2/3/26 Newsletter

Groundhog Day started with badgers in Germany until immigrants swapped them for groundhogs, proving Americans have been settling for the “less cool” option long before the standard deduction existed.

This week’s lineup:

• 🧾 Checking the wrong filing status box isn't an "oops" — it's a fast track to an IRS audit.

• 🧐 The difference between a contractor and an employee isn't a job title; it’s a forensic test of your freedom.

• 🎲 Even if you break even at the casino, the new 90% loss cap means you still owe the IRS.

• 🏈 An NFL star tried to expense plastic surgery to his nutrition company and got tackled for $15.5 million.

Filing 101

🧾 The Tax Checkbox That Can Wreck Your Return

Choosing a filing status feels like the easiest part of doing your taxes. You’re married or you’re not. Box checked. Move on.

That assumption costs people a lot of money.

Filing status isn’t a vibe. It’s a legal classification with strict rules. Pick the wrong one, and you can lose deductions, trigger IRS scrutiny, or shove yourself into a higher tax bracket for no reason at all. The IRS won’t fix it unless the correction benefits them.

Here are the most expensive filing status mistakes taxpayers make in 2026.

1. The Head of Household Trap

Head of Household (HoH) comes with a larger standard deduction and more favorable tax brackets than filing single. Because it’s generous, the IRS watches it closely.

The mistake is assuming having a child automatically qualifies you.

To file HoH, you must pay more than half the cost of keeping up a home for the year. That includes rent, utilities, and household expenses. If you live with a partner who covers most of those costs, you may not qualify, even if the child is yours.

Being married complicates things further. You generally must live apart from your spouse for the last six months of the year to qualify as HoH. Being “separated” emotionally doesn’t count.

If custody is split, only one parent can claim Head of Household for that child. The IRS tiebreaker rules favor the parent the child lived with the most nights. If nights are equal, the higher AGI wins. You cannot negotiate this privately and expect the IRS to honor it.

2. Married Filing Separately: The Student Loan Trade-Off

In most cases, Married Filing Separately is the worst status in the tax code. You lose access to key credits, deductions, and tax breaks.

The exception: student loans.

Under income-driven repayment plans, filing separately can keep a spouse’s high income from inflating your monthly payment. That can save thousands on loans while increasing your tax bill.

This is a math problem, not a moral one. Sometimes paying more tax is cheaper than paying more interest.

Your entire tax year hinges on where you stand on Dec. 31. Click to see why a New Year's Eve breakup changes everything. Keep reading →

Business & Gigs

🧐 W-2 or 1099?

You walk into your local coffee shop. Behind the counter is Barry, the barista. Barry has a name tag. He has a fixed schedule. He has that look of quiet desperation that only comes from being told exactly when to show up, what to wear, and how much foam is “the correct amount.”

Barry is, without question, a W-2 employee.

Then, at a corner table, there’s Brenda. She’s working on a laptop that looks like it’s survived several natural disasters. She’s surrounded by a small fortress of empty cups and wearing pajamas in public like it’s a constitutional right. She might be a graphic designer, a day trader, or a professional cat-video critic.

We don’t know. What we do know is this: Brenda is a 1099 contractor.

These two represent the great divide in the American workforce, and the IRS has a lot of feelings about which side you land on.

The catch is simple. Companies love contractors because contractors are cheaper. When you’re a W-2 employee, your employer foots the bill for half your Social Security and Medicare tax (7.65 percent), unemployment insurance, workers’ comp, and sometimes health insurance and retirement benefits. The list is long.

When you’re a 1099 contractor, the business just writes you a check. You become a neat little tax-deductible line item. The taxes, insurance, and retirement planning? All your problem now.

This is why some companies try to pass off full-blown employees as contractors. The IRS is not amused. So they created a test. Not a Scantron test. More like a forensic audit of your work life, built around one idea: control.

The IRS sorts it into three fuzzy categories:

1. Behavioral Control

If the company tells you how, when, and where to do the work, you’re on the W-2 side. Barry is told what to wear, when to clock in, and exactly how to make the latte.

Brenda is told “logo by Friday.” How she makes it, where she makes it, and whether she uses Illustrator or a potato stamp? Not the company’s problem.

2. Financial Control

Who buys the tools? Who takes the hit when things go sideways?

Barry doesn’t buy the espresso machine or the beans. The company does. No risk, no loss.

Brenda buys her laptop, her software, her internet, and her ergonomic chair from 2007. She bears the financial risk. She can profit. She can lose money. That’s business.

3. Type of Relationship

Is this a long-term thing or a short fling?

Barry gets benefits, PTO, maybe a 401(k). He’s integrated into the business.

Brenda gets a contract. It has a start date and an end date. No benefits, no guarantees, and she can work for five other clients at the same time.

The answer is “everything.” Find out why Brenda’s freedom is actually a financial tightrope. Keep reading →

Money Moves

🎲 The 2026 Gambling Tax Shakeup

Sports betting is everywhere now, but the tax rules around it for the 2025 tax year are anything but simple. The IRS has tightened its grip, and the new OBBBA rules hit casual bettors the hardest.

All gambling winnings count as income. That means:

• Office bracket wins

• Poker night pots

• Sportsbook payouts

• That one lucky Tuesday heater

The IRS doesn’t care if your wins barely covered last week’s cold streak. Winnings are income. Losses follow different rules — and those rules just got stricter.

If your win is large enough, the payer must withhold 24 percent and issue a Form W-2G. But even if no form shows up, you still owe the tax.

You can deduct gambling losses, but the OBBBA has added a "haircut" to the deduction. You can deduct losses only if:

1. They don’t exceed your total winnings (you can't claim a net loss).

2. You choose to itemize.

3. New for 2026: You accept that your deduction is limited to 90 percent of your qualified losses.

That means this year, if you win $5,000 and lose $5,000, you can no longer wash it out to zero. You can only deduct 90 percent of the loss ($4,500), leaving you with $500 of taxable income despite breaking even.

Because the 2025 standard deduction is huge ($15,750 for singles, $31,500 for married joint filers), most bettors won’t come close to beating it. That means: You pay tax on winnings with no offset for losses.

If you have enough losses to make itemizing worth it (despite the 90 percent cap), keep a log with:

• Date and type of wager

• Where you played

• People who were with you

• Exact amounts won or lost

Good logs get accepted. Vague stories don’t. Staying organized and knowing the new OBBBA limits is the only way to avoid painful surprises at tax time.

Tax Tales

🏈 The $15.5 Million Fumble

We were terrified of Bill Romanowski in the ‘90s. The guy won four Super Bowl rings, tackled people like a heat-seeking missile, and was generally the scariest dude on the field. But it turns out, while he was crushing quarterbacks, he was allegedly trying to juke the toughest opponent of all: the IRS.

We dug into the recent legal drama (2023-2024) surrounding the former NFL star that, and honestly, the details are wilder than overtime in the playoffs. Here is what we found about the $15.5 million tax disaster.

The "Alter Ego" Play

Usually, when you start a business, it’s a separate thing from you. The business has its money; you have yours. The IRS loves this rule.

According to court documents, Romanowski and his wife didn’t play by that rule. The government claims they used their supplement company, Nutrition53, as a personal piggy bank to avoid paying taxes owed from 1998 to 2007.

Instead of paying their tax bill, they allegedly used company cash to pay for:

• Rent for their home.

• Groceries for the family.

• Vet bills for their pets.

• Plastic surgery and day spa visits.

The DOJ (Department of Justice) calls this the "alter ego" theory. In simple terms, they argued that the company wasn't a real business entity — it was just Bill and Julie wearing fake mustaches. Because they treated the company’s money like their own allowance, the court said the IRS could treat the company’s assets like Bill’s personal wallet.

The Failed Hail Mary

When the government sued for the $15.5 million in 2024, the Romanowskis tried a classic delay of game: bankruptcy.

They filed for Chapter 11 bankruptcy. This is usually for businesses that want to stay open while they fix their debts. It pauses lawsuits (like the one from the IRS). The court wasn't buying it. The case was converted to Chapter 7 bankruptcy.

Chapter 7 is the "game over" version of bankruptcy. It means liquidation. The court can now sell off assets to pay back the creditors, including the IRS.

Why This Matters (Even If You Aren't Famous)

We know most of us aren't trying to expense plastic surgery to a nutrition company. But this story is a brutal reminder of the IRS’s memory. These taxes were from over 20 years ago.

The IRS doesn’t forget. They just wait. If you ignore a tax bill, it grows with penalties and interest until it becomes a monster that even a Super Bowl linebacker can't tackle.

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

• ⚠️ The IRS warns that accuracy is crucial for 2025 tax returns because simple e-file errors can cause significant refund delays.

• 🎖️ VA disability compensation remains entirely tax-free and should not be reported to the IRS, though it still counts for loans.

• ⚖️ President Trump is suing the IRS and Treasury for $10 billion regarding the unauthorized leak of his private tax information.

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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