Retirement Plans
If you can afford to do so, investing the maximum amount allowable in a qualified retirement plan will yield a large tax benefit. If your employer has a 401(k) plan and you are under age 50, you can defer up to $23,500 of income into that plan for 2025. Catch-up contributions of $7,500 are allowed if you are 50 or over, and “super” catch-up contributions of $11,250 are allowed if you are 60, 61, 62, or 63.
If you have a SIMPLE 401(k), the maximum pre-tax contribution for 2025 is $16,500. That amount increases to $20,000 if you are 50 or older, and $21,750 if you are 60, 61, 62, or 63.
The maximum IRA deductible contribution for 2025 is $7,000; that amount increases to $8,000 if you are 50 or over. Also, don’t overlook the possibility of a spousal IRA, which allows a spouse who does not have enough taxable compensation to make a maximum IRA contribution to use a portion of the other spouse’s taxable compensation in calculating his or her own allowable contribution for the year.
Health Savings Accounts
You may also want to consider health savings accounts (HSAs) if you don’t already have one. These are tax-advantaged accounts for individuals who have high-deductible health plans (HDHPs). If you are eligible to set up such an account, you can deduct the amount you contribute to the account in computing AGI.
These contributions are deductible whether you itemize deductions or not. Withdrawals from an HSA are tax-free if they are used to pay for qualified medical expenses (i.e., medical, dental, and vision expenses). Unused amounts accumulate in the HSA and grow tax-free. For 2025, the annual contribution limits are $4,300 for an individual with self-only coverage, and $8,550 for an individual with family coverage.
Flexible Spending Accounts
If your employer offers a Flexible Spending Account (FSA), consider setting aside some of your earnings tax-free in such an account so you can pay medical and dental bills with pre-tax money. Since you don’t pay taxes on this money, you’ll save an amount equal to the taxes you would have paid on the money you set aside.
FSA funds can be used to pay deductibles and copayments, but not for insurance premiums. You can also spend FSA funds on prescription medications, as well as over-the-counter medicines, generally with a doctor’s prescription. The only catch is that FSAs have a use-it-or-lose-it rule: unused funds do not carry over from one year to the next.
Trump Accounts
Trump accounts are essentially non-deductible IRAs for children that will transform into traditional IRAs when the beneficiary reaches age 18. Accounts will be allowed to start accepting contributions on July 4, 2026. We should see guidance on how parents can set up accounts for their children ahead of that date.
Accounts can accept an aggregate of $5,000 in contributions annually from parents and other individuals. There are several provisions that allow employers, nonprofits, and government entities to make contributions that are not counted toward the annual limit. Funds in a Trump account grow tax-free and must be invested in S&P index funds or similar equity index funds.
Life Events
Life events can have a significant impact on your tax liability. For example, if you have head of household filing status in 2025, but you no longer provide a home for a qualifying dependent in 2026, your filing tax status will change to single in 2026. As a result, your tax rates will go up and your standard deduction will go down (the opposite of what happens if you go from single to head of household).
If you married or divorced during the year and changed your name, you need to notify the Social Security Administration (SSA). A mismatch between the name shown on the tax return and the SSA records can cause problems in processing your tax return, and may even delay tax refunds.
Let me know if you have been impacted by a life event, such as a birth or death in your family, a change in marital status, the loss of a job or a change in jobs, or a retirement during the year. All of these can affect your tax situation.
Concluding Thoughts
Please don’t hesitate to call if you have any questions or would like more information on any of the tax breaks discussed above. Also, feel free to set up an appointment to discuss your 2025 tax return and your year-end tax plan.