Standard and Itemized Deductions Explained
Beginning in 2026, significant changes will affect both standard deductions and itemized deductions, particularly for higher-income taxpayers. While standard deduction amounts are increasing, a limitation on itemized deductions is being reinstated at the federal level.
For business owners, healthcare professionals, creators, and high-net-worth individuals, understanding these changes is essential for proactive tax planning.
Federal Standard Deduction Increases (2026)
The standard deduction continues to rise in 2026.
Federal Standard Deduction Comparison
|
Filing Status |
2025 |
2026 (Final) |
| Married Filing Jointly / Qualifying Widow(er) | $30,000 | $32,200 |
| Head of Household | $22,500 | $24,150 |
| Single | $15,000 | $16,100 |
| Married Filing Separately | $15,000 | $16,100 |
For many taxpayers — especially W-2 employees or retirees — the higher standard deduction may eliminate the need to itemize.
However, for higher-income individuals with large mortgage interest, SALT, or charitable deductions, itemizing may still be beneficial — but subject to new limits.
Additional Standard Deduction (Elderly and/or Blind – 2026)
These amounts are added on top of the regular standard deduction.
Unmarried Taxpayers
| Status |
2026 Amount |
| Elderly OR Blind | $2,050 |
| Elderly AND Blind | $4,100 |
Married Taxpayers (Per Person)
|
Status |
2026 Amount |
| Elderly OR Blind | $1,650 |
| Elderly AND Blind | $3,300 |
These additional deductions remain available even if enhanced senior deductions are claimed.
California Nonconformity
California does not conform to the federal additional standard deduction rules.
| Topic | Federal Treatment |
California Treatment |
| Additional deduction for elderly/blind | Allowed | Not allowed |
| Alternative benefit | N/A | Additional exemption credit |
| Standard deduction amounts | Higher | Separate CA amounts apply |
This means California taxpayers must calculate federal and state deductions separately — a common source of confusion.
At Velin & Associates, Inc., we regularly see taxpayers incorrectly assume California mirrors federal rules — which can lead to overpayment or notices.
2026 Federal Itemized Deduction Limitation Returns (IRC §68)
Starting in 2026, an overall limitation on itemized deductions is reinstated.
The reduction equals:
2/37 of the lesser of:
- Total itemized deductions
- The amount taxable income exceeds the 37% bracket threshold
This limitation applies after other restrictions (like SALT and charitable AGI limits).
Example: High-Income Taxpayer (2026)
Assume:
|
Item |
Amount |
| Taxable Income | $950,000 |
| Itemized Deductions (after SALT limits) | $105,000 |
| 37% Bracket Threshold | $640,600 |
Step Calculation
| Step |
Result |
| Income + deductions | $1,055,000 |
| Excess over threshold | $414,400 |
| Lesser of excess or deductions | $105,000 |
| Reduction (2/37 ≈ 5.41%) | $5,681 deduction lost |
Even though the taxpayer had $105,000 of valid itemized deductions, $5,681 is phased out due to income level.
For CPA for Doctors, CPA for Dental Practice owners, CPA for High Net Worth Individuals, this becomes a meaningful planning issue.
California Itemized Deduction Phaseout
California uses a completely different formula.
California reduces itemized deductions by the lesser of:
|
California Reduction Rule |
| 6% of excess federal AGI over CA threshold |
| 80% of allowable itemized deductions |
This operates independently from federal law.
For high-income Los Angeles taxpayers, this often results in a double limitation — one federal and one state.
Who Is Most Impacted?
These changes primarily affect:
|
Taxpayer Type |
Impact Level |
| High Net Worth Individuals | High |
| Medical Practice Owners | High |
| Dental Business Owners | High |
| Business owners with large SALT payments | High |
| Real estate investors | Moderate–High |
| W-2 earners using standard deduction | Low |
Strategic Planning Opportunities for 2026
For taxpayers nearing the 37% bracket, planning becomes critical.
Potential strategies include:
|
Strategy |
Benefit |
| Maximize 401(k), SEP-IRA, Profit Sharing | Reduces taxable income |
| Health Savings Accounts | Pre-tax reduction |
| Income deferral | Stay below threshold |
| Accelerate deductions | Control timing |
| Municipal bond investments | Lower taxable income |
| Shift expenses to Schedule C or E | Avoid itemized phaseout |
For business owners — including CPA for Shopify Store, CPA for Commerce, CPA for Creators, CPA for Amazon Business clients — structuring income properly may preserve thousands in deductions.
Standard vs. Itemized: 2026 Overview
|
Factor |
Standard Deduction |
Itemized Deduction |
| Simplicity | High | Moderate |
| Phaseout risk | None | Yes (37% bracket) |
| Best for | Moderate income | Large deductions |
| High-income impact | Stable | Reduced benefit |
Final Takeaways
- Standard deductions increase in 2026
- Federal itemized deduction phaseout returns
- California rules differ significantly
- High-income taxpayers need proactive planning
- Business owners may benefit from restructuring income
For many taxpayers in Los Angeles, 2025 year-end planning will determine how much of their deductions survive in 2026.
For more information about our tax planning services, contact us today: visit our website.
Velin & Associates, Inc
8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org
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