All about this year's tax law changes – and making the best of them | Don't Short Yourself

Key Concepts

• Tax Deductions vs. Credits: Deductions reduce taxable income, while credits reduce tax liability directly.
• Modified Adjusted Gross Income (MAGI): A specific income metric used to determine eligibility for various tax breaks and phase-outs.
• Phase-outs: Income thresholds where the value of a tax benefit begins to decrease or disappear.
• Itemizing vs. Standard Deduction: Choosing to list specific expenses (like SALT or mortgage interest) instead of taking the flat standard deduction.
• Roth Conversion: Moving pre-tax retirement funds (Traditional IRA/401k) into a Roth account, paying taxes on the conversion now to allow for tax-free growth.
• Required Minimum Distributions (RMDs): Mandatory withdrawals from tax-deferred retirement accounts starting at age 73 (or 75 for younger cohorts).
• Cost Basis: The original value of an asset (like crypto or gold) used to determine capital gains or losses.
• Bunching: A strategy of consolidating charitable contributions into a single tax year to exceed the standard deduction threshold.

1. New Tax Law Provisions

The 2026 tax season introduces significant changes under the new tax law, with many provisions effective through 2028.

• Workers (Tips & Overtime): Contrary to the "no tax" narrative, these are deductions, not exclusions.
  • Tips: Up to $25,000 in tipped income can be deducted from taxable income.
  • Overtime: Only the "half" portion of time-and-a-half pay is eligible for deduction.
  • Eligibility: These are subject to income phase-outs starting at $150,000 (single) and $300,000 (married). Not all professions qualify; the IRS maintains an official list of "qualified" professions.
• Senior Bonus: Individuals 65+ can claim a $6,000 deduction ($12,000 for married couples). This is not related to Social Security income line items. It phases out between $75,000 and $175,000 (single).
• State and Local Tax (SALT) Deduction: The cap has increased to $40,000 for 2025 returns for those earning under $500,000. This requires itemizing, which may benefit 5–7 million additional taxpayers.

2. Retirement and Estate Planning

• Roth Conversions: Experts suggest using tax savings from new deductions (like the senior bonus) to fund the tax bill associated with converting traditional retirement accounts to Roth IRAs.
• Estate Tax: The first $15 million of an estate is currently free of estate tax.
• RMDs: These must be taken precisely and on time to avoid steep penalties. Taxes on RMDs are generally deemed paid throughout the year, even if the withdrawal occurs in December.

3. Navigating Tax Preparation

• IRS Staffing: While many operations are automated, staffing shortages may lead to longer response times. Taxpayers are advised to file electronically and use direct deposit.
• AI Tools: AI should be used as a "sidekick" for education, organization, and planning, but never for processing sensitive personal data (W-2s, SSNs). AI is prone to "hallucinations" and often struggles to differentiate between tax years (e.g., 2025 vs. 2026 rules).
• Professional Help: The speakers recommend hiring a Certified Public Accountant (CPA) or an Enrolled Agent (EA). EAs are specifically trained in tax mechanics and IRS regulations.

4. Specialized Assets

• Cryptocurrency: The new 1099-DA form will report proceeds to the IRS. The primary challenge for investors is proving the cost basis (original purchase price). Without proof, the IRS may treat the entire sale amount as taxable gain.
• Gold/Collectibles: Profits from selling gold bullion or gold-backed ETFs are taxed as "collectibles," which often carry a higher tax rate than standard long-term capital gains.

5. Synthesis and Takeaways

The 2026 tax landscape is complex, requiring taxpayers to move beyond general rules and understand specific "qualified" criteria. The most actionable advice provided is to:

1. Verify eligibility: Don't assume you qualify for "no tax" breaks; check if your profession and income level meet the specific phase-out requirements.
2. Prioritize accuracy: With potential IRS delays, double-check all filings to avoid flags.
3. Strategic Planning: Use the current window (through 2028) to optimize retirement accounts via Roth conversions and utilize "bunching" for charitable deductions to maximize itemization benefits.
4. Professional Oversight: While software is sufficient for simple returns, complex financial situations—especially those involving crypto, small businesses, or high-net-worth estates—require human professional oversight.