In my book, Stress-Free Finances, I talk about the two ways you can improve your financial picture - make more money and save more money. Preferably you look for ways to do both.

One way to save money is by using the tax codes to your advantage.

Even if you don’t have a complex financial situation, there are basic things you can be doing to help save you money on your tax bill.

Although they won’t go into effect until next tax season (so when you report in 2026 for 2025), it’s important to plan now.

Here are a few changes that most people should be able to leverage.

But, real quick, let me clear something up. There are deductions and their are credits. Deductions reduce your taxable income. Credits reduce your tax liability.

💡Deductions don’t not reduce how much you owe in taxes in a dollar-to-dollar fashion. They reduce your taxable income that your taxes are calculated against. So, if you have a $3,000 tax deduction your taxes don’t go down $3,000. Your actual savings would be that amount, $3,000, times your effective tax rate. If you are in a 15% tax bracket you will save $450 in taxes for spending that $3,000. Too many people miss this and I’ve seen a lot of “gurus” teaching it wrong online.

However, if you get a $3,000 tax credit you save $3,000 in taxes.

Personal Tax Changes

Increased Standard Deductions

Standard deductions are for people who don’t like to itemize all of their annual spending, i.e. keep all of their receipts. Instead, the IRS allows you to take a standard deduction. The amount of your deduction depends on your filing status.

• Single filers and married individuals filing separately: $15,000 (up $400 from 2024)
• Married couples filing jointly: $30,000 (up $800)
• Heads of households: $22,500 (up $600)

Higher Retirement Contribution Limits

Contributions to some retirement accounts are made pre-tax, meaning they are made out of your income before you are tax. Pre-tax contributions lower your taxable income, which lowers your tax liability by an amount equal to the contribution times your effective tax rate. Are you seeing the theme?

Traditional 401(k)s are pre-tax contributions. Roth 401(k)s are post-tax contributions.

• 401(k) contribution limit: $23,500 (up from $23,000)
• Catch-up contribution limit for ages 60-63: $11,250 (up from $7,500)
  • This is for people who weren’t maxing out their contributions. The IRS allows you to make additional contributions that go towards the limit from prior years.
• Income phase-out range for Roth IRA contributions also increased.Here's what that means:
  • Single filers and heads of household: $150,000 to $165,000
  • Married couples filing jointly: $236,000 to $246,000
  • Married filing separately: $0 to $10,000
• Below the lower limit: You can contribute the full amount to a Roth IRA ($7,000, or $8,000 if you're age 50 or older).
• Within the phase-out range: Your contribution limit is gradually reduced. The closer your income is to the upper limit, the less you can contribute. There are formulas to calculate the exact reduced amount.
• Above the upper limit: You can't contribute to a Roth IRA.

Business Tax Changes

You should consult with your own Accountant or legal counsel, but my personal philosophy, that my Accountant agrees with, is that I use a sole proprietorship status for a business until it is doing over $50,000 per year. Because, it can be expensive to manage those trusts or legal entities because having them can come with additional expenses.

That said, having a business does afford you some tax advantages. The extent of those advantages depends on the type of legal structure you use. There are plenty of “gurus” online telling people to use complicated trusts and other legal entity frameworks to avoid taxes.

For 2025 there are some proposed changes to the IRS code that you should be aware of, if you have a business.

Individual Tax Rates on Business Income

Unless Congress steps-in, the Tax Cuts and Jobs Act (TCJA) of 2017 will revert back to previous levels in 2026. This could mean higher tax rates on business owners of sole proprietorships, partnerships, and S corporations.

Qualified Business Income (QBI) Deduction

As of today, business owners can deduct up to 20% of QBI. This is another deduction that is scheduled to change.

Bonus Depreciation

In the past, business owners have been able to leverage bonus depreciation of fixed assets to reduce their taxable income. This has been phasing down over time and is dropping to 40% in 2025 and will be completely eliminated by 2027.

Section 179 Expenses

This is a big one. Business owners have been able to leverage Section 179 of the tax code to deduct the full cost of equipment they purchase, up to $1.25M in 2025. The TCJA made the limit a permanent $1M (adjusted for inflation), so there is some deduction loss. However, there are proposals to increase this threshold.

Corporate Tax Rates

This could be the biggest one, depending on your tax structure.

The TCJA lowered corporate tax rates to 21%. With the Republicans winning the White House, Congress, and Senate there is a chance that this hold pat, or even decreases. But, we do have the largest national debt in history. So, I wouldn’t be shocked if this lever is pulled when needed.

As I mentioned, in the past I’ve managed my own taxes, but this year I will be working with an Accounting firm. Not only will they be preparing our taxes, but I am paying a retainer to them so that they are on standby to advise me around tax decisions. For example, we are considering buying a new home and I am about to ask them if there are any tax consequences I need to consider. I think I know the answer, but its nice to have someone to cover the bases for me.

Even if you have a very vanilla tax situation, i.e. a W2 and no business expenses, it could still be worth it to talk to a qualified Accountant. There are few places I always say to never skimp - Accountants and Attorneys.

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