As a financial advisor, one of the most common questions I receive from clients is how they can make the right moves at the beginning of the year. With a proactive approach and a bit of planning, there are several tax strategies available you can be mindful of in order to improve your tax efficiency. Together, let’s explore five key tax strategies you need to know in order to kick off 2025 the right way.
Hire a specialized CPA. While tax software can be helpful for basic tax filing, working with a specialized Certified Public Accountant (CPA) offers substantial advantages, especially if you have a complex financial situation. CPAs are experts in tax law and can help you navigate the nuances of the tax code to uncover deductions, credits, and strategies you might overlook on your own. But not every CPA is right for everyone. Some firms specialize in a particular industry. For 10-4 readers, ask around or search for a CPA or firm specializing in transportation. For all of you who have complex inventory or have delayed accounts receivables, this is really important, as they will have other clients with similar situations as yours.
A competent CPA or firm can analyze your entire situation, including income, expenses, investments, and liabilities, offer personalized advice on how to structure your business and/or personal finances to minimize tax exposure, and stay updated on the ever-changing tax laws and regulations, ensuring you’re always compliant and never missing opportunities. Additionally, a specialized CPA will cater their advice and have real world experiences for transportation professionals.
Maximize your deductions. Tax deductions are one of the most effective ways to reduce your taxable income and, in turn, your tax liability. There are many tax deductions available to individuals but maximizing them requires a bit of planning. Common deductions include mortgage interest (homeowners can deduct the interest paid on their mortgage, reducing their taxable income), state and local taxes (you can deduct state and local property, income, and sales taxes), but this deduction is capped at $10,000 for individuals, medical expenses (if your expenses exceed 7.5% of your adjusted gross income, you can deduct the excess), and charitable contributions (donations to qualified charitable organizations can be deducted). In addition to these deductions, there are others such as business expenses, student loan interest, and education-related costs.
Set up a retirement account. Retirement accounts are one of the most powerful tools for tax savings. Contributions to retirement plans not only secure future income payments to you and your loved ones, but can also reduce your taxable income when you file your taxes. Traditional retirement accounts, such as an IRA or 401(k) plan, offer tax-deferred growth. This means you will not pay taxes on contributions and the money you make in the account will not be taxable to you in future years. However, when you pull money out, the amount you pull from the account is taxable that year. A Roth retirement account does not give you the present deduction, but you will not pay taxes on the money you make in the account or the money you pull out in the future. Once five years has passed after making the last contribution, all the money in that entire account is now available to you, and it is tax free.
Create an online account with the IRS. The IRS offers a wealth of tools and resources that can help you manage your tax obligations and stay informed about your filing status. By creating an online account with the IRS (www.irs.gov) you can check your refund status and get real-time updates on the status of your tax refund, review tax payments, view records of your previous payments and adjust your withholding as necessary, make payments, access tax transcripts from previous years, which can be helpful for loan applications or audits, and set up direct deposit to ensure faster refunds. By staying organized and keeping track of your taxes online, you can avoid mistakes, stay on top of deadlines, and ensure you’re taking advantage of all available tax-saving opportunities.
Charitable giving. Charitable giving is not only a great way to give back to your community or support causes you care about, but it can also provide tax benefits. Contributions to qualified charitable organizations are tax-deductible, which means you can reduce your taxable income while making a meaningful impact. Since the IRS incentivizes giving, this could help you drop an entire tax bracket! There are various ways to make charitable donations including cash donations (you can donate money directly to charities, and these are typically deductible up to 60% of your adjusted gross income), and non-cash donations, such as clothing, household items, or even vehicles, can also provide deductions based on the fair market value of the items.
Another way to make charitable donations is through Donor-Advised Funds (DAFs). A DAF allows you to make charitable contributions and receive an immediate deduction, while distributing the funds to charities over time. This can be an effective strategy for high-income earners looking to offset taxes while fulfilling their charitable goals. Charitable giving not only helps reduce your tax burden but also allows you to engage in philanthropy that aligns with your values.
Maximizing tax savings isn’t just about cutting checks to the IRS, it’s about being strategic, informed, and proactive in managing your finances. By following these five simple tax strategies – working with a CPA, maximizing your deductions, contributing to retirement accounts, utilizing IRS resources, and incorporating charitable giving into your financial plan – you can reduce your tax liability, increase your savings, and set yourself up for long-term financial success.
Remember, tax laws can be complex and subject to change, so consulting with a financial advisor and tax professional is a smart move to ensure you’re making the most of available opportunities. If you are not working with a financial advisor, feel free to email me at john@safeguardfinsvs.com or call me at (346) 763-3531. Based in Houston, TX, I am an independent financial advisor working with trucking companies, their owners, and employees – and I can help you, too!
