Twelve Ways to Maximize Your 2025 Tax Return
Use new deductions and remember the old. One is silver, and the other is gold.
As the holiday season approaches, tax season approaches as well. The 2025 One Big Beautiful Bill Act introduced significant new tax breaks, especially for working families. But all the pomp and circumstance over the OBBBA may cause some traditional tax-planning tools to lose their luster. A solid 1040 combines something old with something new.
The tax preparation experts at Phoenix Tax Consultants always use this approach when preparing annual tax returns. We thoroughly review your situation to find all available credits, loopholes, and exemptions, both old and new, that apply. The government doesn’t need voluntary contributions in the form of excess tax payments. We keep that money in your pocket, where it belongs.
Contribute to a Pre-Tax Retirement Account
For decades, one of the first rules of tax planning has been to max out all 401(k)s, IRAs, and other pre-tax retirement accounts. That’s especially true if your employer matches these contributions. Even if the higher contributions mean putting off some luxury purchases, such as extended vacations, this strategy pays greater dividends than most people can imagine.
Harvest Capital Losses
This tax strategy basically uses capital losses to offset capital gains. In some cases, this approach significantly reduces the tax burden.
Assume Michelle bought fifty shares of ABC Inc. at $100 per share ($5,000). She sells the stock for $3,500 and absorbs a $1,500 capital loss. She then buys substantially similar stock for $1,500. The current capital loss is likely to offset any future capital gains tax. Additionally, under the Wash Rule, she may be eligible for an additional $3,000 deduction: her portfolio value increases, and her tax burden drops.
Max Out Health Savings Account Contribution
For income tax purposes, an HSA is like a retirement account. Contributions to these accounts reduce adjusted gross income and, therefore, tax liability.
Use Your Flexible Spending Account Before You Lose It
Many employees contribute to flexible spending accounts for ancillary medical services, like vision and dental care. The IRS collects any remaining funds in these accounts at the end of each calendar year. As mentioned, the government does not need charitable donations.
Defer Income
Deferring income reduces current-year taxable income. Deferred income in tax-deferred accounts is not taxed until withdrawn, allowing it to grow uninterrupted. If you defer income into a year when you are in a lower tax bracket (e.g., retirement), your effective tax rate may be lower than it would be today.
Make a Qualified Charitable Distribution if You are Over 70½
A QCD allows taxpayers to donate funds directly from their IRAs to qualified charities and exclude the donated amount from their taxable income. This approach is different from the usual tax-deductible charitable contribution. There’s no need to itemize deductions. The QCD is not added to taxable income.
Prepay Deductible Expenses
Prepaying SALT, property taxes, and certain other deductible expenses a year early moves them into the current year for tax purposes. Taxpayers may take advantage of those deductions earlier than usual, reducing taxable income for the current year and lowering tax liability.
Review Withholding or Estimated Tax Payments
The OBBBA permanently extended the revised 2017 tax brackets. So, if you planned to increase withholding or estimated tax payments to account for the possible change, you may need to rethink those plans.
Gift Strategically
For 2025, the annual exclusion amount is $17,000 ($34,000 for married couples). Donors who give qualified gifts under these ceilings reduce their taxable income without paying a gift tax and, perhaps more importantly, without alerting the IRS about the transaction.
Increase Charitable Donations
The charitable donation exemption is almost as good as the IRA/401(k) exemption. That’s especially true if you make non-cash donations to a group like Goodwill or the Salvation Army. These donors may deduct the fair market value and take a capital loss, as outlined above.
Our tax professionals often recommend bunch donations. If Rick gives three years’ worth of gifts in one year, his deductions exceed the standard deduction. So, he gets the tax benefit that year and takes the standard deduction the following year.
For more information about other tax preparation strategies, contact us online or call 610-933-3507.