Sellers CPA Tax Newsletter - January 2026

Dear Clients and Friends,

Welcome to the January 2026 edition of the Sellers CPA Tax Newsletter. As we begin the new year, significant changes to the federal tax code are taking effect, stemming primarily from the One Big Beautiful Bill Act (OBBBA), signed into law by President Trump on July 4, 2025. This comprehensive legislation makes permanent many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025, while introducing new targeted relief measures for workers, families, seniors, and businesses. Many of these changes apply retroactively to the 2025 tax year—meaning they'll impact the returns you'll file in the coming months—while others kick in fully for 2026 and beyond.

The OBBBA represents a major overhaul aimed at reducing tax burdens for a broad range of Americans, extending lower individual tax rates, boosting deductions and credits, and providing specific incentives. Combined with annual inflation adjustments released by the IRS, these updates will lower taxable income for millions and potentially lead to larger refunds during the 2026 filing season. However, some provisions are temporary, phasing out after 2028 or later, and certain clean energy incentives have been curtailed or eliminated.

We'll break down the most impactful changes below, with a special focus on the new reporting requirements for digital assets via Form 1099-DA. As always, these are general overviews—tax situations vary widely, so please reach out to our team at Sellers CPA for personalized guidance. Visit us at https://sellerscpa.net/ for more resources.

 Permanent Extension of TCJA Core Provisions

The OBBBA's cornerstone is making permanent the individual income tax rates and brackets established under the 2017 TCJA. Without this law, rates would have reverted higher starting in 2026, potentially increasing taxes significantly for many households. The seven progressive brackets remain in place, with the top rate holding at 37% for incomes over approximately $640,600 (single) or $768,700 (married filing jointly) in 2026, adjusted for inflation.

This permanence provides long-term predictability, preventing a scheduled tax hike that economists estimated could have reduced take-home pay across income levels.

 Standard Deduction and Senior Relief

For 2026, the standard deduction sees an inflation-adjusted increase: $16,100 for single filers and married filing separately, $32,200 for married filing jointly, and $24,150 for heads of household. These figures build on retroactive boosts for 2025, offering most taxpayers—who opt for the standard deduction over itemizing—a straightforward way to reduce taxable income.

A notable new addition is an extra $6,000 deduction for taxpayers aged 65 or older with incomes up to $75,000 (single) or $150,000 (joint). This temporary measure, effective through 2028, stacks on top of the existing age-based standard deduction boost and serves as targeted relief for seniors, partially offsetting taxes on Social Security benefits for many.

 Deductions for Tips and Overtime Pay

One of the most talked-about provisions fulfills campaign promises by allowing deductions for certain tip income and overtime premiums. For tax years 2025 through 2028:

- Qualified tips (cash tips in customary tipping occupations, reported to employers) are deductible up to $25,000 per year, phasing out for higher earners (starting at $150,000 modified adjusted gross income for singles, $300,000 for joint filers).

- Overtime pay deductions cover up to $12,500 (single) or $25,000 (joint) of the premium portion (e.g., the "half" in time-and-a-half) required under the Fair Labor Standards Act.

These above-the-line deductions reduce adjusted gross income directly, benefiting service workers, first responders, and others reliant on tips or overtime without requiring itemization. Note that FICA taxes (Social Security and Medicare) still apply, and states may tax this income differently. Employers won't adjust withholding tables retroactively for 2025, but many workers will see benefits via larger 2026 refunds.

 Family and Child-Related Credits

Families gain from an enhanced Child Tax Credit, now $2,200 per qualifying child (up from prior levels), with increased refundability. The childcare credit expands to cover 50% of eligible expenses, capped at $3,000 for one child or $6,000 for two or more.

Additionally, "Trump Accounts"—tax-advantaged savings vehicles for children—receive a one-time $1,000 federal seed contribution for U.S. citizen children born between 2025 and 2028. Contributions begin in mid-2026, offering a new way to build education or retirement savings tax-free.

Employer-provided childcare credits also expand significantly, up to $500,000 (or $600,000 for small businesses), encouraging workplace benefits.

 Estate and Gift Tax Exemption

The federal estate and gift tax exemption rises permanently to $15 million per individual ($30 million for couples) in 2026, inflation-adjusted thereafter. This shields far more estates from the 40% tax, providing substantial planning opportunities for wealth transfer.

 Other Key Adjustments

- State and Local Tax (SALT) deduction cap temporarily increases to $40,000 (from $10,000) for incomes under $500,000, phasing back down after 2029.

- Certain auto loan interest becomes deductible (up to $10,000) for U.S.-assembled vehicles through 2028.

- Clean energy credits phase out faster, ending some EV incentives after September 2025.

- Business provisions include higher Section 179 expensing limits and permanent qualified business income deductions.

These changes collectively aim to stimulate growth, with projections of boosted household income and economic activity in 2026.

 In Focus: New Form 1099-DA for Digital Assets

A major development for investors in cryptocurrencies, NFTs, and other digital assets is the introduction of Form 1099-DA (Digital Asset Proceeds from Broker Transactions). This form brings digital asset reporting in line with traditional securities, requiring custodial brokers (e.g., exchanges like Coinbase or Kraken) to report sales and exchanges to the IRS.

In simple terms: If you sell or trade digital assets through a centralized platform, that platform now acts like a stock broker, sending the IRS details of your transactions. This helps ensure accurate reporting of capital gains or losses on Schedule D.

The rollout is phased:

- For 2025 transactions (reported in early 2026 forms): Brokers report gross proceeds only. No cost basis required yet, and good-faith efforts avoid penalties.

- Starting with 2026 transactions (reported in 2027): Mandatory reporting of cost basis and gain/loss for "covered" assets—those acquired and held on the same platform on or after January 1, 2026.

Assets acquired before 2026, transferred between wallets, or on non-custodial/decentralized platforms remain "noncovered," with no mandatory basis reporting. Real estate closings involving digital assets after January 1, 2026, also trigger reporting.

This means you'll likely receive your first 1099-DA soon if you traded in 2025. It improves IRS matching but places more responsibility on you to track basis accurately, especially for older or multi-platform holdings. Mismatches could trigger notices, so maintain detailed records. To help you do that  Sellers CPA Tax Newsletter recommends these tools for keeping accurate records of your Taxable income via Crypto exchanges.

Top tools for tracking crypto earnings in 2025 (with 1099-DA support) 

The IRS Form 1099-DA applies to 2025 transactions: centralized brokers (exchanges) must report gross proceeds from sales/exchanges to you and the IRS (cost basis reporting starts in 2026). You still need to track your full cost basis, gains/losses, and non-broker activity (wallets, DeFi, NFTs) yourself. The best tools automate transaction imports across 300+ exchanges/wallets/blockchains, calculate gains/losses, generate IRS forms (8949, Schedule D), and import/reconcile 1099-DA data.

Here are the strongest options based on 2025 usage, features, and compliance:

1. CoinTracker.io 

   - Best overall for US users and tax-loss harvesting. 

   - Imports 1099-DA directly, reconciles broker data, tracks everything else. 

   - Advanced portfolio tracking + specific tax-loss harvesting tool (identifies assets to sell for max loss offset). 

   - Supports HIFO/Specific ID cost basis (minimizes short-term gains). 

   - Integrates with TurboTax/H&R Block. 

   - Pricing: Starts ~$59/year (higher tiers for more transactions).

2. Koinly.io 

   - Best for broad integrations (20+ countries, 800+ sources, strong DeFi/NFT/staking support). 

   - Handles 1099-DA imports, auto-tagging, and full transaction history. 

   - Supports multiple cost basis methods (FIFO, LIFO, HIFO, Specific ID). 

   - Generates clean reports for IRS forms. 

   - Good for complex portfolios. 

   - Pricing: Starts free (limited), paid from ~$49/year.

3. CoinLedger.io

   - Best for simplicity and US-focused filing. 

   - Imports 1099-DA, supports broker reconciliation. 

   - Built-in tax-loss harvesting suggestions. 

   - Supports HIFO and other methods. 

   - Affordable and fast exports to tax software. 

   - Pricing: Starts ~$49/year.

4. TokenTax.co 

   - Best for high-net-worth or complex activity (DeFi, NFTs, mining). 

   - Strong 1099-DA handling and advanced optimization (loss harvesting, charitable donations, retirement account strategies). 

   - Full-service option with CPA support. 

   - Pricing: Higher, starts ~$65/year, scales up.

Tools/strategies to legally minimize taxes while reporting accurately 

No tool eliminates taxes, but these optimize calculations and suggest legal reductions:

- Tax-loss harvesting: Sell losing positions to offset gains (up to $3,000 ordinary income deduction). CoinTracker’s tool is strongest (shows exact opportunities, wallets, amounts). CoinLedger and TokenTax also support it well. No wash-sale rule applies to crypto in 2025. 

- Cost basis optimization: Use HIFO (Highest-In-First-Out) or Specific ID to sell high-cost lots first → minimizes short-term gains (taxed at ordinary rates). All top tools (CoinTracker, Koinly, CoinLedger, TokenTax) support this. Avoid FIFO if it inflates gains. 

- Long-term holding: Hold >1 year for lower long-term capital gains rates (0-20%). Tools calculate holding periods automatically. 

- Other legal moves: Donate appreciated crypto to charity (avoid gains tax), use self-directed crypto IRAs, or borrow against holdings (no taxable event). TokenTax excels at advanced strategies. 

- General tip: Import all data early, run reports with different cost basis methods, and pick the one that legally lowers your liability most.

Start with CoinTracker if US-based and want max optimization, or Koinly if heavy on DeFi/wallets. Always double-check reports against your records before filing. These tools keep evolving for 1099-DA, so check their sites for latest updates. "In 2026 people are going to HAVE to learn about the world's new digital currency and study hard to master how to report earnings from crypto or they're going to wind up in a world of hurt" - Triggered with Donald Trump Jr.

 Alabama State Tax Changes Overview

As we kick off 2026, Alabama's state tax environment shows continuity in core structures alongside targeted updates that enhance competitiveness for businesses and mobile workers. Unlike the transformative federal shifts under the One Big Beautiful Bill Act (OBBBA), Alabama introduces no broad rate reductions or overhauls this year. Individual income tax rates remain progressive at 2% to 5%, sales tax adjustments from prior years persist, and conformity to federal code allows selective benefits from OBBBA provisions to flow through.

Alabama employs rolling conformity to much of the Internal Revenue Code, meaning many federal deductions, credits, and depreciation rules apply automatically unless the state explicitly decouples. This hybrid approach balances alignment with federal permanence (e.g., extended TCJA elements) while protecting state-specific policies. Guidance from the Alabama Department of Revenue (ALDOR) confirms adoption of favorable OBBBA items like enhanced bonus depreciation and business interest deductions, providing indirect relief to Alabama taxpayers.

 Individual Income Tax Rates and Brackets

Alabama's individual income tax rates hold steady in 2026: 2% on the initial bracket, 4% on the middle, and 5% on income exceeding roughly $3,000 (single) or $6,000 (married filing jointly). These low thresholds result in most taxpayers reaching the top marginal rate quickly, creating an effectively near-flat tax for higher earners. Standard deductions and personal exemptions continue without inflation indexing, gradually diminishing their real value over time.

No scheduled rate cuts occur in 2026, maintaining Alabama's position among states with modest income tax burdens.

 Key New Provision: 30-Day Safe Harbor for Nonresident Workers

The standout change, effective January 1, 2026, stems from Act 2025-334 (House Bill 379). This pro-business reform creates a 30-day safe harbor for nonresident employees performing services in Alabama.

Nonresidents working 30 or fewer days in Alabama during the calendar year generally owe no state income tax on compensation for those services, and employers face no withholding obligation. Eligibility requires:

- The employee's home state offers reciprocal treatment or imposes no income tax.

- Exclusion of certain high-profile professions (e.g., professional athletes, entertainers, public figures).

- Additional exemptions for disaster/emergency-related work under federal or state declarations.

Exceeding 30 days triggers taxation and withholding retroactively from day one. Employers gain safe harbor protection for good-faith efforts in tracking days worked.

This alignment with similar rules in other states reduces compliance burdens for multi-state operations, short-term projects, and traveling employees, positioning Alabama as more attractive for business investment.

 Overtime Pay Taxation

Alabama's temporary state income tax exemption on qualified overtime premiums expired June 30, 2025. All overtime compensation earned and paid after that date remains fully subject to Alabama income tax and withholding in 2026.

The federal OBBBA overtime deduction (up to $12,500 single/$25,000 joint for 2025-2028) lowers federal adjusted gross income but does not automatically reduce Alabama taxable income due to partial decoupling on certain adjustments. Taxpayers may see partial flow-through benefits via lower starting AGI.

 Sales and Use Tax Developments

The statewide sales tax on groceries stands at 2% following the September 1, 2025, reduction from 3%. Local rates continue to apply, resulting in combined averages around 9-10% in many areas. No further statewide grocery cuts occur in 2026, though ongoing discussions may influence future sessions.

Other exemptions (e.g., certain baby items, maternity products) from 2025 persist. A new vapor products excise tax of $0.10 per milliliter begins October 1, 2026, affecting related businesses later in the year.

 Federal Conformity and OBBBA Impacts

Through rolling conformity, Alabama adopts many OBBBA enhancements, including permanent lower brackets (preventing reversion), expanded deductions (e.g., tips/overtime where applicable), and business incentives like full bonus depreciation.

Selective decoupling preserves state preferences, such as continued R&E expensing options. ALDOR guidance clarifies retroactive application of certain provisions, potentially yielding refunds or adjustments on amended returns.

 Year-End and Ongoing Planning Considerations

With retroactive relief for 2025, update your W-4 if needed to optimize 2026 withholding and avoid surprises. Review digital asset portfolios now for basis documentation. High-income filers should note phaseouts on new deductions.

The IRS continues evolving guidance, so stay tuned. At Sellers CPA, we're here to navigate these changes and maximize your benefits.

Best regards, 

The Sellers CPA Team 

https://sellerscpa.net/