Tax season may feel distant, but summer is the perfect time to strategize on reducing your 2025 tax bill. By making a few savvy financial decisions now, you can enjoy significant savings when April rolls around. Here are some proactive steps to consider:
Check Your Tax Withholding
Adjusting your tax withholding can ensure you aren't caught by surprise at tax time. If you've experienced changes in your life or income, revisiting your withholding can prevent a high tax bill or free up extra income throughout the year. Consider modifying your federal withholding allowances to better match your current situation.
Contribute to Retirement Accounts
Increasing your contributions to retirement accounts like 401(k)s or IRAs not only bolsters your future financial security but also decreases your taxable income. The contributions you make to these accounts are often tax-deductible, providing you with immediate savings while helping to build a robust retirement fund.
Take Advantage of Tax-Advantaged Accounts
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) offer tax benefits that are worth exploring. Contributions to these accounts reduce your taxable income. Remember that FSAs have a "use-it-or-lose-it" rule, but some employers allow a grace period or a $610 rollover, so plan accordingly to maximize your benefits.
Consider Charitable Contributions
Donations to qualified charities can lower your taxable income if you itemize deductions. Keep thorough records of your contributions to ensure they qualify during tax filing. Not only does this help others, but it also provides tax relief — a win-win.
Take Advantage of Tax Credits
Tax credits such as the Child Tax Credit and education credits can lead to considerable savings. It’s crucial to review your eligibility mid-year, as income thresholds can change your qualification status. Don’t overlook these credits, as they directly decrease your tax liability.
Mid-year tax planning isn't as daunting as it sounds — it's an empowering step toward financial well-being. By acting before year-end, you can lock in considerable tax savings and approach April with greater confidence. Take time now to review your financial picture and consult a tax professional to ensure no opportunity is missed.