA, while stocks and real estate get a new cost basis at death.

Investors and higher-income taxpayers

The 0% capital gains bracket

Long-term capital gains and qualified dividends are taxed at 0% for anyone whose taxable income, including the gains, stays under $49,450 (single), $98,900 (married filing jointly), or $66,200 (head of household) in 2026. Because those limits apply to taxable income after deductions, a married couple taking the standard deduction can have more than $131,000 of total income and still be in the 0% range for part of their gains. That’s where a lot of retirees are.

There are two ways to use it.

Sell gains in your own low-income years. If you’re retired and your taxable income is below the limit, you can sell appreciated stock and pay no federal tax on the gain up to the top of the 0% range. If you want to keep the investment, you can buy it right back. There’s no waiting period for gains, only for losses. Doing this every year resets your cost basis higher and shrinks future tax.

Give appreciated stock to family members in the 0% bracket. If you’re in a higher bracket and want to help an adult child, a grandchild who’s out of school, or a parent with modest income, give them appreciated shares instead of cash. They take over your cost basis and your holding period, so if they sell, the gain is theirs, taxed at their 0% rate to the extent it fits under their limit. You’d have paid 15% or more. Watch the gift tax rules below and the kiddie tax that follows.

The kiddie tax

The kiddie tax keeps parents from shifting investment income to their children. It applies to children under 19, and to full-time students under 24 whose earned income doesn’t cover more than half their support. In 2026, a child’s investment income over $2,700 is taxed at the parents’ rate instead of the child’s.

So gifting appreciated stock works for adult children who are out of school and supporting themselves, but generally not for a 16-year-old or a college sophomore. For younger children, a 529 plan or a custodial Roth IRA funded from the child’s own summer job earnings usually works better.

Harvesting capital losses

Selling investments at a loss lets you offset gains you’ve taken during the year. If losses exceed gains, up to $3,000 of the excess offsets your other income ($1,500 if married filing separately), and the rest carries forward with no time limit.

People sometimes hold onto losing investments because they “can only deduct $3,000.” That undersells it. A large loss carryforward lets you sell winners in later years without tax, including short-term gains that would otherwise be taxed at your full rate. If the investment no longer fits your plan, selling and banking the loss is often right even if it doesn’t help much this year.

Two cautions. If you buy the same or a substantially identical investment within 30 days before or after the sale, the loss is disallowed under the wash sale rule. And a capital loss carryforward ends at death; it doesn’t pass to heirs, and only the surviving spouse’s share continues. An elderly investor with a large carryforward should usually use it rather than save it.

Which investments go in which account

If you have money in taxable accounts, traditional IRAs, and Roth IRAs, where you hold each investment can matter almost as much as what you hold. In general:

• Traditional IRAs and 401(k)s are the place for investments that throw off income taxed at ordinary rates, like bonds, CDs, and real estate investment trusts. The income is sheltered until you withdraw it, and it’s all taxed as ordinary income at that point anyway.
• Taxable accounts are the place for broad stock index funds and ETFs. They generate little taxable income, their gains get the lower capital gains rates when sold, losses can be harvested, and they get a new cost basis at death.
• Roth accounts are the place for the investments you expect to grow the most, since that growth will never be taxed.

Higher-income investors should also know about the 3.8% net investment income tax, which applies to investment income once adjusted gross income passes $200,000 for single filers or $250,000 for joint filers. Those thresholds aren’t adjusted for inflation, so more people cross them every year.

Itemizing again: the $40,400 SALT cap and charity rules

From 2018 through 2024, you could deduct no more than $10,000 of state and local taxes, and most Coloradans stopped itemizing. For 2025 through 2029, that cap is much higher: $40,400 for 2026, rising 1% a year. It goes back to $10,000 in 2030. The higher cap shrinks once modified adjusted gross income passes $505,000 and reaches the $10,000 floor around $606,000.

For a homeowner in Douglas County with a mortgage, property taxes, Colorado income tax, and regular giving, itemizing may be back on the table. It’s worth comparing every year rather than assuming.

Charitable giving changed too, starting in 2026:

• If you don’t itemize, you can now deduct up to $1,000 of cash gifts to charity ($2,000 for joint filers). Gifts to donor-advised funds don’t qualify. Keep your receipts.
• If you do itemize, only charitable gifts above 0.5% of your adjusted gross income are deductible. On $200,000 of income, the first $1,000 of giving produces no deduction.
• In the top 37% bracket, itemized deductions save at most 35 cents per dollar.

“Bunching” still works. Put two or three years of giving into one year, often through a donor-advised fund, itemize that year, and take the standard deduction in between. Giving appreciated stock instead of cash avoids the capital gains tax as well. And at 70½, a QCD usually beats both.

Selling business property at a loss

If you own a business, a farm, or rental property, the equipment, vehicles, buildings, and land you’ve held more than a year get unusually favorable treatment. If you sell them for a net gain for the year, the gain is generally taxed at capital gains rates (with a portion of it taxed as ordinary income to recover past depreciation). If you sell them for a net loss, the loss is an ordinary loss, fully deductible against your other income, not limited to $3,000 like an investment loss. A large loss can even create a net operating loss to carry forward.

Timing matters, because net losses and gains are tracked over five years. A net loss in one year is recaptured as ordinary income to the extent you have net gains in the following five years. If you have a choice, taking the gains first and the losses in a later year tends to come out ahead.

One firm rule: a loss on a sale to a related party is disallowed. That includes your spouse, parents, grandparents, children, grandchildren, brothers, and sisters, and businesses you or your family control more than 50%. Selling the old tractor to your brother at a loss gets you no deduction.

Gifts and estates

Giving money away without gift tax

In 2026, you can give up to $19,000 to as many people as you like without filing a gift tax return. A married couple can give $38,000 to each person. (If all of it comes from one spouse, a gift tax return is needed to split the gift, but no tax is due.) Larger gifts require a return but rarely any tax; they just use up part of your lifetime exemption.

Two kinds of gifts don’t count at all, no matter the amount: tuition paid directly to a school, and medical bills paid directly to the provider. A grandparent who pays a grandchild’s tuition directly to the college can still give that grandchild $19,000 the same year. Note that this covers tuition only, not room, board, or books.

The $15 million exemption and portability

For 2026, each person can leave or give away $15 million, $30 million for a married couple, before federal estate or gift tax applies. The 2025 law made this permanent and tied it to inflation, which ended the uncertainty about the exemption being cut in half. Colorado has no estate or inheritance tax.

For nearly everyone, that means estate planning is no longer about avoiding estate tax. It’s about income tax. Assets you own at death get a new cost basis equal to their value at death, so heirs can sell them with little or no capital gains tax. Assets you give away during life carry your old basis with them. That’s why it’s usually better to give cash or new purchases during life and hold highly appreciated assets, like the family farm or stock bought decades ago, until death.

One step married couples shouldn’t skip: when the first spouse dies, the survivor can keep the unused exemption by filing an estate tax return (Form 706), even though no tax is due. This is called portability. It’s cheap insurance against a future change in the law or a large increase in the survivor’s wealth. The IRS generally allows up to five years to make the election. For more, see Gift and Estate Taxes.

529 plans as an estate planning tool

A 529 college savings plan is one of the few ways to move money out of your estate while keeping control of it. You can front-load five years of annual exclusion gifts at once: up to $95,000 per beneficiary in 2026, or $190,000 from a married couple, with no gift tax. The election is made on a gift tax return. You remain the owner, you can change the beneficiary to another family member, and in a pinch you can take the money back (paying income tax and a 10% penalty on the earnings).

Colorado residents can also deduct contributions to Colorado’s CollegeInvest plans on their state return, up to an annual limit per beneficiary.

Estate planning for the rest of us

Even with no estate tax, anyone with children, property, or a retirement account needs a plan. It’s less about taxes than about making things easy for the people you leave behind. At a minimum:

• A will, and if you have minor children, a named guardian.
• Current beneficiary designations on IRAs, 401(k)s, life insurance, and bank and brokerage accounts. These override your will, and outdated ones are one of the most common and painful mistakes we see.
• Financial and medical powers of attorney, so someone you trust can act if you can’t.
• A plan for real estate. Colorado allows a beneficiary deed, which passes a home to the person you name at death without probate. A living trust is another option, especially for property in more than one state.

Review it every few years and after any big change: marriage, divorce, a death in the family, a move, a new grandchild, or a new tax law. An estate planning attorney should draft the documents; we’re glad to work with your attorney on the tax side.

Education

529 withdrawals: what’s tax-free

Money in a 529 plan grows tax-free and comes out tax-free when it’s spent on qualified education costs. The list has grown a lot:

• College and graduate school: tuition, fees, books, a computer, and room and board for students enrolled at least half-time.
• Kindergarten through 12th grade: starting in 2026, up to $20,000 a year per student (up from $10,000). It now covers more than private school tuition, including books and curriculum materials, outside tutoring, standardized test fees, dual-enrollment classes, and therapies for students with disabilities.
• Trade and career training: registered apprenticeships and, since July 2025, recognized credential and licensing programs, including the exam fees.
• Student loans: up to $10,000 per person, over a lifetime.
• A Roth IRA for the beneficiary: up to $35,000 over a lifetime, if the 529 has been open at least 15 years. The rollover counts against the student’s annual IRA limit, and the student needs earned income.

Earnings withdrawn for anything else are taxed and usually hit with a 10% penalty. The penalty is waived to the extent of a tax-free scholarship, so a scholarship doesn’t strand the money. You can’t use the same expenses for a tax-free 529 withdrawal and an education credit, so plan which dollars pay for what; see Education Tax Credits. States don’t always follow the federal expansions, so check the Colorado treatment before using a 529 for K–12 expenses other than tuition.

Employer help with tuition and student loans

An employer can pay up to $5,250 a year toward an employee’s education tax-free, and that now permanently includes paying down the employee’s student loans. The $5,250 limit will start rising with inflation after 2026. If your employer offers this, use it; if you run a small business, it’s a valuable benefit to offer.

Job-related education above $5,250 can also be tax-free, as long as it maintains or improves skills for your current job rather than preparing you for a new line of work.

Student loan forgiveness is taxable again

From 2021 through 2025, almost all forgiven student loan debt was tax-free. That rule expired at the end of 2025. Forgiveness in 2026 and later, including forgiveness at the end of an income-driven repayment plan, is generally taxable income again, on both your federal and Colorado returns.

Some forgiveness is still tax-free: Public Service Loan Forgiveness, and loans discharged because of the borrower’s death or permanent disability. If you were insolvent when the debt was forgiven, meaning your debts exceeded your assets, some or all of it may be excluded. If you expect forgiveness, plan for the tax bill now rather than being surprised by it.

Is your MBA deductible?

If you’re an employee, generally not. Unreimbursed employee expenses are no longer deductible at all, and the 2025 law made that permanent. The way to get a tax break as an employee is to have your employer pay, using the $5,250 benefit above.

If you’re self-employed, education can be a business deduction if it maintains or improves skills used in the business you’re already in. An MBA for someone who already runs a business often passes that test. Courses that qualify you for a new profession don’t, so a bookkeeper going to law school can’t deduct the tuition.

Planning beats scrambling

Most of what’s in this article has a deadline that falls well before April 15. Benefit elections happen in the fall, QCDs and loss harvesting by December 31, and estate documents whenever you get around to them, which is usually later than it should be. The time to look at next year’s tax return is this year.

That’s what we do year-round. When we prepare your return, we look for the breaks that apply to you, and between filing seasons we’re available to run the numbers on a decision before you make it.