How new federal rules, state-level divergence, and reporting changes will reshape compliance—and what tax firms can do to stay ahead
Highlights
- New federal tax rules under OBBBA may increase 2026 tax return complexity.
- New and revived deductions create planning opportunities—and pitfalls.
- Technology can help firms handle new forms, multi‑state compliance, diagnostics, and rapid research needed to keep pace with evolving regulations.
In a profession built on routine and expertise, regulatory changes can present a major headache for tax professionals. From sweeping federal tax legislation to proposals to further regulate the digital asset landscape, firms are projected to experience an uptick in tax return complexity in the immediate future. Here are some of the top tax challenges for 2026 and tips on how your team can navigate them.
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The One Big Beautiful Bill Act: A game-changer for tax compliance
UltraTax CS: Essential features for managing 2026 tax challenges
CoCounsel Tax: AI-powered research for complex compliance
Tackling 2026 tax challenges with confidence
The One Big Beautiful Bill Act: A game-changer for tax compliance
Some of the most significant 2026 tax challenges are expected to sprout from the recently passed One Big Beautiful Bill Act (OBBBA). In addition to solidifying several provisions from the Tax Cuts and Jobs Act, this landmark legislation creates new reporting requirements and provisions that tax pros need to know to effectively guide their clients.
No tax on tips
Beginning with the 2026 tax year, employers face new reporting obligations that require significant operational changes. Qualified tips and overtime compensation must now be separately reported on Form W-2, forcing businesses to upgrade payroll, timekeeping, and HR systems for accurate reporting. Failure to implement compliant reporting processes may result in penalties once the IRS transition relief expires.
Deductions on overtime pay
Tax professionals must also navigate new deduction rules, including overtime pay deductions (up to $12,500 per return; $25,000 for joint filers), vehicle loan interest deductions (up to $10,000), and an additional $6,000 senior deduction with complex phase-out thresholds.
Complicating matters further, more than 20 states have introduced varying legislation addressing the tax treatment of tips and overtime, with some states conforming to federal law while others require add-backs. This creates a patchwork of compliance obligations that tax professionals must navigate carefully.
Auto loan interest payment
For the first time in nearly 40 years, personal car loan interest is tax deductible. Taxpayers can deduct up to $10,000 of vehicle loan interest through 2028. However, there are parameters. The vehicle must:
- Be brand new
- Be for personal use
- Weigh less than 14,000 pounds
- Have undergone final assembly in the U.S.
Leased and used vehicles do not qualify, a distinction that some of your taxpayers will likely need guidance on.
Navigating tariff refunds
The Supreme Court’s recent decision to strike down President Trump’s tariffs has left many organizations waiting to see if they’re entitled to a refund. Experts even estimate total refunds reaching as much as $175 billion. However, the U.S. Customs and Border Protection’s (CBP) refund process hasn’t yet been formally established, and several administrative hurdles still stand in the way.
While tariffs won’t affect 1040 tax returns, firms with clients engaged in international trade will need to stay on top of CBP developments and act quickly once an avenue for refunds is created. This involves:
- Determining which entries are eligible
- Quantifying each claim, factoring in any applicable interest
- Navigating the correct procedures to maintain refund rights before deadlines expire.
UltraTax CS: Essential features for managing 2026 tax challenges
With determined and undetermined tax challenges awaiting firms throughout 2026, professional tax software has become essential for maintaining compliance. Thomson Reuters UltraTax CS stands out with two critical features specifically designed to address evolving regulatory requirements.
Extensive form availability
UltraTax CS helps firms cover any client requirement with broad programs for managing federal, local, and state tax filings, in addition to multi-state returns. It also auto-populates client data to all relevant areas across any return type. For example, the new Schedule 1-A add-on for OBBBA-related deductions is covered in UltraTax CS, so information flows automatically from the tax form to the 1040 return.
Intelligent diagnostics
UltraTax CS also provides advanced diagnostics that proactively scan each return for errors, omissions, and compliance risks in real-time as data is entered. It automatically:
- Flags missing values
- Generates pre-submission checklists
- Creates client email prompts for missing information
- Provides instant alerts about potential audit triggers.
By combining automated error detection with real-time compliance monitoring, UltraTax CS helps firms navigate the increasingly complex regulatory environment created by OBBBA.
CoCounsel Tax: AI-powered research for complex compliance
Staying up to date on evolving regulations is set to be a recurring tax challenge throughout 2026. To get timely, reliable answers to your difficult compliance questions, it helps to have a solution that’s both fast and authoritative.
While some consumer-grade AI chatbots scrape random web sources for tax information, Thomson Reuters CoCounsel Tax is trained on IRS code, regulatory databases, and Checkpoint content verified by experts. The result: Plain language, citation-backed answers you need in minutes, not hours.
“My team has been really excited about CoCounsel — it saves us a lot of time. I had a research project that I bet would have taken about three hours to find the exact answer I needed and I got an answer within 15 minutes.”
— Amanda Wiley, Eide Bailly LLP
Tackling 2026 tax challenges with confidence
Between OBBBA’s immediate reporting requirements and an impending rush for tariff refunds, 2026 tax challenges require both strategic planning and technology that can keep pace with regulatory change. To learn how your tax firm can expedite every phase of the 1040 workflow and free up capacity to focus on complex engagements, check out our 1040 automation playbook for exclusive insights, examples, and case studies on the next wave of tax technology.
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