The End of Pennies: Understanding the Financial Shifts Ahead

The humble penny — soon to be a relic of the past. Starting in 2026, the U.S. will stop producing pennies, marking the end of an era for this iconic (and increasingly costly) coin.

While pennies will remain legal tender, this change will impact everyday transactions, requiring adjustments for both consumers and businesses. This means updated point-of-sale systems, altered pricing strategies, and a potential shift in how we think about cash transactions. Let’s explore what this means for your wallet and your business.

Why the Penny Had to Go 

With the cost of making a single penny ringing in at about 4 cents, the U.S. has been losing money on each penny it puts into circulation for years. And while nickels also cost more than they’re worth, the penny has faced more criticism than any other coin denomination because of its low purchasing power. 

The widespread adoption of card and digital payment methods, such as tap-to-pay, has significantly reduced the demand for physical currency for everyday transactions. Coupled with inflation, the purchasing power of the penny has been eroded to the point of being impractical in most retail exchanges.

How Transactions Might Change  

Many countries have already phased out their 1 cent coins without much disruption. Canada stopped using pennies in 2013 and now round cash totals to the nearest 5 cent – down if your bill total ends in 1¢ or 2¢ and rounding up for 3¢ or 4¢. Others like Australia, New Zealand, and the Netherlands follow similar rounding at the register rules but only for cash payments.

If you’re swiping, tapping, or using mobile pay you’ll still be able to pay the exact cent amount. Most of the businesses in these countries didn’t change individual item prices much. Instead, point-of-sale systems automatically round final bills rather than each item. 

With cash payments becoming less common overall, the American public will likely adapt quickly. But consumers will keep an eye on if businesses choose to price items in increments of 5 or 10 cents to avoid confusion or if the psychological $0.99 pricing will stick around. 

What This Means for Business Owners 

If your business handles cash, the end of the penny will not only impact your daily operations but you might also be able to deduct certain qualifying costs of adaptation. Here are some examples of adaptation costs that may be tax deductible to business owners: 

• Point-of-Sale (POS) system upgrades: The costs of upgrading POS systems to handle rounding or increased digital payments are likely deductible as ordinary and necessary business expenses. This falls under Section 162 of the Internal Revenue Code, which allows deductions for business expenses. 
• Employee training: The expense of training employees on the new cash handling procedures (rounding, digital payment processing) is also likely deductible as a business expense. 
• Software updates: Costs associated with updating business software to accommodate rounding or changed payment processes are deductible business expenses under Section 162. 
• Signage and marketing materials: This signage around the registers and rounding policy would likely qualify as an allowable deductible expense for the business. This is because the signage is ordinary and necessary for a business to display at the point of sale in order to inform customers. Signage and marketing materials that explain the new rounding policy can be considered deductible expenses.  

Source: IRS Publication 334, Tax Guide for Small Business (Note: Always refer to the most current version of IRS publications).

Proper record-keeping is key to maximizing these deductions. Whether you’re updating point-of-sale systems, adjusting signage, or retraining staff, many of these costs may be deductible. As always, consult with a tax expert to ensure you’re taking advantage of all available tax benefits and navigating this change smoothly.

Learn more about deducting business expenses, and when you’re ready, TurboTax can help you understand and optimize your deductions, ensuring you’re prepared for tax season.