Tax Season Is Over: Why You Should Start Tax Planning Now
We get it. You filed your taxes and you don’t want to have to think about it again until next year. But this is exactly the time you should start thinking about how to plan for the year! Here are effective ways to help you minimize the amount of taxes you pay in 2025 and beyond.
1. Max Out Retirement Contributions
Contributions to tax-deferred retirement accounts like a 401(k) or 403(b) directly reduce your taxable income. For high earners, that can be a meaningful tax break. Plus, if you are 50 & above, you can increase your retirement contributions by an extra $7,500. As an example, if you're in the 24% federal tax bracket, every $1,000 you contribute could save you $240 in taxes today and grow tax-deferred until retirement.
2. Backdoor Roth or Mega Backdoor Roth Contributions
If your income is above the direct contribution limits, you still may qualify to contribute to a backdoor Roth or spousal backdoor Roth IRA. In this strategy, you contribute directly to an IRA and move that contribution into a Roth IRA. As with any strategy, there are caveats. It typically only makes sense if you are over the Roth contribution limit, and you do not have an existing IRA (or the pro-rata rule kicks in…a topic for another day). This helps to further build tax-free investments in retirement.
Your employer plan may also allow you to make after-tax contributions (or mega backdoor Roth contributions) which can further increase the amount you are allowed to contribute to Roth accounts. Each plan is different, so it’s worth a conversation with your advisor and plan administrator before executing.
3. Consider a Roth Conversion
A Roth conversion is literally where you move IRA or 401(k) assets to a Roth IRA and pay the tax now instead of in the future. Why would you do this? Roth conversions can make a lot of sense if your income is lower than usual this year, if you are pre-Medicare age (65 or younger) and if you have a sizeable taxable account or savings balance. They can also be beneficial if tax rates increase in the future (pay taxes now at a lower rate). Roth conversions can be complex (if you should convert, how much to convert, when to convert, Medicare implications, etc.), so we would highly recommend talking to our firm prior to implementing this strategy.
4. Fund a Health Savings Account (HSA)
If you're enrolled in a high-deductible health plan, don’t overlook the triple-tax-advantaged HSA. Contributions are tax-deductible, you can invest assets for tax-free growth and withdrawals for medical expenses are tax-free. In our view, if you can pay out-of-pocket for medical expenses, do it and let your HSA grow over time.
5. Qualified Charitable Distributions (QCD)
If you are over age 70.5 (thanks for complicating things IRS), you can donate up to $108k (2025 limit per person) directly from an IRA to a qualified charity tax free. This can help satisfy required minimum distributions (RMD) and lower your taxable income, potentially keeping Medicare premiums lower.
6. Harvest Tax Losses or Gains
Selling investments at a loss may not feel great, but it can reduce your tax bill. It can help offset gains elsewhere in your portfolio and up to $3,000 of ordinary income each year. And for those of you in a low tax bracket, it is possible to pay 0% in capital gains if you stay below certain income thresholds.
7. Use FSAs and Dependent Care Accounts
Flexible Spending Accounts (FSA) let you pay for out-of-pocket healthcare or childcare expenses using pre-tax dollars. These accounts often have a use it or lose it rule, so plan early in the year to avoid scrambling at year-end. Dependent Care FSA allows up to $5,000 in tax-free dollars toward daycare, after-school care, or summer camps.
8. Track Your Personal Business Expenses
If you're self-employed, you may qualify for a number of deductions including: internet and phone, office supplies, home office space or business meals. These expenses can lower your net income and tax liability. Just remember to keep good records.
Tax planning can get complex very quickly and it may be worth getting another opinion on how you are doing things today. Our team at North River Wealth Advisors integrates tax planning into your overall financial plan. We work closely with you to develop and optimize tax planning now and as your situation changes. Let us know how we can help!
Authored by Stephen Blahovec and Michael Rausch of North River Wealth Advisors. We are an independent, fee-only financial planning and investment management firm located in Pittsburgh, PA servicing clients locally and across the country. To learn more, contact us here.
This content is developed by North River Wealth Advisors from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.