Jason R. Friday, CFP®, MPAS®, RICP®, CMFC Head of Financial Planning | Citizens Wealth Management
As Head of Financial Planning, Jason is a strategic partner who is responsible for developing the strategy, managing the planner teams, and coordinating personal financial planning activities across Citizens Wealth Management to help clients navigate and grow in changing circumstances
Nearly everyone has to deal with deadlines, whether it's turning in an assignment at work or renewing your car's registration. One important deadline for anyone who earns money is completing and filing your annual income taxes.
Some people submit their tax paperwork as soon as they receive all the financial forms while others wait until the last minute, scrambling to the post office or hurriedly filing online.
Regardless of whether you're a planner or a procrastinator, these tax tips can help you stay on top of best practices and prepare your finances for tax season.
Contributing to a 401(k) or individual retirement account (IRA) isn't only good for preparing for your retirement. It may help lower your taxes. Traditional 401(k)s and IRAs are tax-deferred accounts, which means you may not need to pay income tax on your contributions until you withdraw money later, ideally after age 59½ to avoid added penalties and fees. But making contributions now usually lowers the total of your taxable income for the year, which may reduce your tax obligation.
For 2024 and 2025, the contribution limits for 401(k)s and IRAs are1:
2024 contribution limits
2025 contribution limits
Keep in mind that you can continue to make IRA contributions for 2024 up to the tax-filing deadline of April 15, 2025. This could be the extra time you need to contribute to or max out your IRA for 2024 and potentially lower your taxes before you file them.
For single-income married couples, you can also explore spousal IRAs. Having a spousal IRA basically allows the working and non-working spouse the ability to double IRA contributions each year. For example, if under age 50, instead of being able to contribute $7,000, which is the 2025 contribution limit, you could be able to contribute $14,000 across both IRAs. If interested in a spousal IRA, talk to your financial advisor to learn more about how they work, eligibility requirements and withdrawal rules.
If contributing to a Traditional IRA, it may make sense to consider moving some of those funds to a Roth IRA. This is known as a Roth conversion and it allows you to access the benefits of a Roth IRA, including:
For high-income earners who are phased out of being able to make tax-deductible IRA contributions or contribute to a Roth IRA, a backdoor Roth IRA is a similar strategy that could be an option. For 2025, if you earn more than $165,000 as a single taxpayer or $246,000 as a married filing jointly taxpayer, you can’t contribute to a Roth IRA.1 However, with a backdoor Roth IRA, you may be able to make nondeductible contributions to a Traditional IRA and then convert those over to a Roth IRA.
Before moving forward, it’s important to fully understand the rules and tax implications. A Roth conversion could create a taxable event or move you into a higher tax bracket for the year. Make sure to speak with your financial advisor and tax professional to determine whether a Roth IRA conversion makes sense for your situation.
Making regular contributions to either a flexible spending account (FSA) or a health savings account (HSA) can be a smart way to save for certain expenses. You make FSA and HSA contributions with untaxed dollars, which may lower your taxable income. Withdrawals are also not taxed as long as they're used for qualified expenses.
Employers may offer two types of FSAs in addition to HSAs:
Not all states have the same rules when it comes to determining tax liability. Understanding these differences could help you take advantage of tax-saving opportunities. For example, you could benefit from income exclusions, such as retirement income, or receive credits against your tax liability for long-term care premiums.
Some important differences in state laws to watch for include:
The IRS requires that if you have aggregate income of more than $10,000 in foreign bank accounts, investment accounts or other reportable accounts, you must disclose them on the Foreign Bank Account Report. Failure to declare them or complete the form could result in serious penalties. If you're unsure if an account should be reported, take the safe route and file the paperwork.
Schedule C, a form that's required for businesses to report income and expenses, often receives extra attention from the IRS because tax filers have been known to try to manipulate the expenses that they report on the form to lower their tax obligations.
According to the IRS, any expenses you include on the form must be ordinary and necessary. An ordinary expense is something common among other businesses in your industry, such as office supplies for a law firm or uniforms for a hotel. Similarly, a necessary expense is something that's usual and vital to the operation of your business, such as insurance and utilities.
Before you fill out Schedule C, be sure you understand the guidelines on business expenses to avoid raising alarm bells with the IRS. It's also important to maintain accurate records and avoid unusual deductions for your industry.
Also, be sure to keep your personal and business expenses separate. Booking a first-class flight to check on your rental property in the Bahamas as you begin a weeklong family vacation, for example, may not qualify as a business expense.
If you are going to prepare your taxes online instead of hiring a tax professional, be sure to use reliable software. Using tax software is usually fine if you have one or two incomes, plan on taking the standard deduction and don't have any complex investments.
If your financial situation is more involved, however, it's important to seek the assistance of a qualified professional to make sure your taxes are filled out correctly. Consider using a tax professional if you have multiple sources of income, complex investments, own rental properties, owe taxes in multiple states or own a business.
Sometimes, people get busy with work, community, family and other obligations and need a little extra time to fill out their taxes. If you're unable to meet the tax filing deadline, don't ignore it. Determine your tax liability and submit the payment along with an extension request to the proper tax authority.
Failure to file an extension or make a payment on time result in significant costs, including a late filing penalty, a late payment penalty and interest.
Tax scams are at an all-time high. Predatory fraudsters use a variety of convincing methods to lure people to give them their personal and financial information. If someone contacts you about your taxes, be alert to what they're asking for and what you share with them. The IRS typically only mails notifications through the U.S. Post Office — never via email, text or social media — and they won't threaten you or demand payment by any means other than cash or check payable to the U.S. Treasury.
Some common tax scams to be aware of include:
Although tax preparation can be frustrating, you may be able to save time and reduce errors by keeping organized records and using tax software or a tax professional. Also, be sure to get an early start on your taxes to avoid filing late, payment penalties, and the need for an extension. If you finish your taxes early, the April filing deadline will be just another beautiful spring day to look forward to.
If you found these tips helpful, consider connecting with a Citizens Wealth Advisor* to talk about your overall financial goals and strategy.
If you’re feeling behind on your retirement savings, these strategies could help you make up for lost time.
Financial advisors have the ability to see what you might not in your finances, which could lead to more effective planning for your future.
A financial plan is a roadmap for your financial life. A solid financial plan could keep you on the right track designed to match your goals.
© Citizens Financial Group, Inc. All rights reserved. Citizens is a brand name of Citizens Bank, N.A. Member FDIC
1 IRS, "401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000," Nov. 2024.
2 IRS, "IRS: Healthcare FSA reminder: Employees can contribute up to $3,300 in 2025; must elect every year," Nov. 2024
* Securities, Insurance Products and Investment Advisory Services offered through Citizens Wealth Management.
Disclaimer: Citizens Securities, Inc. and Clarfeld Financial Advisors, LLC do not provide legal or tax advice. The information contained herein is for informational purposes only as a service to the public and is not legal advice or a substitute for legal counsel. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.
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