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Accountancy Slice
USA
2nd January 2026
 

THE HOT STORY

IRS predicts record refunds

IRS leaders are forecasting the largest tax refunds in history for the upcoming tax season, attributing this to the Trump administration's tax reforms. The IRS anticipates average refunds to exceed $3,000, a significant increase from the previous year's $2,800 average. IRS Commissioner Charles Rettig stated: "We expect significant pushback from the industry as these changes take effect." The reforms, which include increased standard deductions and reduced tax rates, are expected to impact millions of taxpayers nationwide. The development could lead to increased consumer spending and economic activity.

TECHNOLOGY

AI integration tops tax trends

In 2025, AI integration in tax and accounting became essential, with firms like KPMG evaluating staff on AI tool usage in performance reviews. KPMG's James O'Dowd stated: "This marks a structural shift in how professional services firms define performance and value." AI's role in enhancing accuracy and efficiency in tax operations is underscored by KPMG's Christian Stender, who highlighted its potential in managing complex issues. The push for AI adoption reflects a broader trend towards digital transformation in professional services, with significant implications for industry practices.

AI transforms accounting processes

AI is set to revolutionize accounting in 2026, automating tasks like data entry and verification, according to a survey of industry leaders. Ariege Misherghi, general manager at Bill, highlighted that pre-processing tasks will see the most significant reduction in human involvement. The rise of AI in technical research and tax workflows is also noted, with Jim Bourke of Withum predicting automation of simple tax engagements. Despite these advancements, tasks requiring judgment and client interaction will remain human-centric, as AI lacks the professional skepticism and understanding valued by clients.

TAX

Tax season just got trickier

As tax season approaches, clients will require additional assistance due to the complexities introduced by H.R. 1, the One Big Beautiful Bill Act. This legislation has altered existing tax provisions and introduced new deductions, making the filing process more intricate. Notably, the act has made the Tax Cuts and Jobs Act's increased standard deduction and tax rates permanent, simplifying calculations for many taxpayers. For 2025, the standard deduction will be $15,750 for single filers and $31,500 for married couples. Additionally, the act has increased the federal deduction for state and local taxes to $40,000. Alistair M. Nevius, J.D., highlights that "clients with dependent children will benefit from a permanent increase in the child tax credit to $2,200 per child." Overall, the new tax law presents both challenges and opportunities for taxpayers.

Navigating U.S. tax risks for global workers

Heather Fincher, JD, LLM (Tax), of Kostelanetz LLP, warns that global mobility and remote work can trigger significant U.S. tax liabilities for foreign individuals and employers. CPAs must accurately determine U.S. tax residency under the substantial presence test and navigate exceptions like the closer connection and treaty tie-breaker rules. Failing to do so can lead to unexpected U.S. taxation, complex reporting, and employer liabilities. Foreign entities may inadvertently create a U.S. trade or business and face dual layers of tax. Fincher stresses the need for proactive CPA guidance to prevent unintended tax exposure and ensure compliance in a shifting global landscape.

IRS extends Washington deadline

The IRS has extended the tax filing deadline to May 1, 2026, for Washington state residents affected by severe weather events starting December 9, 2025. This relief applies to individuals and businesses impacted by storms, winds, and mudslides. IRS Commissioner Daniel Werfel said: "This extension provides critical relief to those dealing with the aftermath of these natural disasters." The extension aligns with similar measures taken in previous years for disaster-stricken areas, offering affected taxpayers additional time to file returns and make payments without penalties.

Ferguson eyes millionaire tax

Washington Governor Bob Ferguson has proposed an income tax on millionaires to fund reductions in sales taxes on essential items and boost K-12 education funding. The plan, announced on December 23, aims to expand the working families tax credit and lower tax rates for small businesses. Ferguson said: "We expect significant pushback from the industry," as he acknowledged the potential challenges ahead. The proposal follows a trend in several states seeking to address income inequality through targeted taxation. If implemented, the tax could significantly impact high-income earners in Washington State.

FIRMS

Big Four face DEI divide

The Big Four accounting firms are experiencing a rift over diversity, equity, and inclusion (DEI) initiatives due to escalating political and legal pressures. Deloitte and PwC have reaffirmed their commitment to DEI, while EY and KPMG are reassessing their strategies. This comes as some states, like Florida, have enacted laws restricting DEI programs.

ECONOMY

Trump stimulus boosts 2026 outlook

The U.S. economy is poised for stronger growth in 2026, fueled by Trump-era tax cuts, fading tariff uncertainty, and continued AI investment. KPMG’s Diane Swonk projects fiscal stimulus alone could raise Q1 GDP by 0.5%. Business optimism is rising, with Oxford Economics citing “fading policy uncertainty” and looser Fed policy as key drivers. Despite a weak labor market and 4.6% unemployment in November, interest-rate cuts and robust consumer spending - driven by smaller withholdings and larger tax refunds - are expected to support the recovery. Still, risks remain from inflation and restrained hiring amid AI-led efficiencies.

U.S. jobless claims hit one-month low

Initial U.S. jobless claims fell to 199,000 for the week ending December 27, the lowest in a month, surprising economists who expected a rise. Despite this dip, hiring remains weak under President Trump’s second term, with monthly job creation averaging just 55,000 in 2025. Factors such as steep tariffs and immigration restrictions have disrupted labor supply. The unemployment rate stood at 4.6% in November, its highest in four years, though layoffs remain limited. The Fed is divided on further rate cuts, awaiting early 2026 labor and inflation data to guide decisions.

CORPORATE

M&A volumes in 2025 surge 50% to $4.5tn

Worldwide mergers and acquisitions increased by almost 50% from 2024 to $4.5tn, according to data from the London Stock Exchange Group. A record number of megadeals lifted investment banking fees to their second-highest level ever, although smaller transactions waned, with the total number of deals falling 7% to the lowest since 2016. Private equity activity grew more modestly, up over 25% to $889bn.

Saks prepares bankruptcy amid debt crisis

The Wall Street Journal reports that Saks Global is planning to file for Chapter 11 bankruptcy after missing a $100m interest payment related to its 2024 Neiman Marcus acquisition. Since the merger, Saks has struggled with mounting debt, declining sales, and delayed vendor payments, which have reduced merchandise availability. Talks with creditors for bankruptcy financing are underway. In June, the retailer raised $600m to meet previous obligations. A 13% sales drop to $1.6bn and a $288m net loss in the August quarter further pressured the business. Saks has also upset suppliers by extending payment terms.

PERSONAL FINANCE

Billionaire tax sparks exodus fears

In November 2026, California voters may face a proposed 5% one-time tax on individuals with assets exceeding $1bn. This potential tax has already prompted some billionaires to relocate, as noted by tax adviser David Lesperance, who said: “The targets of this tax don't need to be in California to make and maintain their lifestyle or their wealth.” The proposal, backed by SEIU United Healthcare Workers West, aims to address funding gaps in healthcare and food assistance due to federal cuts. Suzanne Jimenez, SEIU-UHW's chief of staff, emphasized the urgency, stating: “What happens to the healthcare system in California if we don't figure out how to fill this $100bn hole?” While some billionaires, including Peter Thiel and Larry Page, are considering leaving, proponents argue that California can survive even if some wealthy residents depart.

REGULATORY

Trump administration must fund CFPB, judge says

A federal judge has said that the Trump administration must allow funding for the Consumer Financial Protection Bureau (CFPB) to continue.  The administration has been trying to dismantle the agency, which acts as a guardrail for the safety of the financial system, through staffing and funding cuts. Judge Amy Berman Jackson of the Federal District Court in Washington wrote that the watchdog could continue to receive funding from the Federal Reserve even though the Fed had been operating at a loss since 2022. The Fed’s willingness to pay has not changed, she wrote, adding that “the only new circumstance is the administration’s determination to eliminate an agency created by Congress with the stroke of pen.”

AND FINALLY...

Oops... IRS did it again

Pop superstar Britney Spears has filed a petition in Tax Court to contest an IRS deficiency notice claiming she owes $721,000 in taxes and penalties. The case, Spears v. Commissioner, filed on December 18, argues that the IRS incorrectly adjusted her flowthrough income and disallowed medical and dental expense deductions. According to the notice, Spears owes $600,719 in income taxes and an additional $120,144 for the 2021 tax year. The IRS made a $1.4m adjustment to the taxable income reported by Shiloh Standing Inc., an S corporation owned by Spears, due to disallowed business expenses. The petition asserts that these expenses were both ordinary and necessary, and that Spears can substantiate them. Additionally, the IRS disallowed $334,372 in medical and dental expenses, which the petition claims qualify as itemized deductions.
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