As tax season wraps up, it’s essential not to overlook your tax return statement, particularly with the potential tax law changes that may come in 2025. Not only are your tax returns a compliance requirement, but they are also a strong financial planning tool to use when thinking about your financial strategy. At the bottom of the Blog, you can find a checklist to review after receiving your tax return, based on whether you are retired or still working.
Even if you used software or a tax preparer to complete your taxes, there is still a possibility of missing deductions or credits. This would give you the time to amend or better prepare for the 2025 tax season. A few credits and deductions that would be most common are:
Energy-efficient home improvements such as windows and HVAC systems
Child and Dependent Care Credit for daycare or summer camps
Charitable Donations
Self-employment deductions such as home office, mileage, or health insurance premiums
Any mistakes that appear on your return can delay funds or increase the chance of getting audited by the IRS. These mistakes can include math errors or mismatched 1099s/W-2s, forgetting to report small sources of income, or filing with the incorrect status when you do not qualify. Catching these mistakes early allows you to fix them before IRS notices arrive or to prepare documents if the IRS does reach out to you.
A tax-efficient strategy is a key factor in your financial plan and can increase your wealth over time. Your tax return shows more than just what you owe – it can show how efficient your financial decisions are. While receiving a considerable sum of money back on your tax return may feel like financial relief, it means you have overpaid your taxes throughout the year. That money could have been used somewhere else in your financial plan, which could be paying debt, investing, or building up your emergency fund. Ideally, you should be breaking even on your tax return, allowing you to have the most flexibility with your money.
Looking into the Future
As we end the 2024 season, we cannot forget about the potential changes that may come in 2025. Many of the Tax Cuts and Jobs Act (TCJA) provisions are set to end after 2025. This could mean that in 2026, there could be higher individual tax rates, standard deduction shrinks, personal exemptions return, itemized deductions may become more valuable, and the child tax credit could decrease. The individual tax rates could increase dramatically, for example, the top rate could return to 39.6% from the current 37%. The standard deduction could go down and cut nearly in half. With knowing what the future may hold, it is more important than ever to be aware of these potential changes and keep up with them.
In the SECURE Act 2.0, passed in late 2022, there are ongoing changes that can affect your tax return as well. Things to pay attention to are the RMD age that continues to increase, the higher catch-up contributions for people aged 60-63, and automatic 401(k) enrollments. By looking at your return now, you can look at opportunities to contribute more in 2025 or change financial strategies.
The current estate tax exemption sits at roughly $13.6 million per person in 2024, and has the potential to drop to about $6 million in 2026. If this change does happen, higher taxpayers could take advantage of gifting strategies or trusts prior to the limit change going into effect.
Steps to take now!
The most important action you could take with your tax return would be to review your 2024 tax return with a CPA or Enrolled Agent for missed opportunities or mistakes. This is often done by firms for a flat fee. You can also use the checklists below as a guide to help identify potential deductions, credits, or planning strategies that may have been overlooked.
If you got the large refund, this would be a crucial time to adjust your withholding. You can do this by either meeting with a tax professional or using the IRS Withholding Estimator Tool.
Things to consider if the tax rates rise in 2026:
Potentially converting your traditional IRA to a Roth IRA in 2025
Accelerate income into 2025
Defer large charitable contributions if deductions become more valuable later
Look at your estate plans and consider gifting prior to the limits dropping
Reviewing your tax return is your financial blueprint for the year ahead! With potential tax code shifts ahead, your 2024 return could be a valuable planning tool. Keep an eye out for our newsletter and new blog posts on our website for more information on tax changes and how they may affect you and your financial goals.
Still working? Download our checklist: As Someone Who Is Working, What Issues Should I Consider When Reviewing My 2024 Tax Return?
Retired? Download our checklist: As a Retiree, What Issues Should I Consider When Reviewing My 2024 Tax Return?
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