The new tax rules that can get you a bigger refund

The new federal tax law signed last summer (the Big Beautiful Bill Act) is set to boost 2025 refunds and change filing dynamics for the 2026 season: the IRS is accepting 2025 returns and average refunds were $2,939 in 2025, with refunds projected to rise as much as 30% under the new rules. Key provisions include a temporary SALT cap increase to $40,000 (from $10,000), a $6,000 federal deduction for taxpayers 65+ ($12,000 for qualifying married couples) through 2028, new deductions for qualified overtime (up to $12,500 individual / $25,000 joint) and tips (up to $25,000), a raised child tax credit to $2,200 per child, and a new $1,000 government contribution into “Trump accounts” for children born 2025–2028; taxpayers will use a new Schedule 1-A to claim some of these benefits, which could shift some filers from the standard deduction to itemizing and modestly boost consumer cash flow.

Analysis

Market structure: Winners are tax-prep firms (HRB), retail/auto dealers and consumer credit players from an estimated average refund lift up to ~30% (from $2,939 to ~$3,820, ~+$900 household). High-income filers in high-tax states gain from a temporary SALT cap increase to $40k, shifting demand toward paid preparers and financial advisors who sell itemization planning; losers include state budgets (near-term revenue volatility) and any low-margin DIY tax vendors. Cross-asset: modest upward pressure on Treasury yields and inflation breakevens is possible if the fiscal cost is sizable; short-term demand boost favors cyclicals and weakens muni bond appeal in relative terms.

Risk assessment: Tail risks include legal/regulatory challenges, IRS operational delays that push refunds into Q2 (liquidity shock for retail), and a 2028 sunset of major provisions that creates policy cliff risk. Time horizons: immediate (filing-season volume Jan–Apr 2025), short-term (consumer spending lift through H2 2025), long-term (policy permanence and election-driven changes through 2028). Hidden dependency: actual spend vs. debt repayment split — if >50% saved, cyclical boost will be muted. Catalysts: weekly IRS refund stats, H&R Block earnings (late Q1), and state budget responses.

Trade implications: Direct: HRB (ticker HRB) is the highest-conviction long into filing season; consider tactical options to leverage seasonality. Pair: long HRB vs. short INTU as a relative-value trade for 3–5 months if HRB rerates on fee mix while INTU's scale limits upside. Sector tilt: overweight XLY by 1–2% and favor autos/retail names with high propensity-to-spend customers. Timing: enter incrementally now–Feb 15, 2025; take profits by May 31, 2025 or on 20–30% gains.

Contrarian angles: The market underestimates implementation friction — delayed refunds could create a negative surprise that punishes cyclical retail despite the headline lift. Historical parallel: 2018–2019 tax changes gave a short-lived consumer bump then normalized; don't assume persistence past 2028. Unintended consequences: altered withholding behavior could reduce FY2026 refunds and compress year-over-year retail comparables; size positions (2–3% each) to reflect policy and timing risk.

Key Decisions for Investors

• Establish a 2–3% long position in HRB (H&R Block) between now and Feb 15, 2025; set a tactical profit target of +20–30% by May 31, 2025 and a hard stop-loss at -12% to capture filing-season margin and refund-driven volume.
• Initiate a pair trade: long HRB (1.5–2% weight) and short INTU (Intuit) equal-dollar (1.5–2%) to express paid-preparer re-rating vs. scale software vulnerability; hold 3–5 months and reassess after HRB Q1 earnings and IRS weekly refund prints.
• Buy near-term HRB call spreads (Mar–Apr 2025 expiries) sized to 0.5–1% portfolio risk to capture filing-season upside; limit premium paid to <1.0% portfolio and close by May 31, 2025 or on 2x premium.
• Reduce high-tax-state muni exposure by 1–2% now and redeploy into consumer discretionary (XLY overweight by 1–2%) to capture an expected short-term demand boost; re-evaluate municipal allocations after Q2 2025 when filing and state budget data clarify SALT uptake.