Lowering your tax bill next year works best as a planned event. So if you are interested in breathing a sigh of relief come next April, consider a review of these four areas as you create and implement your tax plan for 2025.

#1 – Your Home

Your home can create unexpected tax liabilities. Property value appreciation, home improvements, and refinancing your mortgage influence how much tax you pay.

When your home’s value increases substantially, you might pay higher property taxes. Selling a home can also lead to capital gains taxes if you’ve lived in the property for less than two years or exceed the home sale exclusion amounts.

Tax Planning Tips for Your Home:

• Get a professional property assessment to ensure you’re not overpaying property taxes. If so, know your location’s time frame and process to amend your property’s value in their formula.
• Consider timing home improvements to manage potential tax consequences by being smart about when assessments are applied in your location’s property value.
• If selling, understand capital gains exclusion rules ($250,000 for single taxpayers, $500,000 for married couples)

#2 – Your Investments

Review your refinance closing disclosure to identify deductible mortgage points or fees

Investment income can impact your tax bill. Capital gains, dividend distributions, and frequent trading can all cause tax consequences.

Different investments also face different tax rates: Short-term capital gains get taxed at higher ordinary income rates and long-term gains typically receive more favorable treatment.

Tax Planning Tips for Your Investments:

• Implement tax-loss harvesting to offset capital gains
• Hold investments for more than a year to qualify for long-term capital gains rates
• Consider tax-efficient investments like index funds or ETFs
• Maximize contributions to tax-advantaged accounts like 401(k)s and IRAs

#3 – Your Retirement

Retirement accounts offer financial opportunities. But they can also cause tax pitfalls. Required minimum distributions (RMDs), early withdrawal penalties, and the tax treatment of different retirement account types influence your tax bill.

Tax Planning Tips for Your Retirement Accounts:

• Understand RMD rules and plan withdrawals strategically. Sometimes the most cost-effective plan withdrawals occur long before the RMD rules come into play!
• Consider tax-efficient Roth conversions to manage future tax liability
• Maximize health savings account (HSA) contributions as an additional retirement account
• Explore catch-up contributions if you’re age 50 or older

#4 – Your Life Events

Major life changes can dramatically change your tax situation. Marriage, divorce, having children, changing jobs, or experiencing significant income shifts can all reshape your tax liability.

Tax Planning Tips for Life Changes:

• Reassess your filing status as life changes may affect your tax bracket and deductions
• Track new deductions and credits as life events like adoption or education expenses may qualify for specific tax breaks
• Understand the age triggers built into the tax code and plan accordingly. This is especially important to understand as your children get older.

Sometimes your tax plan will show you an unavoidable, upcoming tax event, but you can plan for it to avoid a surprise. But other times your plan can help lower your tax liability, so it is best to begin as soon as possible.