Year-End Tax Strategies for Salaried Employees”
Nov 10, 2026 · Sandra P. Tapia, CPA, MBA, MAcc
If you earn a W-2 salary, your biggest tax levers for 2026 are pretax workplace accounts and a handful of new deductions — and most of them close on December 31, 2026.
All figures below are for tax year 2026 (the return you file in 2027) and come from IRS.gov. As of today, the IRS has not yet published the 2027 401(k) and IRA limits; we will share them as soon as they are released.
At a glance: 10 strategies for 2026
# | Strategy | Key 2026 figure | Act by |
1 | Oil and gas working interests (accredited investors only) | Intangible drilling costs deductible against wages; partnership programs often project about 80% | Costs incurred by Dec. 31, 2026 |
2 | Max out pretax 401(k)/403(b)/457/TSP | $24,500; +$8,000 at 50+; +$11,250 at ages 60–63 | Final 2026 paycheck |
3 | Traditional IRA deduction | $7,500 (+$1,100 at 50+); phase-outs start at $81,000 single / $129,000 joint if covered at work | April 15, 2027 |
4 | Fund your HSA | $4,400 self-only / $8,750 family | April 15, 2027 |
5 | Health and dependent care FSAs | $3,400 health FSA; $7,500 dependent care FSA | Open enrollment |
6 | Real estate with 100% bonus depreciation | Spouse as real estate professional or short-term rental (avg. stay 7 days or less) to offset wages | Placed in service by Dec. 31, 2026 |
7 | New deductions (with or without itemizing) | Overtime up to $12,500; car loan interest up to $10,000; seniors $6,000 | On your 2026 return |
8 | Revisit itemizing | SALT limit $40,400; $1,000/$2,000 cash charity deduction for non-itemizers | Dec. 31, 2026 |
9 | Trump Account employer contributions | Up to $2,500 per year, tax-free to you | Ask HR |
10 | Check your withholding | IRS Tax Withholding Estimator | Before year-end |
Details on each strategy follow on the next pages, with the rules, phase-outs, cautions and IRS sources for each one.
1. Oil and gas working interests
A direct oil and gas investment is one of the few ways a W-2 earner can generate a deduction against wages without meeting material participation tests.
For accredited investors only. Oil and gas drilling programs are generally offered as private placements available only to accredited investors, as defined by the SEC (based on income or net worth tests). Confirm your eligibility with the sponsor and your financial advisor before investing. This strategy also carries real investment risk; the tax deduction does not offset a loss of principal.
• Working interest exception: a working interest in an oil or gas well is not a passive activity — regardless of your participation — if you hold it directly or through an entity that doesn't limit your liability (for example, as a general partner). Losses can offset salary. If you later convert to a limited interest, part of the income or loss can become passive.
• Intangible drilling costs (IDCs): holders of a working or operating interest may elect to deduct IDCs (labor, fuel, site preparation and similar non-salvageable drilling costs) in the year paid or incurred, instead of capitalizing them. You claim the election simply by deducting IDCs on the return for the first year you incur them. Alternatively, you can elect to deduct them ratably over 60 months.
• Equipment: tangible well equipment is depreciated, not expensed as IDC; equipment acquired after January 19, 2025 may qualify for 100% bonus depreciation.
• Percentage depletion: independent producers and royalty owners may deduct 15% of gross income from the property, generally limited to 65% of taxable income from all sources, with the excess carried forward.
Investing through a drilling partnership
Most W-2 investors don't buy a well directly; they buy units in an oil and gas drilling partnership.
• General partner units keep the deduction nonpassive. The working interest exception applies only if your liability isn't limited, so investors typically enter as general partners in the year of drilling. Many programs later convert investors to limited partners; after conversion, some income or loss can become passive.
• The IDC election flows through the K-1. The partnership makes the IDC election and passes your share of the deduction to you on Schedule K-1. Each partner may separately elect to spread their share over 60 months instead.
• About the "80% deduction": the share of your investment that's deductible in year one equals the share the partnership actually spends on IDCs that year. Sponsors often project a figure around 80%, but that is the sponsor's estimate for that program, not an IRS rule. Confirm the projected IDC percentage and drilling schedule in the offering documents, and expect the final number only on your K-1.
• Example (illustrative only): a $100,000 general partner investment in a program that spends 80% on IDCs in 2026 would produce about an $80,000 deduction against 2026 income, subject to the excess business loss limitation. The remaining cost is generally recovered through depreciation and depletion.
Cautions: the deduction only matters if the drilling actually happens and the costs are incurred in 2026; a working interest exposes you to real economic and liability risk; and large losses may be capped by the excess business loss limitation (Form 461). Review the offering's structure with your CPA before investing.
Interested in oil and gas investments? Contact me at sandy@sptconsulting.cpa or 888-213-3950 to discuss available opportunities and how they would affect your 2026 taxes.
Sources: Instructions for Form 8582 (working interest exception), IRS letter rulings on the §263(c) IDC election (PLR 201825017, PLR 1033020), IRS Publication 535, archived (percentage depletion)
2. Max out pretax 401(k), 403(b), 457 or TSP deferrals
Every pretax dollar you defer lowers your taxable wages for 2026. Deferrals come out of payroll, so changes must be in place before your final 2026 paycheck.
2026 limit | Amount |
Employee elective deferral (pretax and Roth combined) | $24,500 |
Catch-up, age 50 and older | $8,000 (total $32,500) |
Higher catch-up, ages 60, 61, 62 and 63 | $11,250 (replaces the $8,000) |
Total employee + employer additions | $72,000 |
Compensation that can be counted | $360,000 |
High earners, note: starting in 2026, if your prior-year wages from the employer exceeded $150,000, your catch-up contributions must be made as Roth (after-tax), not pretax. Your regular $24,500 can still be pretax.
3. Traditional IRA: who gets the pretax deduction
You can contribute up to $7,500 for 2026, plus a $1,100 catch-up if you are 50 or older. Whether that contribution is deductible depends on whether you or your spouse is covered by a workplace plan, your filing status and your income. If neither spouse is covered at work, there is no income phase-out.
2026 traditional IRA deduction phase-out (MAGI) | Range |
Single, covered by a workplace plan | $81,000 – $91,000 |
Married filing jointly, contributing spouse covered | $129,000 – $149,000 |
Married filing jointly, you are not covered but your spouse is | $242,000 – $252,000 |
Married filing separately, covered | $0 – $10,000 |
Below the range, the full contribution is deductible; within it, the deduction is reduced; above it, there is no deduction (you may still make a nondeductible contribution).
Roth IRA comparison: the 2026 Roth contribution phase-out is $153,000 – $168,000 for single and head of household filers, and $242,000 – $252,000 for married filing jointly.
Deadline: 2026 IRA contributions can be made up to your unextended return due date, April 15, 2027.
Source: IR-2025-111
4. Fund your HSA — and use the extra time
If you have a qualifying high-deductible health plan (HDHP), HSA contributions are deductible, grow tax-free and come out tax-free for qualified medical costs.
2026 HSA figures | Self-only | Family |
Contribution limit | $4,400 | $8,750 |
HDHP minimum deductible | $1,700 | $3,400 |
HDHP maximum out-of-pocket | $8,500 | $17,000 |
Due date: you can make 2026 HSA contributions up to the unextended due date of your 2026 return — April 15, 2027. A filing extension does not extend this deadline.
New for 2026: bronze and catastrophic plans are now treated as HSA-compatible, certain direct primary care arrangements no longer disqualify you, and telehealth before meeting the deductible no longer blocks HSA contributions.
2027 preview: limits rise to $4,500 (self-only) and $9,000 (family).
Sources: Rev. Proc. 2025-19, Rev. Proc. 2026-24, IRS on HSA contribution deadlines, Working Families Tax Cuts
5. Use open enrollment: health FSA and the bigger dependent care FSA
• Health FSA: up to $3,400 in pretax salary reductions for 2026 plan years.
• Dependent care FSA: the exclusion rose to $7,500 for 2026 ($3,750 married filing separately), up from $5,000.
• Child and Dependent Care Credit: starting in 2026, the maximum credit rate rises from 35% to 50% of up to $3,000 of expenses (one qualifying person) or $6,000 (two or more). The same dollars can't be used for both the FSA and the credit, so plan the two together.
6. Real estate with 100% bonus depreciation — know the passive loss rules first
100% bonus depreciation is now permanent for qualified property acquired after January 19, 2025. For rental property, a cost segregation study can identify shorter-life components (for example, appliances, fixtures, land improvements) that may qualify, creating a large first-year deduction. The building structure itself is depreciated over its regular recovery period.
For a salaried employee, the real question is whether that deduction can offset your W-2 wages:
• Long-term rentals are passive regardless of how involved you are. Passive losses can't offset wages, except through the special allowance below. Disallowed losses carry forward and are released when you sell your entire interest in a fully taxable sale.
• $25,000 special allowance: if you actively participate (approve tenants, set rents, approve repairs), up to $25,000 of rental loss can offset wages. It phases out by 50% of MAGI over $100,000 and is gone at $150,000 MAGI ($50,000 / $75,000 if married filing separately and living apart).
• Short-term rentals: if the average guest stay is 7 days or less, the property is not treated as a "rental activity." If you also materially participate (for example, more than 100 hours and at least as much as anyone else, or more than 500 hours), the loss is nonpassive and can offset wages. Keep calendars and logs.
• Real estate professional status requires more than 750 hours and more than half of your working time in real property trades — rarely achievable for a full-time employee — but see the spouse strategy below.
Strategy A: Spouse as real estate professional
On a joint return, the wages of one spouse can be offset by rental losses if the other spouse qualifies as a real estate professional (REP) and materially participates in the rentals.
• One spouse must meet both tests alone: more than half of their personal services during the year are in real property trades or businesses in which they materially participate, and more than 750 hours in those businesses. Hours of the W-2 spouse can't be combined to meet these two tests.
• Employee hours don't count as real property work unless the person owns more than 5% of the employer — so this usually fits a spouse who doesn't hold a full-time W-2 job, or who works in their own real estate business.
• Material participation in the rentals is still required. Here, the other spouse's participation does count. Each rental is a separate activity unless you make the election to treat all rental real estate interests as one activity — often essential when you own several properties.
• Result: losses from a cost segregation study with 100% bonus depreciation become nonpassive and can offset the W-2 spouse's salary on the joint return.
Strategy B: The short-term rental exception
This route does not require REP status, so it can work even when both spouses have full-time jobs.
• Average guest stay of 7 days or less (or 30 days or less with significant personal services) means the property is not a "rental activity" under the passive rules.
• You must then materially participate. The tests most W-2 owners use: more than 100 hours and at least as much as any other individual (including cleaners and managers), or more than 500 hours, or doing substantially all the work. Your spouse's hours count toward your participation. Heavy use of a property manager can make these tests hard to meet.
• Result: the bonus depreciation loss is nonpassive and can offset wages.
• Watch personal use: using the home yourself for more than the greater of 14 days or 10% of rented days changes how the rental is treated.
For both strategies: keep contemporaneous logs (calendars, appointment books, narrative summaries), expect scrutiny, and remember that large losses may also be capped by the excess business loss limitation (Form 461).
Timing matters: the property must be placed in service in 2026 to take the deduction on your 2026 return. This area has many traps (excess business loss limits, depreciation recapture on sale), so model it with your CPA before you buy.
7. Claim the new deductions that apply to you (2025–2028)
These are available whether or not you itemize, and each phases out at higher incomes.
Deduction | Maximum | Phase-out begins (MAGI) | Key condition |
Qualified overtime | $12,500 ($25,000 joint) | $150,000 ($300,000 joint) | Only the premium portion of FLSA-required overtime — exempt salaried employees generally don't receive it |
Car loan interest | $10,000 | $100,000 ($200,000 joint) | New personal-use vehicle, final assembly in the U.S., loan originated after Dec. 31, 2024; VIN on return |
Seniors (65+) | $6,000 per person | $75,000 ($150,000 joint) | In addition to the regular extra standard deduction |
8. Revisit itemizing: higher SALT cap and a new charitable deduction
• SALT: the state and local tax deduction limit is $40,400 for 2026 ($20,200 married filing separately), with reductions at higher incomes. Combined with mortgage interest, more W-2 households may now beat the 2026 standard deduction ($16,100 single, $32,200 joint, $24,150 head of household).
• Non-itemizers: starting in 2026, you can deduct up to $1,000 ($2,000 joint) of cash gifts to qualifying charities without itemizing. Gifts to donor-advised funds don't qualify. Give by December 31.
9. Ask about Trump Account employer contributions
Employers can contribute up to $2,500 per year to an employee's or dependent's Trump Account, excluded from the employee's taxable income. Total contributions are capped at $5,000 per year, and eligible children may receive a one-time $1,000 federal deposit.
Source: Working Families Tax Cuts
10. Check your withholding before year-end
New deductions can change your refund or balance due. Run the IRS Tax Withholding Estimator — updated for the new law — and give your employer a new Form W-4 if needed.
Key dates
Date | What's due |
Your employer's open enrollment window | 2027 health FSA, dependent care FSA and HSA payroll elections |
Final 2026 paycheck | Last chance for 2026 401(k)/403(b)/457/TSP deferrals |
December 31, 2026 | Charitable cash gifts; rental property placed in service; oil and gas costs incurred |
April 15, 2027 | Last day for 2026 HSA and IRA contributions (filing extensions do not extend this) |
Let's plan your year-end
Every strategy above depends on your income, filing status and benefits. Before December 31, schedule a review so we can model which moves save you the most — including oil and gas investment opportunities for accredited investors.
Early-bird offer: Schedule your year-end tax strategies consultation before December 1, 2026 and use code notax2026 to receive 35% off.
Sandra P. Tapia, CPA, MBA, MAcc — Accounting, Audit, and Tax Advisor
SPT Business Consulting · www.sptconsulting.cpa · sandy@sptconsulting.cpa · 888-213-3950
This newsletter provides general information based on IRS guidance available as of November 10, 2026. It is not tax or legal advice for your specific situation. Please consult with us before acting.
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