Tax Planning
Maximizing Your Return: Tax Planning Strategies with the New Inflation Adjustments
With the IRS’s 2026 inflation adjustments now public, taxpayers have new opportunities to reduce liability and boost deductions. Here's how to strategize your tax year 2026 plan.
By NomadicTax Research Team • 5-8 min read • November 14, 2025
## Understanding the 2026 Inflation Adjustments
The IRS released its Revenue Procedure 2025-32 on October 9, 2025, updating more than 60 tax provisions for tax year 2026 under the *One, Big, Beautiful Bill* (OBBB). These changes will affect returns filed in 2027. ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
Key inflation-adjusted items include:
| Element | Tax Year 2025 | Tax Year 2026 |
|--------|----------------|----------------|
| **Standard Deduction** (Married Filing Jointly) | $31,500 | $32,200 ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
| Heads of Households | $23,625 | $24,150 ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
| Foreign Earned Income Exclusion | $130,000 | $132,900 ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
| Maximum EITC (3+ children) | ~$8,046 | ~$8,231 ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
## Tax Planning Tactics You Can Use Now
### 1. **Itemize vs Standard Deduction**
With higher standard deductions, many taxpayers may not benefit from itemizing in 2026. Review itemizable expenses such as mortgage interest, charitable giving, and state taxes to see if they exceed the new standard. If close, consider accelerating deductible actions into 2025.
### 2. **Optimize Retirement Contributions**
Although inflation adjustments don’t always directly affect contribution limits, boosts elsewhere—standard deductions, AMT thresholds—may free up budget. Maxing out IRA or 401(k) contributions can still lower taxable income meaningfully.
### 3. **Use Foreign Earned Income Exclusion (FEIE)**
Those living abroad should keep the FEIE in mind: the exclusion rises to **$132,900** for 2026. If your foreign income is near or under that amount, structuring income recognition and domicile status to qualify could make a big tax difference. ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
### 4. **Leverage Adjusted Tax Rates and AMT Changes**
Marginal tax rate thresholds have shifted. Also, the Alternative Minimum Tax exemption has increased: for single filers it’s now **$90,100**, phasing out at $500,000. For married filing jointly, phase-out starts at $1,000,000. If you were bumping into AMT before, these changes may give you more room. ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
### 5. **Childcare and Fringe Benefit Credits**
Lowering tax liability by tapping into credits and fringe benefits: the employer-provided childcare credit cap jumps from $150,000 to $500,000 (or $600,000 for eligible small businesses) in 2026. Qualified transportation fringe & parking benefits go up as well. ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
## Example: How These Changes Matter
**Scenario:** Sam and Alex are married filing jointly. In 2025, their standard deduction is ~$31,500. They expect $30,000 in itemized deductions, just under that threshold.
- **2026 update:** Standard deduction jumps to ~$32,200. Because their itemized deductions will likely remain ~$30,000, they’ll almost certainly take the standard deduction, simplifying their filings.
- **They own foreign-earned income** of $130,000 but with the 2026 FEIE rise to $132,900, they may exclude all their foreign income under section 911.
## Action Steps Before 2026 Begins
- Review your projected 2025 income and expenses for possible shifting of deductions or income recognition.
- If overseas, confirm residency or physical presence test status for FEIE qualification.
- Plan employer-provided benefits now: child care, transportation, fringe benefits.
- Track thresholds for EITC, AMT to avoid surprises.
**Bottom line:** The inflation changes under OBBB offer more breathing room—but only if you plan ahead. Aligning your actions now can yield better outcomes when filing your 2026 return.