Week 7: February 16-22, 2026
DON’T MISS
Mid-February Document Check
Tax season is in full swing. Take 30 minutes this week to verify you have everything you need.
Confirm all 1099 forms have been received and reconciled to your records.
Organize business expense receipts by category.
Verify your mileage log is complete through December 31, 2025.
Document home office measurements if you have not already.
Locate retirement contribution confirmations.
If you are missing a 1099, then contact the payer now. Waiting until April creates unnecessary stress and increases error risk.
Source: IRS.gov
THE SOLOPRENEUR’S BRIEF
Four New Deductions on Your 2025 Return
The One Big Beautiful Bill Act introduced four new deductions that apply to the return you are filing right now. All four are available to both itemizers and non-itemizers, and cover tax years 2025 through 2028. They are all claimed on the new Schedule 1-A, Additional Deductions, which is filed with your Form 1040. Here is what you need to know.
Qualified Tips
Workers in one of 68 qualifying occupations can deduct up to $25,000 in tip income. The IRS organized the occupations into eight categories covering food and beverage service, entertainment and gaming, hospitality, home services, personal care, personal appearance, recreation, and transportation and delivery.
Only voluntary tips qualify. Mandatory service charges do not.
Phases out for single filers with MAGI above $150,000 ($300,000 for joint filers).
The $25,000 cap applies per return, not per person.
Taxpayers filing Married Filing Separately cannot claim it.
Workers in specified service trades or businesses are excluded, including health care, performing arts, athletics, law, accounting, consulting, and financial services.
For self-employed workers, the deduction cannot exceed net income from the business where tips were earned.
Qualified Overtime
Employees can deduct the premium portion of qualified overtime pay. That means only the “half” in time and a half, not the full overtime check.
Maximum deduction: $12,500 for single filers ($25,000 for joint filers).
Same $150,000/$300,000 MAGI phaseout applies.
Only overtime required under the Fair Labor Standards Act qualifies.
State law overtime, collective bargaining overtime, and double time above the FLSA requirement do not qualify.
Shortcut: if you are paid time and a half, divide your total overtime pay by three. One third is the deductible premium.
Additional Senior Deduction
Taxpayers age 65 or older as of December 31, 2025 can claim an additional $6,000 deduction per qualifying individual. A married couple where both spouses are 65 or older can claim $12,000.
Stacks on top of the standard deduction and the existing additional deduction for age 65.
Combined deductions for qualifying single seniors taking the standard deduction reach nearly $24,000.
Joint filers where both spouses qualify may reach nearly $47,000.
Itemizers receive the $6,000 but not the age 65 standard deduction amount.
Phases out for single filers with MAGI above $75,000 ($150,000 for joint filers).
Vehicle Loan Interest
Individuals can deduct up to $10,000 in interest paid on a loan used to purchase a new, qualified passenger vehicle.
The vehicle must be new and have its final assembly point in the United States.
Verify through the VIN label, doorjamb sticker, or the NHTSA VIN decoder at nhtsa.gov.
Used vehicles, leases, and vehicles assembled outside the U.S. do not qualify.
The loan must be secured by a first lien on the vehicle.
Taxpayers must include the Vehicle Identification Number on their return.
Phases out beginning at $100,000 MAGI for single filers ($200,000 for joint filers). Note: this phaseout starts significantly lower than the tips and overtime deductions.
Source: IRS.gov, One Big Beautiful Bill Act; Tax Deductions for Working Americans and Seniors; IRS Notice 2025-69; One Big Beautiful Bill Act §§ 70201, 70202, 70103, 70203
LESSONS LEARNED
The Underpayment Penalty Trap
A consultant left her W-2 job and earned $120,000 in her first year of self-employment. She owed $28,000 in combined income tax and self-employment tax. She paid the full amount with her return in April, thinking she was done.
Three months later, she received a penalty notice for approximately $1,500. The IRS expects estimated taxes throughout the year, not a lump sum at filing. Because she paid nothing in Q1 through Q3, interest accrued on each missed quarterly installment, with the earliest quarters generating the most.
The fix was simple. For her second year, she divided 100 percent of her prior year tax ($28,000) by four and paid $7,000 each quarter on April 15, June 15, September 15, and January 15. If her income had exceeded $150,000, she would have used 110 percent instead. This prior year safe harbor method eliminated the guesswork and the penalty.
Source: IRS § 6654; IRS Form 2210 Instructions
BRIEF RECAP
Key takeaway: The One Big Beautiful Bill Act created four brand new deductions for 2025: tips, overtime, a senior bonus, and vehicle loan interest. Each one has its own income limits and eligibility rules. None are automatic. If you file without checking, you will never know what you missed.
In last week’s issue: Retirement accounts are the most powerful tax reduction tool available to solopreneurs. Every dollar you contribute to a pre-tax retirement account reduces your taxable income dollar for dollar, and the money grows tax-deferred until retirement.
Next week: Vehicle expense methods and the standard mileage rate versus actual expenses.
Disclaimer: This publication is provided for general informational and educational purposes only and does not constitute personalized tax, legal, or accounting advice. Tax laws are complex and subject to change, and their application depends on individual circumstances. Readers should consult qualified professionals regarding their specific situations.
Circular 230 Disclosure: To ensure compliance with U.S. Treasury Department regulations, we inform you that any U.S. federal tax discussion contained in this publication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or for promoting, marketing, or recommending any transaction or matter addressed herein.