1/20/26 Newsletter

They say the only sure things in life are death and taxes, but at least death doesn't get worse every time Congress meets.

This week’s lineup:

• 🧾 Itemizing is back and could beat the standard deduction this year.

• 🪙 You owe tax on staking rewards instantly, even if the price crashes.

• 💸 This simple mistake can trigger an 8% penalty.

• 🐈 A junkyard owner legally deducted cat food as a business expense.

Filing 101

🧾 Standard vs. Itemized Deductions Just Got Interesting

For seven years, most taxpayers could file on autopilot. Take the standard deduction, ignore the shoebox full of receipts, call it a day. It was simple. Too simple.

But the One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, broke that routine. It didn’t nudge a few numbers. It blew up the math that made the standard deduction the default for most Americans.

If you’re still cruising toward the standard deduction this season, you might walk right past thousands of dollars in savings.

The Standard Deduction Got Bigger. Itemizing Got Better.

OBBBA raised the standard deduction far above the usual inflation bump.

• Single: $15,750

• Married Filing Jointly: $31,500

• Head of Household: $23,625

For many people, that’s still a solid deal. But not for everyone.

Seniors Get a Massive Boost

OBBBA added a temporary $6,000 bonus deduction for anyone 65 or older. It phases out at $75,000 MAGI (single) or $150,000 (joint).

A married couple, both over 65, earning $140,000 can take about $47,000 without lifting a finger. For many retirees, itemizing won’t come close. The standard deduction becomes a brick wall you can’t climb.

SALT Is Back, And It Changes Everything

For taxpayers under 65, the real story is the SALT deduction. The old $10,000 cap made itemizing pointless for most homeowners in high-tax states. OBBBA blows the cap wide open to $40,000 for 2025.

If you live in New York, New Jersey, California, Illinois, Connecticut, or any high-property-tax area, this is a game changer.

Example: You pay $18,000 in property taxes and $12,000 in state income taxes. 

Before: You deducted $10,000.
Now: You deduct $30,000. Before adding mortgage interest. Before charity. Hitting $50,000 in itemized deductions is suddenly easy.

The $500K Phase-Out

The expanded SALT cap shrinks once your MAGI hits $500,000 and disappears at $600,000. This is an “upper-middle” tax break, not a top-earner benefit.

You don't have to itemize to get every tax break. The new law added specific deductions for things like car interest and overtime pay that apply to everyone. Check out the details to see how much you can save. Keep reading →

Money Moves

🪙 Crypto Isn’t the Wild West Anymore

Remember 2017? You could swap Bitcoin for Ethereum, forget about it, and maybe buy a used Honda Civic a few years later without anyone asking questions. It was the Wild West. No sheriffs. Just Reddit threads yelling “HODL” and photos of Lamborghinis nobody owned.

That era is over. Buried. Marked.

The IRS has spent the last decade sharpening its knives, and in 2026, they’re finally using them. The blockchain, once praised for anonymity, is now the cleanest paper trail in modern finance. Every transaction is permanent. Public. Timestamped.

If you’re still treating your digital wallet like a secret offshore account, you’re not being clever. You’re stepping into a buzzsaw.

The New Villain: Form 1099-DA

For years, cryptocurrency exchanges lived in a gray zone. Sometimes you got a Form 1099-K. Sometimes you got nothing. You scraped CSV files, argued with spreadsheets, and hoped your math passed the sniff test.

That loophole is gone.

Form 1099-DA is now the sheriff.

Starting with 2026 reporting, crypto brokers and exchanges must report your gross proceeds directly to the IRS. If you sell 0.5 Bitcoins for $45,000, the IRS sees $45,000. No interpretation required.

Here’s the dangerous part. For now, brokers report proceeds first. Cost basis reporting comes after. If you don’t prove what you paid, the IRS assumes you paid zero.

Zero.

That means you get taxed on the full sale price unless you actively defend yourself with records.

The Death of Universal Pooling

This is where inconvenience turns into real pain.

The IRS has ended “universal pooling.” You can no longer lump all identical coins from multiple wallets into one imaginary bucket and cherry-pick the highest cost basis.

In 2026, tracking is wallet by wallet. Account by account.

Bitcoin held on Coinbase can only use Coinbase cost basis. Your cold storage Ledger doesn’t count. The walls are up, and they’re not coming down.

Lazy tracking strategies are officially dead, but the real danger is in your staking rewards. We explain why the IRS treats staking like gambling — and how to make sure the house doesn't win. Keep reading →

Business & Gigs

💸 The Penalty That Catches Responsible Taxpayers

Most people think tax penalties are punishment for bad behavior. Hiding income. Lying on forms. Getting cute with offshore accounts.

But the most common penalty hits people who did nothing sneaky at all.

It’s called the Underpayment of Estimated Tax Penalty, and in 2026, it hurts.

For years, this penalty barely registered. Interest rates were low, so underpaying your taxes felt like borrowing from the IRS at a discount. That era is gone. As of 2026, the IRS interest rate on underpayments is around 8 percent.

That’s not a slap on the wrist. That’s a loan you didn’t ask for, at a rate you wouldn’t choose.

The Pay-As-You-Go Trap

The U.S. tax system runs on a simple rule. You’re supposed to pay taxes as you earn income, not just when you file your return.

• W-2 employees usually don’t feel this. Employers handle withholding automatically.

• Self-employed workers, investors, and business owners are different. You are the payroll department.

If you owe $20,000 for the year but wait until April to pay it all, the IRS doesn’t see one late payment. They see four late payments.

They’ll say, “Thanks for the check. But you should’ve paid part of this back in June.” Then they calculate interest on what was missing, day by day.

The Safe Harbor That Saves You

You don’t need to predict your income perfectly to avoid penalties. You just need to hit one safe harbor. The IRS won’t charge an underpayment penalty if any of these are true:

• You owe less than $1,000 after withholding and credits

• You paid at least 90 percent of your current-year tax

• You paid 100 percent of last year’s tax or 110 percent if your AGI was over $150,000

That last one is the golden ticket.

Why? Because it’s the only number you already know.

If your 2025 total tax was $10,000 and you pay $10,000 throughout 2026, you’re penalty-proof. Even if your income explodes and you owe much more in April, the IRS can’t penalize you for underpayment. You still owe the balance, but without interest penalties piled on top.

Don't let the IRS assume you earned your money evenly throughout the year. We cover Form 2210, which challenges unfair interest calculations. Keep reading →

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Wild Tax Tales

😼 The "Purr-fect" Tax Deduction

Samuel and Carol Seawright ran a scrap metal yard in South Carolina with a serious problem: the property was infested with rats and poisonous snakes. It wasn’t just a nuisance; it was a genuine liability for employees and customers alike.

Their solution was low-tech but effective. They started leaving out food to attract local feral cats. The cats stayed, the snakes disappeared, and the junkyard became safer. Naturally, the Seawrights deducted the cost of the cat food as a business expense.

The IRS was not amused. They flagged the "Pet Food" line item on the Seawrights’ Schedule C and disallowed the deduction, assuming the couple was just trying to subsidize their family pets.

The case went to Tax Court, where the debate centered on the golden rule of business expenses: was this "ordinary and necessary"? The Seawrights argued that maintaining a safe environment was necessary for their business, and using cats for pest control was a logical way to achieve it.

Surprisingly, the judge agreed. The court found the expense was directly tied to a business need (safety and pest control), making it a legitimate write-off. The lesson? A deduction doesn’t have to be boring to be legal. As long as you can prove an expense is helpful, appropriate, and directly tied to your business operations, you might just win the argument.

The quick (and slightly prickly) stories we didn’t have time to get to:

• ⚠️ The FTC warns of major tax scams targeting Americans.

• 💸 Claim 13 tax breaks without itemizing your return.

• 👵 Seniors get new Social Security tax deduction on returns.

If you made it this far, you’re our kind of nerd. Hit reply and tell us which story you want us to dive deeper into next week.

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