Tax Talk: New Tax Credit for School Choice, Crypto Tax Traps, and the IRS Getting Smaller — What Every Wisconsin Family Needs to Know Right Now
Summer is here, and Washington is still busy. This month brought a genuinely interesting mix of tax news — a brand-new education tax credit, a landmark crypto ruling, an estate planning cautionary tale, and more evidence that the IRS is quietly changing how it watches taxpayers. Let's break it all down.
A new federal tax credit for K-12 school choice launches in 2027, and it's worth knowing about now if you're charitably inclined. Starting with 2027 tax returns, individuals can claim a nonrefundable federal tax credit of up to $1,700 for cash donations to qualifying scholarship-granting organizations (SGOs) — nonprofits that fund tuition and related expenses for K-12 students attending private schools. The credit applies to both regular income tax and the alternative minimum tax, with no income limit, meaning high-income filers can benefit fully. If you can't use the full credit in one year, it carries forward for five years.
There's an important catch: the credit is only available in states that have opted into the program. Wisconsin is not currently on the list of the 27 participating states, though more states may join before 2027. Watch this space. Also worth knowing — you can't double-dip. If you claim the federal credit, you can't also take a charitable deduction for the same donation. And if your state already gives you a credit for these donations, the federal credit gets reduced accordingly. For charitable donors with children or grandchildren who attend or may attend private schools, this is worth a planning conversation.
Cryptocurrency holders: a Tax Court ruling this month confirmed what the IRS has been saying — staking rewards are taxable the moment you receive them. When you stake cryptocurrency on a proof-of-stake blockchain and receive reward tokens, the fair market value of those tokens is treated as ordinary income in the year you gain control over them, regardless of whether you sell them. The court was direct: the ability to sell is what triggers the tax, not the act of selling.
This is a big deal for anyone with meaningful crypto holdings. If you've been accumulating staking rewards without reporting them, you may have a growing tax exposure. There is bipartisan interest in Congress to change this — one House proposal would allow taxpayers to elect to defer staking income until the tokens are actually sold — but that change hasn't happened yet. Under current law, staking rewards are income the day you receive them.
One practical note for crypto investors: if you sell digital assets through a broker, you'll receive a Form 1099-DA reporting your proceeds. Make sure your cost basis records are accurate — the IRS is now getting this data too, and mismatches will generate notices.
For anyone who donates to charity — especially those making larger gifts — a Tax Court ruling this month is a useful reminder about the paperwork rules. An LLC lost a $4.2 million charitable deduction for a real estate donation simply because it failed to get the proper written acknowledgment from the recipient organization. The tax code requires a "contemporaneous written acknowledgment" from the donee for any cash or property gift of $250 or more, and the document must meet specific requirements. For property gifts over $5,000, a qualified written appraisal is also required.
This isn't a technicality that only trips up large organizations. Individual donors make these mistakes too — forgetting to get a proper acknowledgment letter, relying on a receipt that doesn't include the required language, or donating appreciated property without a qualified appraisal. If charitable giving is part of your financial plan, making sure the documentation is airtight is just as important as making the gift itself.
A sobering estate planning case this month serves as a warning for families who wait too long to plan. A woman's great-nephew implemented an aggressive estate plan — transferring her assets into a limited partnership and claiming valuation discounts — in the weeks immediately before she died. Both the Tax Court and an appeals court rejected the strategy entirely, ruling the transfer was motivated by tax avoidance rather than a genuine business purpose. The estate was required to include the full value of the assets.
The lesson here is one that experienced estate planners emphasize constantly: strategies that might be entirely legitimate when implemented thoughtfully over time can be completely disallowed when rushed in at the last moment. Estate planning works best when it's done years — not weeks — before it's needed. If your estate documents haven't been reviewed recently, or if a family member's health is declining, now is the time to have that conversation.
Even with a shrinking IRS, don't assume you're invisible. The agency's workforce dropped 28% in a single year — from 103,000 employees in January 2025 to just 74,000 in January 2026. Traditional audit rates have fallen accordingly, with fewer than 500,000 formal exams conducted in fiscal year 2025. But here's what most people miss: the IRS is increasingly relying on automated computer-generated notices — CP2000 mismatches, math-error corrections, and information return cross-checks — that don't count as formal audits but feel exactly like one. When you add those in, the IRS's actual coverage rate jumps to 3.5 million returns. Fewer agents doesn't mean less scrutiny. It means scrutiny delivered by algorithm.
File accurately. Report everything. Respond promptly to any IRS correspondence.
One housekeeping item for anyone who needs to amend a previously filed return: You generally have three years from the original due date of your return to file an amended Form 1040-X. Be patient — the IRS is currently processing paper amended returns received back in April 2026. E-filing your amendment is faster and allows for direct deposit of any additional refund. If you originally filed on paper, your amendment must also be filed on paper, and any refund will come as a check.
The tax landscape keeps shifting, and staying ahead of it — rather than scrambling to catch up — is exactly what separates a good financial outcome from a great one. That's what we work on every day with the families and business owners we serve here in Wisconsin and beyond.
If any of this resonates with your situation, we'd love to talk. There's never a cost for a first conversation — just a chance to see if we're the right fit for where you're headed.
Disclaimer: This is educational content with a healthy dose of sarcasm, not personal financial or tax advice. For your specific situation, consult a qualified tax professional who can navigate all this chaos with you.
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