With tax laws growing more complex each year, effective year-end tax planning is vital to maximize your deductions and credits. In this article, discover 20 essential tax tips that will prepare you for filing taxes in 2025 with confidence.
What Are the Key Tax Planning Strategies for 2024 Year-End?
How Can Income Tax Strategies Help You Save?
Tip #1: Review the latest income tax rate changes for 2024, and consider income-shifting techniques. Understanding the 2024 income tax rate changes can guide you in structuring income to reduce your tax burden. Shifting income to family members in a lower tax bracket or placing assets in trusts are strategic moves that may lower your overall tax liability while also helping manage adjusted gross income.
Tip #2: Maximize tax savings with tax-deferred retirement contributions, such as 401(k) or traditional IRA contributions. Boosting your tax-deferred contributions can lower federal income tax. For instance, contributing to a 401(k) or IRA by the end of the tax year reduces ordinary income tax and maximizes tax benefits. Aim to reach the maximum contribution limit before December 31 to take advantage of the full income tax deduction.
What Year-End Tax Moves Can Reduce Your Income Tax?
Tip #3: Consider accelerating deductions like medical expenses if it benefits your current income bracket. If you’re on the edge of a higher tax bracket, accelerating medical expenses, charitable donations, or other deductible costs into this year can reduce your federal tax. Grouping deductions into one tax year may allow you to itemize, which can lead to greater tax savings.
Tip #4: Explore deferring income to the following year, especially if you expect your income to be lower in 2025. If you anticipate moving into a lower tax bracket next year, deferring end-of-year income to 2025 may help reduce your tax bill. This is particularly effective for year-end bonuses or invoicing in December. Consult with a tax advisor to assess potential tax savings with this planning strategy.
Further Reading: Understand your state's income tax laws & potential deductions
How to Leverage Tax Credits and Deductions Before 2025
Which Tax Deductions Should Be Prioritized?
Tip #5: Maximize deductions for state and local taxes (SALT) within the allowable limit. The state and local tax (SALT) deduction is capped, so check your limit and consider paying any state tax liabilities early if you haven’t reached it yet. This can be particularly helpful if you’re in a state with high state income tax rates and could reduce your tax bill for federal income tax purposes.
Tip #6: Take advantage of mortgage interest deductions if you own property.
If you’re a homeowner, the mortgage interest deduction can be a substantial tax break. Consider making an extra mortgage payment by the end of the year, which could reduce your income tax for 2024 and help lower your adjusted gross income.
What Are the Best Tax Credits to Use Now?
Tip #7: Claim child tax credits if applicable, especially if they may decrease in 2025. The child tax credit is a powerful tool for reducing your tax liability. If you qualify, take full advantage of this tax credit now, as changes in tax rules could reduce its value in future years. This credit directly lowers your tax bill dollar-for-dollar.
Tip #8: Look into the energy-efficient home improvement credit if you've invested in green upgrades. For those who have made energy-efficient home improvements, the energy-efficient home improvement tax credit can offer significant tax savings. Green upgrades like solar panels or efficient HVAC systems not only reduce utility costs but also offer valuable federal tax incentives.
Further Reading: Learn about the impact of tax credits on your income tax refund
Top Tips for Small Businesses to Maximize Year-End Tax Savings
How Can Business Expenses Reduce Your Tax Burden?
Tip #9: Deduct ordinary and necessary business expenses before the end of the year. Deductions for ordinary and necessary business expenses—like office supplies, travel, or equipment—can lower your taxable income. These deductions are powerful tools to manage the taxable amount on your federal tax return. Plan any major expenses to ensure they are paid before the end of this tax year.
Tip #10: Consider bonus depreciation for qualified business assets to reduce taxable income. Take advantage of bonus depreciation on qualified assets purchased this year. Writing off 100% of the asset cost upfront reduces income tax liability and is particularly useful if you’ve had a strong earnings year and want to reduce the amount of tax owed.
What Are Effective Tax Strategies for Self-Employed Individuals?
Tip #11: Maximize retirement contributions to self-employed retirement plans, such as SEP IRAs. Self-employed business owners have access to high-limit retirement plans, like the SEP IRA. Maxing out contributions reduces ordinary income tax and builds long-term savings. Since self-employed plans have different limits, make sure you’re taking full advantage for maximum tax deductions.
Tip #12: Deduct health insurance premiums for yourself and qualifying family members. Self-employed individuals can deduct health insurance premiums, which offers direct tax savings on your federal income tax return. This includes premiums for yourself, spouse, and dependents, so long as the policy is under your business name.
Further Reading: Explore how to maximize your small business tax benefits
Preparing for Potential 2025 Tax Changes Now
What Estate and Gift Tax Planning Moves Should You Consider?
Tip #13: Make annual exclusion gifts to family members to reduce taxable estate size. Take advantage of the annual gift tax exclusion by gifting up to the allowable amount per person without paying gift tax. These annual gifts can reduce your estate tax liability, which is beneficial if you anticipate future changes in the estate tax rate or limits.
Tip #14: Explore setting up trusts if the estate tax exemption limit changes in 2025. Trusts can help shield assets if estate and gift tax exemption limits are reduced. Working with an estate planning professional can help you set up the right trust structures to maximize tax benefits while reducing future estate tax liability.
How Can Alternative Minimum Tax (AMT) Impact You?
Tip #15: If you’re in a higher tax bracket, evaluate AMT liability and adjust deductions accordingly. High-income earners may face the alternative minimum tax (AMT), which disallows certain deductions. If AMT applies, rethink certain tax deductions or credits that aren’t allowed under AMT rules. Planning with tax planning strategies can prevent a surprise AMT tax bill.
Tip #16: Use tax planning software to check if you may fall under AMT and plan around it. Tax software can help you anticipate AMT liabilities, especially if you have high state and local tax payments or are in a highest tax bracket. Adjusting your deductions before filing can help you avoid a larger-than-expected tax payment for this tax year.
Year-End Strategies for Enhanced Tax Savings
How to Make the Most of Charitable Contributions?
Tip #17: Maximize your charitable contributions by donating appreciated stocks or securities. Donating appreciated stocks or securities can give you a charitable tax deduction for the fair market value without having to pay tax on the gains. This strategy is efficient if you’ve held the asset for over a year, allowing you to lower your income tax liability while supporting a cause close to you.
Tip #18: Consider donor-advised funds if you want to take a deduction this year but donate later. Setting up a donor-advised fund lets you claim a charitable tax deduction this year while giving you the flexibility to decide which charities will receive your donations over time. This is ideal if you want to reduce this year’s tax liability but haven’t settled on specific organizations. Consult with your tax advisor to make sure it aligns with your overall tax planning guide.
Should You Make Additional Retirement Contributions?
Tip #19: Contribute the maximum to tax-advantaged accounts, such as IRAs or HSAs, for added savings. Max out your IRA or HSA contributions before year-end to take advantage of tax deferral and lower tax rates on retirement funds. HSAs offer triple tax benefits: contributions reduce taxable income, funds grow tax-free, and qualified withdrawals are tax-free. This simple move can make a noticeable difference in managing your income tax bracket.
Tip #20: Explore catch-up contributions if you’re 50 or older and want to increase retirement savings. If you’re over 50, catch-up contributions let you add more to your retirement accounts, such as IRAs or 401(k)s, beyond the standard limit. Taking advantage of the additional tax allowance can bolster your retirement while offering tax savings on your net investment income tax and income tax withholding.
Bonus Tax Planning Tip: Choose Taxfyle to Maximize Your 2025 Tax Season
Why Consider Taxfyle for Your Business Tax Needs?
Taxfyle connects you with experienced tax professionals who understand business tax laws and can provide precise tax advice on tax loss harvesting, generation-skipping transfer tax strategies, and federal gift tax filing.
How Does Taxfyle Simplify Tax Season?
Taxfyle’s experts stay up to date with changes in tax laws and offer timely legal or tax advice that helps you navigate complex tax issues. They’ll ensure your state tax filing and federal tax return maximize all available tax deductions and credits.
What Benefits Does Taxfyle Offer for Small Business Owners?
With Taxfyle, business owners receive a complete tax planning guide and real-time tax assistance to manage the tax complexities of their industry. This service makes it easy to keep your years of tax records accurate, compliant, and optimized for estimated tax planning.
Key Takeaways
- Maximize Year-End Deductions: Use charitable contributions and retirement accounts to lower your 2024 tax bill.
- Optimize Business Expenses: Deduct necessary business expenses and use bonus depreciation to reduce taxable income.
- Leverage Key Tax Credits: Claim the child tax credit and energy-efficient credits now for maximum savings.
- Prepare for 2025 Tax Changes: Make annual gifts and explore trusts to minimize future estate tax liabilities.
- Get Expert Help: Partner with Taxfyle for comprehensive tax planning and compliance.
How can Taxfyle help?
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