Only 2 dates left: Americans must act before January 1 to lock in a crucial tax break for 2026

With year-end fast approaching, tax professionals are warning Americans they have just a narrow two-day window, December 30 and December 31, to take advantage of a key tax move that could have financial benefits stretching into 2026.

Americans must act to secure key 2026 tax break

Advisers say tax planning for 2025 has taken on unusual urgency due to fresh tax breaks introduced under US president Donald Trump’s signature tax-and-spending package, as per a report. Several of the changes apply retroactively to January 1, raising the stakes for last-minute decisions.

Retirement-plan withdrawal break limited to December 30–31

Richard Pon, a certified public accountant based in San Francisco, told USA Today that, “Tax planning is always important,” adding, “Due to the new tax law, 2025 is a particularly important year for tax planning,” as quoted by The Sun.


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Eligible taxpayers can withdraw $2,500 penalty-free

The most pressing deadline involves a retirement-plan withdrawal break that is only available on the final two days of the year. Under the new rule, individuals under age 59½ can withdraw up to $2,500 from a retirement plan to pay qualified long-term care insurance premiums without triggering the usual 10% early withdrawal penalty.

Withdrawal still counts as taxable income

However, the distribution still counts as taxable income, and it must be taken after December 29, leaving just December 30 and December 31 to act, as per The Sun report.

Beyond this last-minute opportunity, taxpayers also face a range of new deductions to consider for 2025, including several that apply even to those who don’t itemize.

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Seniors can claim $6,000 bonus deduction, auto-loan interest deduction expanded

One is a $6,000 bonus deduction for seniors. Taxpayers aged 65 or older earning less than $75,000 can claim the additional deduction. Another change allows taxpayers to deduct up to $10,000 in qualifying auto-loan interest, with the benefit phasing out as income reaches $100,000 for single filers or $200,000 for joint filers.

Workers can now deduct tips and overtime pay

Workers also gain new deductions for earnings often overlooked in tax planning. Under the updated rules, employees can deduct qualified tips of up to $25,000, along with overtime pay, up to $12,500 for single filers or $25,000 for joint filers. These deductions begin to phase out for single filers with modified adjusted gross income above $150,000 and for joint filers above $300,000.

SALT deduction cap rises to $40,000 for itemizers

For taxpayers who itemize, a major shift comes from the state and local tax (SALT) deduction. The cap has increased to $40,000 from $10,000 starting this year, though it begins to phase out for those with modified adjusted gross income above $500,000.

Pon said, “This will change the math on itemizing versus taking the standard deduction for many taxpayers,” as quoted by The Sun.

Taxpayers are being encouraged to keep careful records of potential write-offs, including mortgage interest, property taxes, medical expenses and charitable donations, to determine whether itemizing now makes more sense. Pon also noted that renters in high-tax states could find that state income taxes alone push them toward itemizing, as reported by The Sun.

FAQs

What is the two-day tax deadline?

Americans have December 30 and December 31 to take advantage of a key retirement-plan tax break.



Why is 2025 tax planning more urgent than usual?

New tax law changes apply retroactively to January 1.