Why May Is the Perfect Time to Start Tax Planning for 2025
It might sound a little surprising, but May is actually the best time to start tax planning for 2025. Why? Because the pain of filing (and maybe paying your 2024 taxes) is still fresh in your mind so you’ve got real motivation). Plus, when you start planning early, you have the power to make meaningful changes that can lower your bill next April.
Step 1: Give Your 2024 Return a Quick Checkup
Pull out your most recent return and take a look. A few simple tweaks can have a huge impact on your 2025 tax bill:
- Check your withholding. Did you owe more than $500 or get a big refund? That’s a sign your withholding might be off. Adjusting it now helps you avoid surprises next year.
- Boost your retirement savings. Every dollar you put into a 401(k) or other tax-deferred account lowers your taxable income. For example, if you’re in the 24% tax bracket and put an extra $1,000 into your 401(k), you’ll shave $240 off your tax bill. Plus, you’re saving for your future.
- Take advantage of a Flexible Spending Account (FSA). If your employer offers one, use it for things like child care or medical costs. Let’s say you put $1,500 into your FSA, that alone could save you about $360 in taxes if you’re in the 24% bracket. However, be aware that most FSA programs are ‘use it or lose it,’ so any money remaining after December 31st may be forfeited.
- Look into a Health Savings Account (HSA). If you have a high-deductible health plan, you might qualify for an HSA. An HSA is basically a triple win: it’s tax-deductible contributions, it grows tax-free, and you can take tax-free withdrawals for medical expenses. For 2025, you can put in up to $4,300 (self-only) or $8,550 (family). If you’re 55+, you can add an additional $1,000.
Step 2: Think About What’s Changing in Your Life
Taxes aren’t just about forms and numbers, they’re about your life. Big (and even small) life events can have a major impact. A few examples:
- Taking money out of a 401(k) or IRA
- Selling stock, mutual funds, or even your house
- Getting married, divorced, or retiring
- Changing jobs (or your spouse does)
- Refinancing your mortgage
- Starting a side hustle or new business
- Earning more (or less) than last year
Even something like getting a huge refund this year (especially if you itemized) could be a red flag that it’s time to rethink your strategy.
Step 3: Do a Tax “Sneak Peek”
Once you know what’s changed and what might change, you (or your tax pro) can run a quick projection for 2025. Think of it as a sneak peek into next year’s taxes.
From there, you can start putting the puzzle pieces together, such as adjusting your withholding, upping your savings, and making choices now that will leave you smiling (instead of stressing) when tax time rolls around again.
Bottom line: May is the sweet spot for tax planning. You’re motivated, you’ve got time, and the steps you take now can make a real difference next year. Why not give your future self the gift of a smaller tax bill and a little more peace of mind?
At PS Worth, tax planning is an integral part of our financial plans. Got questions? Schedule a complimentary session and let’s talk.
