The U.S. tax code is constantly changing. What saved you money last year might cost you this year. In 2025, with shifting income thresholds, changing deduction rules, and overlooked credits, you need to stay focused on tax planning throughout the year. Here are several bits of tax wisdom that can help you lower your bill to the IRS.

Tax breaks to keep in mind

Phaseouts matter a lot. Many tax breaks, such as child tax credits, tax benefits for college costs, or the new senior deduction, don’t disappear all at once. Instead, they phase out slowly as your income rises. This means earning a bit more could quietly cost you some of these benefits. Keep an eye on how much income you’re showing on paper and how it will impact these phaseouts. You might be able to stay in the sweet spot so you don’t lose the value of your deductions or credits by putting more into your retirement account or timing when you receive certain payments.

Timing is everything, especially when it comes to capital gains. If you sell assets held longer than a year, you’ll likely qualify for long-term capital gains rates (0%, 15%, or 20%). But miss that time by even a day and you could pay ordinary income rates, which can be nearly double. Strategic timing can also help you harvest losses to offset gains and reduce your overall tax bill. If possible, hold investments that are profitable for at least one year and a day before selling to qualify for lower tax rates. Utilize end-of-year tax-loss harvesting to offset gains, and consider staggering sales across tax years as needed.

Don’t sleep on the qualified business income (QBI) deduction. If you’re a small business owner, self-employed, or even a gig worker, you may be eligible for a 20% deduction on your qualified business income. Planning how and when revenue hits your books could make or break your eligibility for this significant deduction. Review how your business is structured and how much income you’re reporting. You may be able to reduce taxable income through retirement contributions, shifting income between years, or reclassifying your business activities.

Tax planning in 2025

Are itemized deductions becoming obsolete? Not so fast! Yes, the standard deduction is now higher than ever ($31,500 for married couples and $15,500 for singles in 2025), which has made itemizing less common. But with an increase in the state and local tax (SALT) deduction from $10,000 to $40,000, you may be shifting back to itemizing your deductions without realizing it. Please note that you may not be eligible for the standard deduction again this year. Add up your potential itemized deductions, especially if your expenses vary, to see how close you are to being able to itemize. Consider bunching charitable contributions or property tax payments into one year to clear the standard deduction threshold.

Remember, tax-deferred doesn’t mean tax-free. Traditional 401(k)s and IRAs offer tax deferral, not tax elimination. When you withdraw funds in retirement, you’ll pay ordinary income tax on the distributions. If you expect to be in a high tax bracket in retirement, it may be a better idea to contribute to a Roth account now and pay taxes up front. Schedule a planning session to discuss whether diversifying your retirement accounts between traditional and Roth makes sense for your situation. Also, consider planning for the timing of distributions from these accounts to be as tax-efficient as possible. Run long-term tax projections to decide which type of contribution makes sense today. Consider partial Roth conversions during lower-income years.

Tax planning isn’t a once-a-year scramble, but rather a year-round strategy. And with these pieces of prevailing tax wisdom, you can be better prepared to cut your tax bill. Please contact our RRBB advisors if you have any questions about your tax situation.