‘Tis the season for twinkling lights, holiday cheer and…tax planning?
As the final days of the year rapidly approach, it’s time to start checking off your tax to-do list for a merrier 2025. Here are some tips to help optimize your tax situation and avoid a Scrooge-like surprise come April.
1. Estimate your taxes. It’s not too late to estimate your 2025 tax liability, ensuring you’re paying enough through withholding or estimated tax payments. Review your income, deductions and credits for the year, and make any necessary adjustments before the year-end.
Accurate tax estimation and proper record organization not only helps with current year compliance; it also provides a foundation for future financial planning and potential audit defense if you need one.
2. Consolidate financial records. Gather and organize all financial documents such as W-2s, 1099s, receipts, investment statements and records of any additional income streams. Remember, taxable income extends beyond your salary. Investment gains, freelance work, rental income and even certain Social Security benefits all impact your tax obligation.
Act now to help streamline the filing process and avoid missing out on potential deductions or credits, as well as any potential issues with the IRS.
3. Review your retirement accounts. If you have a 401(k), IRA or other retirement savings plan, review your contributions for the year. Contributions are typically tax-deductible, so by contributing the maximum amount allowed, you can lower your tax bill and grow your retirement savings at the same time.
Additionally, if you’re over 50, you may be eligible to make catch-up contributions to your retirement accounts to save even more, while benefiting from additional tax savings.
4. Make charitable giving part of the giving season. The spirit of giving is alive and well, and the IRS loves it too. You can potentially reduce your tax bill by making charitable donations to qualified 501(c)(3) organizations.
If you’re 70½ or older, you may consider making a Qualified Charitable Distribution (QCD), transferring up to $100,000 directly from your IRA to an eligible charity. If you have loved ones you’d like to gift, explore options like a 529 college savings plan or Roth IRA contributions for gifting them with your generosity — and saving on your taxes.
5. Capitalize on education-related tax breaks. If you or a family member are attending college, trade school or another higher-learning institution, take advantage of valuable tax credits and deductions related to tuition, fees and education-related expenses.
The American Opportunity Tax Credit and Lifetime Learning Credit can boost your tax refund, while contributions to 529 college savings plans offer future tax-free growth. Review your eligibility for these education-focused tax benefits before the year ends.
6. Optimize your HSA and FSA accounts. Health Savings Accounts (HSA) offer unique triple tax advantages: tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses. While most HSAs roll over into the next year, it’s still important to gather all receipts for all HSA distributions, create digital copies of all forms and receipts, and sort qualified vs. non-qualified expenses to keep for your records come filing time. Assess whether to make additional contributions before year-end or wait until the New Year.
Flexible Spending Accounts (FSA) funds must be used within the plan year, though some employers offer a grace period (usually until March 15). Review your FSA balance carefully and create a plan to use any remaining funds before they’re forfeited. This might involve scheduling medical appointments, purchasing eligible supplies or ordering prescription refills. Submit any outstanding FSA claims before the December 31st deadline.
7. Consult a tax professional. Tax professionals, such as certified public accountants (CPAs) or enrolled agents, have specialized knowledge of the latest tax laws, regulations and filing requirements. They can help identify deductions and credits you may have overlooked, recommend tax-saving strategies tailored to your unique situation and ensure you’re in compliance with all applicable rules and deadlines.
Tax pros can also provide ongoing support throughout the year, assisting with quarterly estimated tax payments or advising on the tax implications of major life events like a job change, home purchase or retirement.
Looking for a trusted CPA? The professionals at Magone & Company will consider every deduction and incentive to help make the most of your tax situation for the 2024 tax year and beyond. Call us today at (973) 301-2300 to schedule a confidential consultation. Happy holidays!
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.