2025 Year-End Tax Planning for Individuals
Tax planning is one of the most important steps an individual taxpayer can take to take full advantage of new and expanded tax benefits, lower your taxable income, and set yourself up for a stronger financial position in the year ahead. A little preparation before December 31 can go a long way toward reducing your tax bill.
Maximize Your Retirement Contributions
Making the most of your retirement savings is one of the most effective ways to reduce your taxable income. Here are the updated limits for 2025:
- 401(k), 403(b), 457(b), and SARSEP Plans: You can contribute up to $23,500, with an additional $7,500 catch-up contribution for those aged 50 and older, or $11,250 for ages 60–63.
- SIMPLE IRA: The limit is $16,500 (or $17,600 for small employers), plus a $3,500 catch-up contribution ($5,250 for ages 60–63).
- SEP or Profit-Sharing Plans: You can contribute less of $70,000 or 25% of your compensation.
- Traditional or Roth IRA: Annual contribution limits are $7,000, with an extra $1,000 catch-up for those 50 and older.
- Health Savings Accounts (HSAs): If you’re enrolled in a high-deductible health plan, individuals can save up to $4,300, and families up to $8,550. Those aged 55+ can contribute an extra $1,000. If both spouses are over 55 and HSA-eligible, each may add the additional amount to their own account.
Adjust Your W-4
Fine-tuning your tax withholding can help you avoid surprises at tax time.
- Owed a big balance last year? Increase your withholding to stay on track.
- Got a large refund? You might prefer more take-home pay during the year — simply reduce your withholding.
- You can update your W-4 anytime. Download the form from the IRS website, complete it, and submit it to your HR or payroll department. Many employers also allow online updates.
Maximize Your Deductions
Your financial situation changes from year to year, so it’s worth revisiting whether itemizing or taking the standard deduction makes more sense. You can switch between these methods annually.
If you plan to itemize, consider timing certain expenses strategically — for example, you could “bunch” charitable donations into a single year to exceed the standard deduction threshold.
For 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly. If you’ve bought a home or had significant medical expenses this year, itemizing might offer better tax savings.
Five main categories of itemizable deductions include:
- Medical expenses
- Mortgage interest
- State and local taxes
- Charitable contributions
- Casualty and theft losses from federally declared disasters
Remember: Medical expenses are deductible only when they exceed 7.5% of your Adjusted Gross Income (AGI). Grouping expenses into one year can help you reach that limit. Keep detailed receipts and records to make itemizing simpler and more accurate.
Plan for Expiring Energy and Vehicle Credits
- Complete energy-efficient home improvements before certain credits expire after 2025.
- You may be eligible to deduct up to $10,000 of interest on qualifying auto loans initiated after December 31, 2024.
Avoid Underpayment Penalties
To prevent penalties, make sure your withholdings or estimated payments cover at least 110% of your prior year’s tax liability or 90% of your 2025 tax liability — whichever is less. Don’t forget to include net investment income tax in your estimates.
Passive Activity Considerations
If you’d like to classify one or more business or trade activities as nonpassive, keep thorough and contemporaneous records showing how much time you spent and the type of work you performed. Accurate documentation helps ensure proper tax treatment.
Final Thoughts
Be mindful of recent legislative updates — such as the exclusion of qualified tip income, overtime pay adjustments, an additional $6,000 deduction for seniors aged 65+, and the new auto loan deduction. Running a quick tax projection can show how these changes might affect your overall tax picture.
By staying organized and taking a proactive approach, you can make the most of the opportunities 2025 has to offer. Thoughtful planning now can help minimize your taxes, take advantage of valuable credits, and keep your financial goals on track for the future.
As always, should you have questions about year-end tax planning for individuals or other matters affecting you or your business, please call 215.675.8364 or email us to speak with a CPA today.
DISCLAIMER: All communications by Wouch, Maloney & Co., LLP intend to provide general information, as of the date of the communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. Please be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.
