Tax season doesn’t have to be a stressful, last-minute scramble. While the deadline for many 2024 tax-saving moves has passed, there are still opportunities to reduce your tax liability before you file. Additionally, the best way to prepare for next year’s taxes is to start planning now. In this blog, we’ll explore actionable steps you can take today to lower your 2024 tax burden and set yourself up for a more tax-efficient 2025.
3 Things You Can (Still) Do to Minimize Your 2024 Tax Liability
While it’s true that December 31 was technically the last day for 2024 tax breaks, there are still a few things you can do right now to reduce your tax bill for 2024.
Contribute more to your IRA.
This one is pretty simple. If you haven’t maxed out your IRA contribution for 2024, you have until the April 15th tax deadline to contribute more. Those contributions may be tax-deductible, which will help reduce your tax liability.
Fund your HSA.
This one is also pretty self-explanatory – but it has some unexpected benefits most people don’t know about.
Again, you have until tax day to max out your contributions to your HSA and still count the deduction to reduce your 2024 income. Then, these funds can be used (tax-free) for qualified medical expenses.
The thing people don’t think about is that these funds can also be left in the account to grow and the earnings are also tax-free as long as they are used for qualifying medical expenses when withdrawn. That makes funding your HSA a great, tax-advantaged way to save for medical expenses in retirement.
One caveat to note: To contribute to an HSA, an individual/family plan must have a High-Deductible Health Insurance plan (HDHP) for that particular tax year.
HDHPs have higher out-of-pocket deductibles and out-of-pocket maximums than more traditional PPO or HMO plans. If you are unsure of what type of health insurance plan you have, please contact your health insurance company or your company HR benefits representative.
If you’re a self-employed business owner, maximize your SEP IRA/Solo 401k.
Both of these plans are retirement accounts for self-employed small business owners, and you can contribute thousands of dollars each year to them in a tax-advantaged way, in some cases as both the employer and employee.
Depending on which plan you have and how much you have already contributed, you may still be eligible to make additional deposits through the tax deadline, which could help minimize your tax burden for 2024.
Lots of people get stressed around tax time, but we want to avoid stress wherever we can. It’s not helpful to focus on what you didn’t do last year. Instead, I encourage you to shift your focus to what you can do to reduce your tax liability and get ahead this year.
8 Things You Should Be Doing Right Now to Reduce Your 2025 Taxes
If you ask me, the best time to prepare for the 2025 “tax season” is right now. Yes, I know that most people are focused on their 2024 taxes at the moment.
I also know that, by getting started sooner than later, you’ve got a better chance of reducing your tax liability – and you won’t have to scramble to find all those last-minute deductions.
What deductions and opportunities are you potentially missing out on by handling your taxes during “tax season?”
We love a low-stress tax situation, and our clients do, too. Here are several of the things we work with our clients on to ensure they are always ahead of their next tax bill.
Maximize your charitable contributions.
We work with some of the most generous individuals and families I have ever known. If you also value giving money to charities, you’re in luck. You can structure your charitable giving so it’s more tax-advantaged than writing a check.
Let me give you one example: You might want to consider gifting highly-appreciated securities instead of cash donations.
This way, you don’t have to recognize the capital gains and you can receive a tax deduction for the full fair-market value of the donation. This strategy is applicable up to a certain percentage of your adjusted gross income so long as the stock you are donating has been held in your account for greater than one year.
Plan for home repairs, upgrades, and major purchases.
From energy-efficient home upgrades to electric vehicles to solar panels, there are tax rebates available for choosing environmentally friendly options.
Of course, these are only an option if they truly fit your needs. (You wouldn’t want to install solar panels if you’re thinking of selling, since you probably won’t recoup the costs.)
There are plenty of rules and stipulations you must follow to be eligible, so consult with someone you trust before investing.
Prepare for healthcare costs.
People often don’t consider this area, but planning for healthcare costs whenever possible can make a difference come time to cut Uncle Sam a check.
To start, calculate 7.5% of your adjusted gross income, and keep that number in mind throughout the year. Once you’ve spent that amount, the IRS allows you to deduct 100% of any unreimbursed medical expenses above 7.5% of your AGI. After you hit that number, it may make sense to take care of any other required procedures or treatments in the same tax year to maximize your deductions.
Again, there are stipulations. For example, you must itemize your deductions, and most cosmetic procedures are excluded.
Take distributions wisely.
How you take distributions from retirement accounts should be one of the biggest concerns for anyone who is 59 ½ or older. The best strategy is unique to you because it will be based on your specific circumstances. Generally speaking, you want to balance when and how much you withdraw from your accounts based on whether they are tax-free, tax-deferred, or taxable.
For example, you might want to implement a “proportional withdrawal strategy.” That may mean taking a distribution from a tax-deferred account at 59 ½ so you can defer your Social Security benefit, allowing it to grow.
Plus, you’re reducing the overall size of your tax-deferred account and reducing your future RMDs (Required Minimum Distributions).
Other tools, like Roth conversions, are also available. You may even be able to use a Qualified Charitable Distribution to satisfy your RMDs without increasing your taxable income. QCDs can be started once you turn 70.5 years old.
Implement tax loss harvesting.
When rebalancing your portfolio, you may be able to reduce your tax liability by offsetting any realized capital gains with your losses. Tally up your gains, then sell less attractive, losing positions of equal value. If you have more losses than gains, you can offset up to $3,000 of ordinary income. Losses in excess of $3,000 can be carried forward to future years to offset gains in the future.
But there are rules. For one, be sure not to buy the same or a similar security within 30 days to avoid the pitfalls of the wash-sale rule.
A lot of people accomplish their tax loss harvesting at the end of the year, but it can also be done all year long to increase efficiency even more.
Adjust your tax withholdings.
If you or your spouse are still working and having taxes withheld from your paycheck, you can adjust that amount.
Getting a big refund may feel good at the time, but you’re just giving Uncle Sam an interest-free loan. If you invested that money, it could work even harder. Think of all the compounding interest you could earn if you saved or invested that refund check a little at a time over the course of the year!
On the other hand, if you are generating lots of outside income throughout the year via self-employment, contract work, or investments, you may want to increase your withholdings to avoid paying interest and penalties at tax filing time.
Avoid interest and penalties.
This one almost goes without saying. There is nothing I hate more than paying unnecessary interest and penalties. Unfortunately, it’s one of the things we see the most – especially from people who treat “tax time” as a season or a deadline.
In most cases, it’s also a pretty easy fix. By looking at your finances holistically and planning for taxes on a regular basis, you can make estimated tax payments, make changes as your circumstances change, and avoid costly mistakes.
Mind your business.
Small business owners, including freelancers and independent contractors, can take many different deductions.
Here’s a fun one: You could consider renting out your home to your business for meetings, retreats, or other work-related events for up to 14 days each year. Your business pays you exactly what they would for a comparable venue, you keep the cash, and your business gets the write-off.
Whether you need to make a major purchase (like a vehicle) or you want to take advantage of pass-through income deductions or minimize your self-employment taxes by electing S-Corp status, there are many ways you can minimize your personal tax liability if you work for yourself or own a small business.
Remember: There is no such thing as “tax season.” Now is the time to get a head start on your 2025 taxes so your money can work harder, last longer, and serve you better.
The key to effective tax planning is a proactive approach. By taking the right steps now—whether it’s maximizing retirement contributions, leveraging charitable giving, or optimizing deductions—you can ensure that your financial strategy works in your favor.
In short, there are lots of strategies out there. Get started now, and ask your fiduciary wealth advisor to help you find them all.