Unlock Your Tax Savings: 7 Essential Tips to Prep for Next Year!

As we approach the dawn of a new year, it’s time to get ahead of the game and gear up for filing your 2024 tax return come 2025. Yes, the clock is ticking, and you don’t want to scramble at the last minute!

Mark December 31 on your calendar as a critical deadline for making any adjustments that could shrink your tax bill. But here’s a vital tip: when it comes to contributions to a Roth or traditional IRA, you’ve got until April 15, 2025, to add to your account for the 2024 tax year. If you’re eligible for deductible IRA contributions, boosting your traditional IRA could effectively lower your taxable income for 2024.

Ready to conquer tax season? Here are some smart strategies to get you prepped for the 2025 filing deadline!

1. Choose Your Tax Preparation Method Wisely

Did life throw you a curveball in 2024? Whether you tied the knot, broke up, launched a business, or faced unemployment, your taxes might be a bit tangled. It’s a good time to consider hiring a CPA, enrolled agent, or another tax pro to navigate the complexities.

Don’t wait until the panic of April sets in! The average cost for a simple Form 1040 preparation is around $220, but that price can escalate quickly if your return is more complicated. For example, if you’re on the Pacific Coast, expect to shell out an average of $432 for a return with itemized deductions, while folks in New England typically pay about $285. And here’s the kicker—prices tend to climb as deadlines loom, so start your search for a tax wizard now!

2. Explore Free Filing Options

Feeling overwhelmed by the thought of taxes but can’t swing the cost of a CPA or tax software? Fear not! There are free filing avenues waiting for you.

The IRS offers three fantastic ways to file for free:

• With the IRS Free File program, you can access free tax prep software through partnerships with commercial tax software companies, enabling eligible taxpayers to file their federal tax returns at no cost. Some may even qualify for free state tax filing. The income limit for the 2025 tax season will be announced in January, so keep an eye out! For reference, the threshold for 2024 was an adjusted gross income (AGI) of $79,000.
• The Direct File program is another option, allowing you to file your federal income tax return directly with the IRS at no cost. This tool is designed for simple tax returns and is currently available in select states. Make sure to check your eligibility!
• Lastly, the Volunteer Income Tax Assistance (VITA) program provides free basic tax preparation from IRS-certified volunteers for individuals earning less than $67,000, those with disabilities, or non-English speakers. Use the IRS’s online locator tool to find a VITA site near you, with updates available from February through April.

3. Set Up Your Online IRS Account

Now is the perfect time to create your own IRS online account. Want to access last year’s Form 1040 or find misplaced W-2s? This handy tool lets you retrieve all that and more—all without waiting endlessly on hold!

Plus, you can monitor your account balance, payment history, and even set up a payment plan for any federal income tax debt in just a few clicks. It’s a no-brainer!

4. Don’t Forget Your Required Minimum Distributions (RMDs)

If you’ve turned 73, you know the IRS is eager to get its share of your hard-earned money. Be sure to take your required minimum distributions (RMDs) on time—specifically, by April 1, 2025, if you turned 73 in 2024. Curious about how much you need to withdraw? The amount is determined by your age and the year-end balance of your retirement accounts. Stay compliant to avoid unnecessary penalties!

5. Think Ahead: Consider a Roth IRA Conversion

Have you thought about the benefits of a Roth IRA? It offers significant tax perks: qualified withdrawals aren’t taxed as income, and you’re not required to take distributions after age 73.

Converting a traditional IRA to a Roth IRA could be a wise move for your financial future. Just keep in mind that the conversion will count as taxable income for that year, potentially increasing your tax bill. Aim to make this switch during a year when your income is lower to maximize your savings.

6. Guard Against Tax Scams and Fraud

As tax season approaches, be on high alert for scams posing as the IRS. If you receive unsolicited calls, emails, or texts claiming to be from tax authorities, steer clear—these are typically scams.

Remember, the IRS will always reach out through the mail first. They won’t slide into your DMs or text you! When choosing a tax preparer, do your homework to avoid falling victim to fraud. Check their credentials through the IRS database to ensure they’re legit.

“Taxpayers should vet their tax pro thoroughly,” advises a seasoned CPA. “Unqualified individuals may take questionable positions without fear of repercussions.”

7. Don’t Brush Off the IRS

Ignoring your tax responsibilities is a fast track to trouble. If you owe taxes and fail to file, or file but don’t pay up on time, you risk hefty penalties. The IRS can go as far as seizing assets if push comes to shove. Always respond promptly to IRS correspondence, especially if they flag an error in your return or claim you owe back taxes.

Typically, the IRS will notify you of any balance due or necessary additional information via mail. “Ignoring collection letters can lead to wage garnishments, liens, or bank levies,” warns a tax expert. “Make sure to address any letters from the IRS to avoid escalating issues.”

Keep in mind, the IRS offers installment payment plans to help you manage tax debts.

Always make copies of your correspondence and consider using the USPS—your postmark serves as proof of timely responses. Whatever you do, don’t ignore the IRS; it’s a recipe for future headaches!

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