As we prepare for 2025, there are many strategies that savvy investors and earners can use to make the most of their tax savings and minimize the tax liabilities that they will owe over the coming year.

Standard or Itemized Deductions?

An important aspect of preparing for the new tax year is deciding whether to take standard deductions or to itemize.

Standard deductions are straightforward, fixed amounts based on your filing status, including factors such as whether you file singly or jointly, your age, or any disabilities. These are quick and greatly simplify filing one’s taxes, which is why most people use them.

However, certain factors, such as property tax rates, mortgage interest, or other itemizable deductions could exceed the standard amount of deductions, and lower your overall tax liability.

The IRS website, (irs.gov) includes a Section A Tax Deduction Calculator, which can help you discern just how much tax deductions you may take if you opt to itemize.

If you do opt to itemize your tax deductions, make sure to keep documentation, such as receipts, for items that you plan to claim.

Tax Credits and You

There are many tax credits that savvy taxpayers can take, provided that they qualify.

While many are familiar with Earned Income Tax Credit (EITC) and Child Tax Credit, there are also tax credits available for such things as buying an electric or hybrid vehicle, installation of energy efficient systems in your home, or even home office expenses.

It’s entirely possible that you qualify for several tax credits and never realized it!

If you are filing taxes for a business, these tax credits can extend into areas such as Fuel Tax Credits for work-related fuel expenses, providing employee childcare, or purchasing electric vehicles.

The Joys of Accounting

401(k) retirement accounts do not have elective salary deferrals taxed by the IRS, though distributions are later considered taxable income after retirement.

The amount of income that can be deferred to these accounts per year is limited–in 2024, the limit was $23,000 per year, with that number rising to $30,500 per year for employees 50 or older.

Notably, those who are self-employed can open their own 401(k) accounts.

Flexible Spending Accounts (FSA) funnel employee income into tax-free accounts for healthcare or related healthcare expenses; however, any funds not spent during the year are forfeit under most plans.

Health Savings Accounts (HSA) use pre-tax income for qualified medical expenses. While they are normally offered by employers, individuals can open an HSA with most financial institutions. These accounts are also limited to those with high-deductible health insurance plans.

The exact amount of pre-tax income that can be diverted to these HSAs and FSAs is determined by the annual inflation, as well as other factors such as the specifics of the high-deductible insurance policy in question.

The Professional Touch

For those with high incomes, or multiple businesses and properties, hiring the services of financial advisors, accountants, or tax filers can be worth the expense, as these professionals are conversant with applicable tax law and can more quickly and efficiently process itemized taxes.

Time is money, after all, and not only can these professionals save you the time and hassle of seeking and applying for tax credits and deductions, they are also much less likely to make errors, which can bring down that most terrifying spectre of all onto your head and that of your business: an IRS audit.

An ounce of prevention is worth a pound of cure, as the saying goes, and a bit of expense now can prevent a costly hassle later!

Putting the Pieces Together

Reviewing these tips, you should be prepared for the 2025 tax year by:

– Understanding your tax bracket, and deciding between standard or itemized deductions.

– Surveying tax credits for which you qualify.

– Maintaining comprehensive and organized documentation of deductions and income.

– Taking advantage of tax-advantaged accounts

– And deciding if your situation could benefit from professional assistance.

Putting it all together, you will have a comprehensive plan to make the most out of these taxing endeavors!