Why Planning 2025 Taxes Now Is A Good Idea

This might sound a little strange but now is actually the best time to start tax planning for 2025. It’s perfect because the pain of paying your 2024 taxes is still fresh in your mind (so you have real motivation) and it’s proven that you can actually make a difference if you start early.

Start the process by reviewing your current tax return. Look for areas that you can impact such as…

• Managing your withholding if you got a large refund or you owed more than $500 in taxes
• Make contributions to your 401(k) or other tax-deferred retirement accounts. Contributing to retirement plans at work reduces your taxable income which means a lower tax bill. If you are not contributing the maximum to these accounts, consider increasing your contributions. For example, if you are in the 25% tax bracket, for every $1,000 you contribute to your 401(k), you will lower your tax bill by $250.
• Contribute pre-tax dollars to your flexible spending account. If your company offers some type of a flexible spending account (FSA), calculate the amount of your annual expenses for things like dependent care and out-of-pocket medical expenses, and use this account to cover those expenses. If you are in the 25% tax bracket and set aside $1,500 annually in your FSA, you could save $375 in taxes, and you will have the money available for typical expenses.
• Contribute pre-tax dollars to HSA’s. If you have a high deductible health plan. You qualify for an HSA if your health plan has a minimum deductible of $1,650 and an out-of-pocket maximum of $8,300. If you have family coverage, you’ll qualify if your health plan has a minimum deductible of $3,300 and an out-of-pocket maximum of $16,600. The HSA contribution limits for 2025 are $4,300 for self-only coverage and $8,550 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.

Next, consider changes for 2025 that could impact your taxes such as…

• Taking a withdrawal or distribution from your 401(k) or IRA
• Recognizing a capital gain through a stock sale or mutual fund distribution
• Selling your house
• Getting married or divorced
• Changing jobs or if your spouse takes a new job
• Retiring
• Receiving a large (more than $500) tax refund for the previous year especially if you itemized
• Refinancing your mortgage (which reduces your mortgage interest)
• Substantially increasing or decreasing your income from the previous year
• Starting a side hustle or a business

Once you have this information, you can project (or have your tax preparer) your taxes for this year. Then the real planning starts as you put all of the pieces together.

Bottom Line: Planning your taxes in advance can save you thousands and eliminate much of the anxiety around tax time. At PS Worth, tax planning is an integral part of our financial plans. Got questions? Schedule a complimentary session and let’s talk.