IRS issues nationwide notice: Start doing this before year’s end

The IRS is urging taxpayers to prepare now for the 2026 filing season (returns for 2025 earnings due April 15, 2026), emphasizing that the recently passed One, Big, Beautiful Bill will change deductions and credits — including provisions cited by the IRS such as no tax on tips, overtime and certain car loan interest, plus a temporary senior deduction — and that taxpayers should expect implementation guidance from IRS and Treasury. The agency also said it will phase out paper refund checks starting late 2025 in favor of direct deposit, and recommends actions including creating/logging into IRS online accounts, gathering W‑2s/1099s and bank routing info, confirming withholding after life changes, and using e‑filing to speed refunds and reduce errors.

Analysis

Market structure: The shift to digital refunds and new deductions (no tax on tips/overtime, car loan interest changes) structurally favors tax software (INTU, HRB), payroll processors (ADP, PAYX) and digital deposit rails/fintech (PYPL, SQ, GDOT) while pressuring legacy check printers and mail services (DLX, PBI). Expect pricing power for software/payroll vendors to rise as firms sell implementation and compliance services; legacy print revenues could decline materially (we project a 30–50% erosion in check-related revenue over 12–24 months absent successful product pivots).

Risk assessment: Tail risks include IRS implementation delays or system outages that create refund timing shocks (weeks-to-months) and a spike in refund fraud that could lift charge-offs by high single-digit to low-double-digit percentages for fintechs and banks. Near-term (days-weeks) market impact is low; medium-term (3–9 months) is when vendor upgrades, guidance, and 2025 Q3/Q4 earnings will reprice winners/losers; long-term (2026+) is full digital migration and recurring revenue reallocation.

Trade implications: Favor 1–3% core overweight allocations to INTU, HRB, ADP, PAYX and 1–2% tactical exposure to PYPL/SQ via defined-risk call spreads into Oct–Dec 2025 around IRS guidance releases; establish small short positions (1–2%) in DLX and PBI with 12–24 month horizons. Use options to limit capital at risk: buy INTU Jan 2026 calls or diagonal call spreads and sell covered calls into outsized rallies; enter gradually between now and Oct 2025 and trim positions after the Apr 2026 filing window closes.

Contrarian angles: The market may overestimate incumbent banks’ capture of direct-deposit flows — neobanks and payroll-linked fintechs can grab share quickly through paycheck routing deals, meaning large-bank upside may be muted. Also, history shows paper-to-digital transitions can be multi-year; some legacy vendors will re-monetize via compliance/SaaS so shorts must be sized and monitored for product pivots and M&A interest.

Key Decisions for Investors

• Establish a 2.5% portfolio long split: 1.5% in INTU (Intuit) and 1.0% in HRB (H&R Block) by Sep 2025 to capture migration to tax software; target a 15–25% upside into May 2026, close position if combined guidance misses consensus by >5% or if YoY subscription growth stalls below 5%.
• Add a 2% long allocation to payroll processors: 1.0% ADP and 1.0% PAYX, scaling 50% now and 50% in Oct 2025; take profits if either rallies +20% or if net-new payroll clients roll over negative in two consecutive quarters.
• Initiate 1.5% tactical exposure to PYPL and SQ (0.75% each) via 3–6 month call spreads into Oct–Dec 2025 to capture higher direct-deposit flow and refund velocity; size max premium such that loss ≤0.5% portfolio and close if refunds fraud rates (FDIC/FTC reports) rise >30% QoQ.
• Establish 1.5% short exposure (0.75% each) in DLX (Deluxe) and PBI (Pitney Bowes) with a 12–24 month horizon; set hard stop-loss at 20% adverse move and target 30–50% downside or evidence of continued >10% YoY print-revenue declines.
• Monitor IRS/Treasury rule releases weekly for the next 90 days and CPI/consumer refunds data monthly; delay any size-ups until final guidance on key items (tips, overtime rules, car-loan interest) is published — if guidance is delayed beyond Nov 2025, reduce tempo for momentum trades by 50%.