Taxpayers can expect bigger-than-usual refunds when they file their 2025 tax returns this year, largely because of provisions in the One Big Beautiful Bill Act (OBBBA). Here’s a look at the the seven major tax cuts that took effect in 2025 under the OBBBA and that could boost your tax refund this year, according to the Tax Foundation: Maximum child tax credit increase of $200. Standard deduction increase of $750 for single filers and $1,500 for joint filers. State and local tax (SALT) deduction ca ...

Core Insights - The tax season began on January 26, with many Americans expecting larger tax refunds this year, potentially up to $1,000 higher than previous years [1][2]. Tax Cuts - The increase in tax refunds is attributed to the One Big Beautiful Bill Act (OBBBA), which introduced several tax cuts, including new deductions for seniors, overtime pay, tips, and car loan interest, as well as an increase in the standard deduction [2][4]. - The state and local tax deduction cap has increased from $10,000 to $40,000, benefiting taxpayers in high-tax states [5]. Tax Withholding - The IRS did not update its federal income tax withholding tables for 2025, leading to many W-2 employees potentially overpaying their taxes throughout the year [2][6]. - Taxpayers may receive larger refunds because they had more withheld than necessary due to the unchanged withholding tables despite new deductions being available [7]. Refund Comparisons - In the previous tax season, the IRS issued over 103 million refunds with an average amount of $3,167 [8]. - The actual refund amount will vary based on individual circumstances, with higher-income households potentially benefiting more from the new deductions [9]. Recommendations for Tax Refund Usage - Taxpayers are advised to use their refunds wisely, such as paying down high-interest debt or boosting savings in a high-yield savings account [11][12].

Economic Outlook - The U.S. economy is expected to experience solid growth in 2026, with lower unemployment and slightly reduced inflation compared to 2025 [2][9] - Vanguard's forecast for 2026 includes a drop in the unemployment rate to 4.2% from 4.6% in November 2025, driven by increased investments in AI and other projects [7] Employment and Job Market - The job market is anticipated to rebound in 2026 after a sluggish performance in 2025, as businesses increase investments and economic growth drives demand for workers [7][9] Economic Growth - GDP growth is projected at 2.25% for 2026, supported by strong investment numbers and fiscal policy changes, particularly tax cuts from the "One Big, Beautiful Bill" [7][10] Inflation Trends - Inflation is expected to remain elevated due to the continued impact of tariffs, with consumer prices rising by 2.6% in 2026, slightly down from 2.8% in September 2025 [10][11]

Core Insights - The tax refunds for Americans in 2026 are projected to be significantly larger than usual, with estimates suggesting an average increase of around $1,000 compared to previous years [2][5][8] - This increase is attributed to tax cuts implemented by President Trump's legislation, which reduced individual taxes by an estimated $144 billion in 2025, affecting the amount withheld from paychecks [5][7] Tax Refund Projections - Treasury Secretary Scott Bessent has indicated that the upcoming tax refunds are likely to be "gigantic," reflecting a substantial financial benefit for taxpayers [4] - The Tax Foundation's analysis predicts that the average tax refund could be approximately $1,000 higher in 2026 due to the retroactive application of tax cuts [5][8] Withholding and Tax Filing - The changes in tax rules were enacted mid-year, leading to no adjustments in withholding amounts from paychecks, resulting in higher amounts being withheld than necessary [6][7] - Taxpayers will file their returns in 2026 for the 2025 tax year, allowing them to reclaim the excess amounts withheld, which is expected to average around $1,000 [8] Beneficiaries of Tax Changes - The tax changes will particularly benefit individuals who qualify for new targeted tax breaks, including parents receiving a larger child tax credit, those with deductible auto loan interest, tipped workers, and homeowners eligible for a larger SALT deduction [9][11] Financial Planning - It is advised that taxpayers utilize their anticipated extra refund wisely, such as contributing to retirement plans, paying down debt, or building emergency funds [9][10] - Awareness of the temporary nature of these tax benefits, which last only until 2028, is crucial for long-term financial planning [10]

Core Insights - The article discusses the potential tax benefits under Trump's One Big Beautiful Bill Act (OBBBA), particularly for seniors, families with children, and employees earning overtime [6][8] - It highlights that a significant portion of U.S. households could potentially pay $0 in federal income tax by 2025 due to the new tax deductions and credits [7][8] Tax Benefits for Seniors - A retired couple earning a combined adjusted gross income of $96,700 can reduce their taxable income significantly through the standard deduction and the new seniors deduction, resulting in a taxable income of $50,000 [2][6] - The article notes that a senior couple could potentially pay $0 in federal income tax due to capital gains and qualified dividends being taxed at a 0% rate [1][6] Tax Credits and Deductions - Families like Casey and Riley, with a combined income of $100,000 and two children, can utilize various deductions totaling $31,500, along with additional deductions for overtime pay, to lower their taxable income [5][4] - The maximum child tax credit has increased to $2,200 per child, which can further offset tax liabilities, potentially resulting in a $0 federal tax bill [3][6] Broader Implications of Tax Changes - Approximately 40% of U.S. households had a $0 federal tax bill in 2022, and this trend may continue with the new tax cuts favoring specific demographics [6][7] - The article mentions that while many may benefit from the new tax rules, higher-income households may not be able to reduce their tax bills to $0 [9] Financial Advisory Services - The article introduces financial advisory services like Range, which offers tax recommendations and investment advisory services at a lower cost compared to traditional advisors [10][11] - It emphasizes the importance of working with a financial advisor to navigate the new tax landscape and optimize tax strategies [13][18]

Economic Growth Outlook - The U.S. economy is expected to experience accelerated growth in 2026, with a forecasted real GDP growth rate of 2.6%, surpassing the Bloomberg consensus of 2% [3][6] - The growth in 2025 was impacted by higher-than-expected tariffs, which increased the average effective tariff rate by 11 percentage points, contributing to a 0.6 percentage point reduction in GDP in the latter half of 2025 [2][6] Factors Driving Growth - Three main factors are anticipated to drive faster economic growth in 2026: reduced tariff drag, tax cuts from the One Big Beautiful Bill Act (OBBBA), and more favorable financial conditions due to interest rate cuts by the Federal Reserve [6][7] - Consumers are projected to receive an additional $100 billion in tax refunds in the first half of 2026, equating to approximately 0.4% of annual disposable income [7] Labor Market Insights - Despite the optimistic growth outlook, the labor market is not expected to see significant improvement, with the unemployment rate projected to stabilize around 4.5% in 2026 [8][10] - The unemployment rate rose from 4.1% in June to 4.6% in November, indicating a cooling labor market amid economic uncertainties [9] Inflation Trends - Inflation is expected to decline, with core PCE inflation projected to fall to just above 2% by the end of 2026, primarily due to diminishing tariff pass-through effects [12][13] - The current core PCE inflation rate is noted at 2.8%, largely influenced by tariff pass-through, which is expected to rise slightly from 0.5 percentage points to 0.8 percentage points by mid-2026 [12][13]

Core Viewpoint - Economists predict that the tax cuts in Trump's One Big Beautiful Bill will significantly drive the U.S. economy in 2026 for both individuals and businesses [1] Individual Tax Cuts - The law makes permanent the lower individual and business income tax rates from Trump's 2017 Tax Cuts and Jobs Act, which were set to expire [3] - It extends the standard deduction and expands the alternative minimum tax exemption, raising the estate tax exemption from $14 million to $15 million [3] - Taxes on up to $25,000 in tipped income will be exempt until 2029, phasing out for individuals earning over $150,000 [3] - Taxes on up to $12,500 in overtime pay will also be exempt until 2029, with similar income phase-out conditions [3] - A new deduction of up to $6,000 for individuals aged 65 and older will be available until 2029 [3] - A tax break for up to $10,000 in interest payments on auto loans will be created until 2029, applicable only to U.S.-assembled personal vehicles [3] - The deduction for state and local tax (SALT) payments will be expanded from $10,000 to $40,000 until 2029, benefiting affluent homeowners in high-tax states [3] Business Tax Breaks - The business tax changes aim to incentivize investment in enterprises through the extension of lower tax rates and larger write-offs for capital expenditures and R&D spending [4] - The lower corporate tax rates from the 2017 law will be made permanent [5] - Full expensing for certain equipment purchases will be allowed, enabling immediate deduction from taxable revenue [5] - Full expensing of U.S.-based R&D costs will be permitted, with small businesses able to retroactively deduct R&D expenses incurred since 2022 [5] - Limits on interest deductions will be loosened, broadening the deduction to include amortization costs [5] - A tax break for owners of "pass-through" businesses will be extended and increased, allowing a deduction of up to 20% of their income [5]

Tax Policy Changes - The child tax credit received a $200 boost to the maximum amount for the 2025 tax year [2] - Individuals with tipped income can deduct that on their tax return, effective for 2025 [3] - A new $6,000 deduction per senior is available, subject to income thresholds [5][6] Impact of Tariffs - In 2025, tariffs amount to an estimated $1,100 burden per US household on average [7][8] - If tariffs remain in effect, the burden is projected to grow to about $1,400 per household next year [8] - Customs duties on Christmas lights alone have risen to $45 million this year [9] - Tariffs on holiday items have climbed to upwards of $500 million through the first 9 months of 2025 [11] - Toys and board games are subject to tariffs, increasing their cost [13][15] Offsetting Factors - Tax cuts passed by Congress last year will result in larger refunds [16] - The Treasury Department will adjust withholding tables for lower taxes from each paycheck [16] - Tax cuts in aggregate have a larger revenue impact than the tariff hikes [17]

Market Outlook & Investment Strategy - Innovator Capital Management believes 2026 will be a unique year for investors, with consumers benefiting from tax cuts retroactively from 2025 and less withholding in 2026 [2][3] - The firm anticipates consumer spending will drive the economy and potentially push the S&P 500 to a target of 7,600 [3] - Managing risk remains a central focus for the firm, especially when considering the market outlook [2] - The firm is optimistic but not wildly so, projecting an S&P 500 target that aligns with historical market returns of approximately 8% plus dividend yield to reach about 11% [10] Consumer & Economic Factors - Consumer confidence has been low, but recent data shows signs of improvement, potentially driven by tax cuts [5] - Affordability is a major concern, particularly regarding high home prices, which have increased significantly since 2018 [7] - The impact of previous Federal Reserve interest rate cuts is expected to gradually influence the economy, potentially aiding with home prices [8] - Wage growth is slowing down, which could lead to a decrease in inflation, providing relief to consumers [9] Sector & Valuation Analysis - Discretionary and staples sectors have underperformed, but the firm believes they could experience a resurgence due to increased consumer spending [5][6] - Early bull market rallies are driven by valuation expansion, but the focus is shifting to earnings growth, particularly in 2026 [11][12] - The firm anticipates a slight contraction in valuations this year, emphasizing the importance of focusing on earnings growth [13]

Economic Outlook - The White House is preparing to launch phase two of President Trump's economic initiatives, focusing on housing affordability and tax refunds [1][2] - Vice President JD Vance acknowledges public impatience regarding economic conditions while emphasizing the need for caution [2] Housing Affordability - Kevin Hasset indicates that top advisors are developing a comprehensive list of proposals aimed at improving housing affordability, which remains a significant concern for American families [2][11] - The Trump administration is reportedly working on housing proposals that have received approval from cabinet secretaries, with plans to reveal them soon [11][18] - Current mortgage rates are around 6.2%, with potential for a reduction in the near future, which could positively impact the housing market [13][15] Inflation and Consumer Spending - Recent data shows that rental growth has stagnated, with no increase in rental payments recorded in October 2025 for the first time in three and a half years, particularly in cities like Austin, Phoenix, Miami, and Orlando [31][32] - The decrease in rental prices is expected to boost disposable income for consumers, leading to increased spending at major retailers like Walmart and Target [33] Market Performance - The S&P 500 is nearing a record high, indicating positive sentiment in the market, which could benefit workers and the overall economy [26][27] - Nvidia and Micron are highlighted as companies benefiting from potential policy changes regarding chip access to China, reflecting the administration's strategy to support American businesses [29]