top of page
Search

Sellers CPA Newsletter – February 2026 Tax Update

From the Desk of Carol Sellers, CPA Sellers CPA LLC https://sellerscpa.net

Dear Valued Clients and Friends,

As we move through the 2026 tax season, the landscape has shifted significantly since last year. Major federal legislation and executive actions, combined with targeted Alabama state reforms, have reshaped how individuals, families, and businesses approach taxes. This newsletter reviews the key federal and Alabama changes effective for 2025 and 2026 tax years. Our goal is to keep you informed so you can plan effectively and minimize surprises.


Major Federal Tax Law Changes – The One Big Beautiful Bill Act (OBBBA)

Signed into law on July 4, 2025, the One Big Beautiful Bill Act (also called the Working Families Tax Cut) made sweeping updates. It permanently extended many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire after 2025, preventing a return to higher pre-2018 rates and structures.

  • Permanent Lower Individual Income Tax Rates and Brackets: The TCJA's seven brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now permanent. This avoids scheduled increases (e.g., top rate reverting to 39.6%). For 2026, inflation adjustments apply, with slight extra boosts to the bottom two brackets.

  • Permanent Increased Standard Deduction: No personal exemptions, but standard deductions remain elevated and indexed for inflation. For 2026: $16,100 (single/MFS), $32,200 (joint), $24,150 (head of household). Additional amounts for age 65+ or blind continue.

  • Senior Deduction: A new $6,000 deduction for those 65+ (through 2028, with phaseouts at higher incomes).

  • Child Tax Credit Enhancements: Made permanent with increases (up to $2,200 per child nonrefundable, plus refundable portion adjustments).

  • SALT Deduction Cap: Increased to $40,000+ (with annual adjustments through 2029, then reverts; phaseouts apply at high incomes).

  • New Deductions:

    • Tips and overtime pay (deductible through 2028, with limits).

    • Car loan interest on new U.S.-made vehicles (up to certain amounts through 2028).

  • Qualified Business Income (QBI) Deduction: The 20% deduction for pass-through businesses is permanent, with expanded phase-in ranges.

  • Estate and Gift Tax Exemption: Permanently increased to $15 million (indexed for inflation).

  • Other: Cuts to certain clean energy credits from the Inflation Reduction Act; changes to HSA eligibility, direct primary care, and more.


Executive Branch Changes at the Federal Level

The Trump administration's return in 2025 brought immediate executive actions affecting tax administration:

  • Hiring freeze at the IRS (potentially longer than other agencies), signaling reduced enforcement resources.

  • Rejection of OECD global tax deals (Pillar Two), with directives to rescind commitments and explore retaliatory measures.

  • Regulatory freezes and reviews, impacting guidance on energy credits, international tax, and more.

  • Focus on deregulation, workforce reductions, and efficiency, which could influence IRS processing, audits, and future rulemaking.

These actions support broader goals of lower taxes and reduced federal bureaucracy, influencing how rules are implemented.


Alabama State Tax Law Changes

Alabama decoupled from some federal changes while enacting pro-growth reforms in 2025 (effective 2025–2026):

  • Mobile Workforce Relief: Effective January 1, 2026, nonresidents working ≤30 days in Alabama are generally exempt from state income tax and withholding (excludes athletes/entertainers/public figures; reciprocity required).

  • Business Tangible Personal Property Exemption: Increased to $100,000 (effective October 2025), relieving small/medium businesses from filing returns below this threshold.

  • R&D Expensing: Alabama decoupled from federal amortization rules, allowing full expensing of research expenses (retroactive to 2024 in some cases).

  • Overtime Exemption Sunset: The temporary state income tax exemption on overtime wages expired June 30, 2025.

  • Other: Grocery sales tax reduced (to 2% state portion, effective September 2025); exemptions for baby/maternity/menstrual products; expanded military income exemptions; precious metals capital gains exclusion.


Alabama's individual income tax rates remain 2%–5% (graduated), with no major rate changes. The state continues to conform to many federal provisions but selectively decouples for taxpayer benefit.

These updates offer opportunities for strategic planning—whether maximizing new deductions, adjusting withholding, or restructuring for QBI/estate benefits. Tax situations are highly individual, and timing matters.

If you're preparing for your upcoming taxes or want to discuss proactive planning for 2026 and beyond, reach out today. Carol Sellers and the Sellers CPA team are here to help navigate these changes and optimize your position.

Contact us:

We appreciate your trust and look forward to assisting you.

Best regards, Carol Sellers, CPA Sellers CPA LLC

 
 
 
bottom of page