The 2026 tax season promises to be historic because of the sheer number of changes that are happening all at once rather than just one major change like previous tax reforms. The One Big Beautiful Bill Act (OBBBA) changed a lot of the individual tax code. The IRS has improved its technological infrastructure. Rules for independence have become stricter for attestation clients. The IRS is stepping up enforcement actions just as CPA firms need to deal with everything without expanding their manpower.
If you are a CPA managing partner, you must take this information into account. What changes have happened, what they mean for your work, and where to find the significant risk of capacity.
OBBBA is no longer a concept in theory - schedule 1-A is active
For the last year, OBBBA has usually been viewed as a subject of conversation: something clients have heard of in the news and something firms know they will have to face. That "will eventually" has happened. The IRS has put together four new personal deductions into a new form, known as Schedule 1-A, which is being attached to Form 1040 and is already being used for the tax year 2025 files.
The four deductions involved are:
- No taxes on tips - an above-the-line deduction for eligible tip income
- No taxes on overtime - a deduction for the additional part of overtime payments
- Interest paid on car loans - not more than $10,000 per year interest on qualifying auto loans
- The super-enhanced senior deduction - an additional deduction added to the regular deductions for individuals above 65
In this case, the mechanics trump the headlines, so this is likely the most dangerous area when it comes to preparers making mistakes this tax season. Because all four deductions pass through the MAGI gateway in Part I of the Schedule, they combine and reduce the amount of taxable income listed on Line 13b of Form 1040 (not the AGI). That distinction is crucial because it determines how the deduction interacts with phase-outs and other income-based calculations, and it is not something that can simply be estimated.
There are strict eligibility rules regarding the car loan interest deduction, and one can find that many people get it wrong as they presume it covers a wider range of applications. It’s rather obvious, but the only eligible vehicles are new ones. Used vehicles are not taken into consideration regardless. Moreover, the vehicle must be made in the USA. There is no way clients where a used car was financed or a new one that was produced abroad will qualify for the deduction. It is important for professionals to highlight this issue at an early stage rather than while preparing clients' tax returns.
Besides, there is also an issue related to timing that you should incorporate into your procedure right away. In tax year 2025, there is no specific W-2 box that is designated for qualified overtime, meaning that the preparers will need to find out the qualified amount on their own based on the pay stubs or employer documentation. This adds quite a bit of time to each tax return that includes overtime earnings. However, starting in 2026, employers will report this number directly in W-2 Box 12 with the use of "TT" code. Companies will have to get ready for the taxing season this year, as the next year will be more straightforward with the process.
The Remaining Components of OBBBA: What Other Things Have Changed
While Schedule 1-A deserves the spotlight due to being fresh and key to the client’s operations, several other parts of OBBBA bear equal importance in terms of their effect on business enterprises and wealthy clients.
- The SALT deduction cap increased to $40,000. This is crucial for clients living in high-tax jurisdictions, who spent years trying to avoid the deduction limit of $10,000. Either way, clients using bunching of deductions or opting for a pass-through entity tax election because of the SALT limitation need to revise their itemization plan, since some of the techniques might now be unnecessary and may still work, based on their circumstances.
- The 100% bonus depreciation scheme is back in place. Those clients investing in capital items will benefit from full first-year expenses, which significantly alters calculations when it comes to asset buying, from equipment to fleets of cars. If a client has postponed the purchase due to the gradual discontinuance of bonus depreciation, he will have to reconsider his approach.
- The QBI deduction of 20% now comes into effect permanently. This removes the uncertainty caused by the expiration of the sunset clause which has been affecting the consideration of pass-through business. Although this change seems to be less significant than others, it might have huge influence on the planning of S-corp and partnership clients and will definitely remove the cliff that planning firms have had to deal with since the year of 2017.
- The Child Tax Credit has been increased to $2,200. This information is simple, but it will immediately change the tax recommendation and estimated payment calculations of clients with children.
- There have been two changes concerning the thresholds of 1099 reporting. The new threshold for the 1099-NEC form is $2,000, meaning many of your customers will have to prepare fewer forms than exist at the moment. On the other hand, the threshold for the 1099-K is now back to its initial form, i.e. $20,000, and 200 transactions, meaning the threshold is set back to the position before it started causing headaches for clients operating in gig economy and marketplace selling. In case your company has taken measures to adjust to increased amounts of 1099-K forms well below the established threshold, it is high time to untangle that process and inform your customers about the changes.
The New Charitable Giving Floor That Will Surprise Clients
Beginning in 2026, a 0.5% AGI floor applies to itemized charitable contributions. This floor means that the taxpayer can only take deductions for charitable giving in excess of 0.5% of adjusted gross income.
It is precisely the type of change that leads to a flurry of client complaints in April if not communicated beforehand. Clients who have never had to worry about any floor on deductible contributions may find it puzzling when they learn that their itemized deductions are less than expected. A brief proactively written email explaining the implications of the floor will cost a firm much less than an expensive conversation at tax time.
The State of Conformity Is a True Mess This Year
The exciting change of federal tax law is only part of the problem. Each state has to make its own decision on if and when to conform with the law passed by the OBBBA, and states differ greatly in where they land on this issue. A few states (such as Indiana, which for example has brought its IRC conforming date back to January 1, 2026) have already hurried through the process, and in addition, has created its own state-level deduction similar to the federal deductions for tips and overtime pay as well. Some states still haven't made a decision. Some states may not conform to the new law at all in terms of certain aspects of it.
Businesses with multi-state clients will face a bigger challenge. This year one can't assume that all states treated the new federal provisions the same way. Each and every state in question must be checked separately, and this check must take place before preparation and reporting, not during it.
The IRS is updating quicker than businesses can keep pace with
On the administrative end, the IRS has been developing its digital infrastructure to change how businesses handle taxes with it.
The IRS has made big improvements to Tax Pro Account, which allows companies to assign access privileges by employee, check clients’ information about active authorizations, and cancel authorizations through the account, all without paper applications. Meanwhile, in the summer of 2026, the IRS added functionality to its Business Tax Account as part of its modernization efforts that are shifting the practice of accounting in many areas ranging from account management to compliance verification.
These developments are not very noticeable but they should signal firms to reconsider their processes. If firms are still handling all authorizations manually or haven’t assigned all employees proper access levels in the Tax Pro Account, then they are wasting valuable time when they need to be as efficient as possible.
New Developments in the Independence Rules - Significance for All Companies Offering Attest Services
Despite the very little coverage in the media, this development is highly significant for any organization offering both tax and attest services to the same clients. The updated interpretation introduces a stricter system of analyzing how tax advisory services, including tax consultation, planning, filing, and representation influence independence when it comes to audit and review clients.
In case your company is providing both tax and attest services to the same client, it is advisable to study this development now before the quality control procedures for the end of the year start. The revised system of analysis will alter how such services are analyzed and companies that implement the provisions of this update into the policies will have more favorable conditions compared to those who will have to readjust old methods to new regulations while performing the duties.
There is an increase in enforcement, particularly with regards to partnerships and wealthy individuals
The activities of the IRS have increased and now are at the maximum level they have been for years due to their high focus on high earners, corporations, and partnerships. The IRS has also increased its investigation of the tax benefits provided by the partnership system, employing improved analytics for revealing inconsistencies. For firms that deal with partnership actions or clients from rich families, this is an important occasion to create rigorous documentation and ensure that tax returns are supported.
End of Direct File is a request for all CPA firms
The IRS has stopped the Direct File pilot project for the 2026 tax season. Taxpayers that may want to use the service have been moved toward Free File partners, paid preparers, and commercial software. For firms that want to grow, this is an important fact: demand for tax preparation has been increasing right when firms are struggling to manage the other problems they have.
What It Implies for Firm Capacity
Consider everything above collectively: a new timetable with truly complicated eligibility criteria, multiple provisions of the OBBBA that require revising currently used client strategies, a new charitable deduction threshold that necessitates proactive communication with clients, state conformity that needs to be verified separately with each multi-state client, stricter independence standards for attest services, increasing scrutiny in regulation that requires better documentation and growing demand of taxpayers, who don’t have the option of free filing anymore.
This can undoubtedly be characterized as more work than during a conventional filing period while firms are in the process of downsizing the talent pool and the clients’ expectations about advisory services are increasing. Using current personnel and existing capacity for dealing with all this is not a feasible solution for most companies without saying no to clients or exhausting the team's members who are already overloaded with work.
Indeed, this year is the type of year when a company that utilizes scalable outsourced assistance can be successful compared to those that fail to do so and will have to make up the backlog in July. Our company Xconcile cooperates with CPA firms in order to help them grow such a flexible workforce, i.e. employ the professional personnel who can fulfill the manual tasks produced by these changes (i.e. state conformity checks, Schedule 1-A calculations, document review) without being burdened by hiring new full-time workers. There are no long-term contracts and financial commitments unless the company’s needs require it, and they are ready to provide the free trial.
If your CPA firm is going through the list and realizing that things become harder, you can arrange a meeting with us before the situation gets worse. You can find a time that works at xconcile.com/meeting.
