Tax-Smart Strategies for a Volatile Year
Tax season might not spark joy for most people, but it’s one of the most powerful times of the year for your finances.
This year, instead of dwelling on market ups and downs, let’s reframe this season as a time of opportunity—a chance to take advantage of inflation-adjusted thresholds, contribute strategically to tax-advantaged accounts, and prepare for the legislative shifts that may come out of Washington later this year. With the right moves now, you can minimize surprises, maximize deductions, and keep more of the money you’ve worked so hard to earn.
New Inflation-Adjusted Changes
Some things in life are certain: death, taxes… and annual adjustments due to inflation.
The IRS has once again made incremental shifts to income thresholds for tax brackets. You may find yourself in a different bracket this year, potentially changing how much you pay in income and capital gains taxes.
What's Your 2025 Tax Bracket? Read more here...
The standard deduction has also gone up, making it even more attractive for most filers to skip itemizing and opt for the automatic "freebie" deduction:
- $14,600 for single filers and those married filing separately
- $21,900 for heads of household
- $29,200 for married couples filing jointly
- Additional deductions apply for those age 65+, with $1,550 extra per person for joint filers and $1,950 extra for single filers
How Tax Brackets Work (2025, Federal). Read more here...
New Retirement Contribution Limits
Tax rules for 2024 and 2025 allow you to save even more in tax-advantaged accounts:
- 2024 and 2025 IRA contribution limits: $7,000, with an additional $1,000 catch-up contribution for those 50+
- 401(k) contribution limits: $23,000 in 2024 and $23,500 in 2025, with a $7,500 catch-up contribution for those 50+
- Profit-sharing contribution limits: $46,000 in 2024 and $46,500 in 2025 for owners only, subject to testing limits.
While 401(k) contributions for 2024 are closed, you can still make 2024 contributions to an IRA until April 15, 2025. And if you’re thinking long-term, now’s a great time to kickstart your 2025 contributions.
New Health Savings Account (HSA) Contribution Limits & An Old Tip
For those enrolled in a high-deductible health plan (HDHP), HSAs remain one of the best ways to save on taxes while covering medical expenses.
Contribution limits have increased to $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up for those 55+.
For HSA owners age 65+, while you cannot make contributions, did you know you can use your HSA funds to pay for certain Medicare premiums, coinsurance, deductibles, and out-of-pocket drug costs?
Paying Medicare Expenses With Your HSA. Read more here...
New Gift and Estate Tax Exemptions
If you’re planning to pass on wealth to loved ones, here’s what you should know:
- The estate and gift tax exemption is $13.61 million for 2024, rising to $13.99 million in 2025.
- The annual gift tax exclusion is $18,000 per recipient in 2024, increasing to $19,000 in 2025.
- While it’s too late to make a tax-free gift for 2024, major changes could be coming in 2026 when current exemptions are set to expire.
Open Window's Quick Tips
Tax season is full of changes, and staying ahead of the latest updates can help you avoid surprises and even save money. From the beauty of Roth conversions in a down market to free filing options, EV tax credits, and new reporting rules for online sellers, here are some quick tips to help you navigate this year’s tax landscape with confidence.
Roth Conversions in A Volatile Market
Market downturns can create rare opportunities for tax-free growth. When account values dip, Roth conversions become even more powerful: for the same dollar value, you can move more shares into a Roth, positioning those shares to rebound in a tax-free account. Now might be the ideal time to act to turn volatility into long-term tax-free gains.
How High Earners Create Tax-Free Roths. Read more here...
Free File
If you tend to file your own taxes, you may be able to file free, thanks to the expansion of the IRS Direct File program. Previously a pilot program, it’s now available in 25 states, giving more people access to an easy and cost-free way to submit their returns. Check the website to see if you are eligible. There’s been a bit of confusion about the Direct File program with the new Department of Government Efficiency posting on social media that it had been “deleted.” However, as of now, the website is still live.
Witholding Adjustment
More taxpayers are facing IRS penalties for underpayment, often due to freelance income where taxes aren’t automatically withheld. If you’re facing a penalty for underpayment, take the opportunity this tax season to adjust your withholding by submitting a W-4 form to those payers. If you’ve underpaid, let's make sure you don't suffer the same fate again this year by taking action to get those estimated payments in on time.
How To Avoid Quarterly Tax Payments. Read more here...
Bought an EV? Don’t Forget to Report It
Electric vehicles are becoming increasingly popular. In fact, the number of EVs on the road rose more than 65% in 2024. Government incentives are a key factor driving adoption, including up to $7,500 in tax credits buyers may take right at the dealership. If you were one of them, the IRS requires that you prove eligibility for this discount by reporting your purchase on your tax returns. To do so, you’ll need to file Form 8936, Clean Vehicle Credits, and provide your vehicle’s VIN.
Selling Online? Expect a 1099-K
Gig sellers and casual resellers, beware of IRS reporting obligations. If you sold goods online in 2024 on platforms like eBay, StubHub, or Etsy, you may receive a 1099-K tax form if your sales exceed $5,000. (Here’s looking at you if you upsold your Eras Tour ticket!) Previously, the threshold to receive a 1099-K was $20,000, but that threshold is dropping swiftly. In 2025, it’s scheduled to fall to $2,500.
What’s Coming in 2025 and Beyond?
One of the biggest potential tax shake-ups in recent years is on the horizon: Trump's Tax Cuts and Jobs Act (TCJA) of 2017 is set to expire after 2025. This means major changes could be coming, including:
- A decrease in the standard deduction
- A reduction in the estate tax exemption by half
- Tax brackets and rates reverting to higher pre-TCJA levels
- A reduction in the Child Tax Credit from $2,000 per child in 2025 to $1,000 per child in 2026.
- Eliminating the $10,000 cap on state and local tax (SALT) deductions
- Change to the alternative minimum tax income threshold.
The current administration appears ready to act, suggesting it will work with Congress to extend the TCJA. However, nothing will be certain until changes are made to the tax law.
The Tax Policies We're Watching in a New Trump Administration. Read more here...
With so many possible changes in play, staying ahead of tax law updates is more important than ever. We can help you keep an eye on legislative developments and adjust your planning as necessary to make the most of your tax situation.
Reach out with any questions you might have at (775) 827-0670 or schedule a 'Quick Connection' time with us at www.openwindowFS.com/connection.