Key Takeaways
- Will state-legal cannabis sellers finally get to deduct expenses?
- Immigrant tax credit move might discourage filing.
- Rebranding military housing allowance as "warrior dividend."
- Congress goes home without extending enhanced ACA tax credits.
- Many states decouple from tip, overtime deductions.
- "Chicago's new budget kills head tax, but lacks brains."
- Mathematics Day.
Trump Order Renews Hope for Cannabis Tax Relief - Wesley Elmore, Tax Notes ($):
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Although the tax benefits of reclassification aren’t mentioned, the move is expected to result in big tax savings for cannabis businesses. That’s because they would no longer be subject to section 280E, which prohibits businesses trafficking in Schedule I substances from legally deducting their expenses.
State-legal cannabis businesses live in an income tax netherworld where they are required to pay taxes on gross income, with only direct inventory costs as a deduction. Rent, salaries, equipment, and all other normal business expenses aren't deductible. As a result, a money-losing cannabis shop can still owe a big income tax bill.
To add insult to injury, a Tax Court majority last week ruled that the IRS can ignore those deductions when determining the ability of a weed shop to pay delinquent taxes - an astonishing confusion of taxable income with ability to pay. Judge Holmes' dissent should guide the appeals court when this case comes up.
Trump’s Immigrant Tax Credit Rule Could Weigh on Filing Decision - Erin Slowey, Bloomberg ($):
The Treasury Department in November previewed proposed rules to specify that the earned income tax credit, the additional child tax credit, the American opportunity tax credit, and the saver’s match credit are “federal public benefits,” which come with certain restrictions. Tax credits aren’t currently in that category, allowing some immigrants to access them.
The upcoming rules would impact immigrants beyond those in the country illegally and likely deter many who pay taxes from filing, tax and immigration experts said. The effort comes as the administration seeks more personal data sharing between the IRS and Department of Homeland Security, spurring immigrant families to consider their safety and taxpayer privacy. That bid is held up in court.
Trump Using OBBBA Funds for Tax-Free Military Bonuses - Alexander Rifaat, Tax Notes ($):
While Trump said the bonuses will be funded using government revenue generated through tariffs, a Pentagon official told Tax Notes the dividend won't apply to all active military personnel and is being funded using most of the $2.9 billion allocated to the Department of Defense to supplement the Basic Allowance for Housing (BAH), a tax-exempt benefit that helps military personnel afford off-base housing, as part of the One Big Beautiful Bill Act (P.L. 119-21).
Congress Goes Home Without Extending Enhanced ACA Tax Credits. Big Refunds!
Capitol Hill Recap: New Year, New Healthcare Costs - Alex Parker, Eide Bailly:
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With the enhancements set to expire, many Obamacare enrollees face significantly larger premiums for insurance in 2026, even if they still qualify for the tax credits. That’s because, according to the Congressional Budget Office, as individuals leave the exchanges due to the new costs, the risk pool will become smaller and less healthy.
It may be too late to reverse the premium increases for 2026, but there’s still some hope that Congress could act to renew or increase the enhancements early next year and provide some relief. One future date to force action could be January 15, the last day that enrollees can purchase insurance for 2026 in most of the exchanges, for coverage that would begin on February 1. This likely wouldn’t reverse the overall increase in premiums, but it could give those enrollees some help in paying for them.
Hassett: US ‘going to see the biggest tax refund season of all time’ in 2026 - Tara Suter, The Hill:
“There’s so much good news in the new year, because you’re going to see the biggest tax refund season of all time. The ‘big, beautiful bill’ was passed in July. You know, the IRS didn’t have time to change all the forms, and so now everybody’s going to get huge tax refunds if they were overtime workers, if they’re seniors, if they — you know — had tip income,” Hassett told “Fox News Sunday” anchor Shannon Bream.
They had plenty of time to change the withholding forms. They purposely overwithheld so there would be big refunds in an election year. They won't be paying interest on that.
State matters: Decoupling, Chicago, Brains, Bears
States Continue to Decouple from OBBBA Amid Budget Shortfalls - Melissa Menter and Colette Sutton, Eide Bailly.
There is no doubt that the bill will add a layer of complexity to Illinois tax forms. Manufacturers will now have to prepare separate depreciation schedules. Decoupling means Illinois returns will require distinct entries for R&D expense and bonus depreciation. In addition, SB 1911 removes the prior sunset date (January 1, 2026) for the PTE tax election, making the election permanent. This means that partnerships and S corporations can continue to elect to pay the entity-level tax for years beyond 2025, and their owners will continue to receive a credit against their Illinois income tax liability for their share of the tax paid at the entity level. This ensures that Illinois businesses can continue to benefit from the SALT cap workaround indefinitely.
The US Treasury wants more states to embrace Trump's tax cuts. So far, only a few have done so - David Lieb, Associated Press:
President Donald Trump’s administration is urging states to follow its lead by enacting a slew of new tax breaks for individuals and businesses, including deductions for tips and overtime wages, automobile loans and business equipment.
In some states, the new federal tax breaks will automatically apply to state income taxes unless legislatures opt out. But in many other states, where tax laws are written differently, the new tax breaks won’t appear on state tax forms unless legislatures opt in.
In states that don’t conform to the federal tax changes, workers who receive tips or overtime — for example — will pay no federal tax on those earnings but could still owe state taxes on them.
Chicago’s new budget kills head tax, but lacks brains - Austin Berg, The Last Ward:
On its face, that’s a good thing. The Council showed rare independence by rejecting Mayor Brandon Johnson’s proposed head tax and forcing changes to a record $16.6 billion spending plan.1
But independence alone does not equal responsibility.
The reason this budget still fails is the same reason Chicago keeps repeating the same fiscal mistakes: City Council lacks the institutional capacity to govern, the mayor retains nearly all the power needed to shape outcomes, and voters have no formal role in approving major financial decisions.
This post provides a quick overview of the institutional problems that have made Chicago arguably the worst-governed city in the U.S.
Chicago Bears Threaten Relocation over Illinois Taxes - Jared Walczak, Tax Policy Blog:
Public financing of stadiums tends to be a raw deal for taxpayers, and state officials are right to balk at an $855 million price tag. There can be good-faith debates about whether state and local governments should pick up some share of the cost of additional public infrastructure necessary to serve a large new project like a stadium or whether the team itself should proffer the funds to cover all these services, but there’s no reason that taxpayers should shoulder the entirety of these costs. (At least the team isn’t asking for assistance with actual stadium construction costs.)
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The Bears do have a point, though: Illinois, and specifically Cook County, taxes are very high. The proposed stadium itself carries a reported price tag of about $2 billion. If we assume that the fair market value of the broader campus, which will also include other retail spaces, runs $3 billion, then the unabated property tax burden in Arlington Heights could easily run about $210 million per year. If the team moved to Northwest Indiana, the property tax burden would probably fall to $50-75 million a year, depending on where the team chose to locate.
Tax Planning: Trump Accounts May Require Gift Tax Filings; Bonus Season.
Why investing in a Trump Account could complicate your taxes - Julie Zauzmer Weil, Washington Post:
It’s used by fewer than 225,000 households a year, federal data show, and is so obscure that commercial tax software like TurboTax doesn’t include it.
“If you want to apply for the $1,000 because your kid was born within the time period, fine. If your employer wants to make a contribution or you qualify for a contribution from a charitable organization … fine. But don’t put your own money in until this is clarified,” said Susan Bart, a lawyer who specializes in estate and gift tax.
The problem arises because only "present interests" qualify for the annual gift tax exclusion. Deposits to the Section 530A "Trump Accounts" are not currently available to the beneficiaries. This differs from Sec. 529 education savings accounts; the article notes that a provision in the tax law exempts these from the present interest rule.
Related: Eide Bailly Wealth Transition Services.
Tax Breaks: The Cozy Season, Complicated Taxes Edition - Kelly Phillips Erb, Forbes:
While a new study suggests that the number of workers getting a bonus has been slipping (fewer than 40% of employees received a bonus in December 2024), those lucky enough to get one may wonder how much of a boost they’re actually getting.
My advice? Ignore those social media posts and well-meaning friends that suggest it will result in a huge tax hit—that’s a myth perpetuated by confusing withholding rules.
Opinion Season: Mitt and Anti-Mitt
Mitt Romney: Tax the Rich, Like Me - Mitt Romney, New York Times. "Today all of us, including our grandmas, truly are headed for a cliff: If, as projected, the Social Security Trust Fund runs out in the 2034 fiscal year, benefits will be cut by about 23 percent. The government will need trillions of dollars to make up the shortfall."
By All Means Raise Mitt Romney’s Taxes - Wall Street Journal Editorial Board. "The first point to make is that if Mr. Romney wants to pay more taxes, by all means go ahead. Write a check to the Treasury."
Blogs and Bits
Car owner’s manual for the new vehicle loan interest deduction - Kay Bell, Don't Mess With Taxes. "But if you already purchased a car thanks to a loan that originated any time in 2025, you should check out the deduction’s specifics to ensure you can claim the interest deduction when you file your return next year."
District Court Stays IRS Taxpayer Address Sharing Agreement With ICE - Parker Tax Pro Library. "The court found that the Plaintiffs in the case - a nonprofit that provides tax advice to low-income Americans, an association of small businesses, and two labor unions -- showed a substantial likelihood that the IRS's adoption of the address-sharing policy, and subsequent sharing of taxpayer information with ICE, were arbitrary and capricious and therefore unlawful under the Administrative Procedure Act."
Legislator, heal thyself.
7th Circ. Upholds Ex-Illinois Lawmaker's Tax Sentence - Kat Lucero, Law360 Tax Authority ($):
The trial court was right to not admit former state Sen. Annazette Collins' amended 2015 tax return and 2017 payment plan as evidence, a Seventh Circuit panel said, since the documents were not relevant to her criminal charges over failing to properly report her income earned in 2014, 2015, 2016 and 2018.
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"Generally, a defendant's exhibition of good faith after filing or failing to file tax returns is not in itself relevant to her willfulness because the crime has already been completed," the judge wrote.
Once the IRS is after you, it might be too late to ask for a do-over.
One interesting note is that when the taxpayer served in the Illinois legislature, the base pay in then-current dollars for that job was $67,836. The current base is $93,712. That doesn't seem like enough to get qualified people managing $55 billion in annual spending. While I hate to suggest anything that would increase Illinois spending, maybe legislative salaries are an exception. Illinois seems to be getting what it pays for, good and hard.
What day is it?
It's Mathematics Day! Did I say there would be no math? Just kidding!
Make a habit of sustained success.
