As we approach the end of the year, it’s the perfect time to start preparing for your 2025 taxes. Whether you’re a small business owner or an individual taxpayer, getting your taxes in order early can help you avoid last-minute stress and ensure you’re fully prepared for tax season. In this blog post, we’ll walk you through the steps you can take now to make tax time in 2025 smoother.
1. Review Your 2024 Tax Situation
Before diving into next year’s tax prep, it’s important to reflect on this year. Take a look at your 2024 tax return and identify any changes or challenges you faced. Did you owe a significant amount? Did you receive a larger-than-expected refund? Understanding your 2024 tax situation will give you valuable insights into what adjustments you might need to make for 2025. For instance, if you owe more than you expected, you might want to adjust your withholding to prevent the same situation from happening again.
2. Organize Your Financial Records
Good organization is key when it comes to taxes. Start gathering and organizing important financial records, such as:
Income Statements: W-2s, 1099s, or any other income documentation.
Receipts and Invoices: If you’re self-employed or run a business, gather receipts for expenses and keep track of any business-related costs.
Deductions and Credits: Keep track of receipts for deductible expenses, such as charitable donations, medical expenses, and home office costs.
Retirement Contributions: Ensure your retirement account statements (like IRA or 401(k) contributions) are in order, as these can reduce your taxable income.
Creating a filing system now for 2025 will help you stay organized and ensure you don’t lose any important documents when it’s time to file your return.
3. Evaluate Your Tax Withholding
A common mistake taxpayers make is not adjusting their withholding throughout the year. If you had a big refund in 2024 or found yourself owing taxes, it might be time to adjust your withholding for 2025. You can do this by submitting a new W-4 form to your employer. If you’re self-employed, consider making estimated quarterly tax payments to avoid underpayment penalties.
4. Take Advantage of Tax-Advantaged Accounts
Maximize your tax-saving opportunities by contributing to tax-advantaged accounts. For example:
Retirement Accounts: Contributing to a 401(k), IRA, or another retirement account can reduce your taxable income.
Health Savings Accounts (HSAs): If eligible, contribute to an HSA to reduce taxable income and set aside money for future medical expenses.
Flexible Spending Accounts (FSAs): If your employer offers an FSA, contribute to it before the year ends. This allows you to use pre-tax dollars for healthcare or dependent care costs.
These accounts not only save you money on taxes but also set you up for future financial stability.
5. Plan for Major Life Changes
Life changes can have a big impact on your taxes. If you're planning any significant changes in 2025, such as:
Getting married or divorced
Having a child or adopting
Purchasing a home
Starting a business
Make sure to understand how these changes might affect your tax situation. For example, getting married may change your filing status and open up opportunities for tax credits. Starting a business might provide you with additional deductions for home office or business expenses.
6. Consult a Tax Professional
Taxes can be complicated, and the rules change from year to year. If you’re unsure about what deductions or credits you qualify for, or if you anticipate a major change in your life, consulting a tax professional can be a smart move. They can guide you through the preparation process, help you identify opportunities for tax savings, and ensure you’re in compliance with the latest tax laws.
7. Stay Updated on Tax Law Changes
Tax laws can change, and it’s important to stay up-to-date. Keep an eye out for any new legislation or tax breaks that may apply to you. For instance, recent tax reforms have impacted things like the standard deduction, tax brackets, and credits. A tax professional or reliable financial news sources can help you keep track of these changes.
8. Start Early to Avoid Stress
Procrastination is the enemy of good tax preparation. The earlier you start getting your taxes ready, the more time you’ll have to ensure everything is in order. This will allow you to catch any errors, take advantage of deductions, and avoid the chaos of last-minute filing.
By taking the steps listed above now, you’ll be well-prepared for tax season in 2025. Whether you’re organizing documents, adjusting your withholding, or making contributions to retirement accounts, planning ahead will not only help reduce stress, but it could also save you money. Start today, and when tax season arrives, you’ll be ready to tackle it with confidence!
Let ACE know if you need help with your tax preparation or organizing your finances for next year!
