Written by: Thomas Brooks
Published: March 24, 2025

Tax Planning for the Upcoming Tax Season

As the tax season approaches, proper planning can help you minimize your tax liability, maximize deductions, and avoid last-minute stress. Whether you are an individual taxpayer or a business owner, understanding the key strategies and deadlines can make a significant difference. 

1. Understanding Your Tax Bracket

One of the most critical aspects of tax planning is understanding how tax brackets work and how they impact your taxable income.

What is a tax bracket?

A tax bracket refers to a range of income that is taxed at a specific rate. The U.S. tax system follows a progressive structure, meaning that different portions of your income are taxed at different rates.

How do tax brackets work?

Tax brackets are divided into different percentage rates based on income levels. For example, if you are in the 22% tax bracket, it does not mean all your income is taxed at 22%. Instead, only the portion of your income that falls within that bracket is taxed at that rate, while lower portions are taxed at lower rates.

How do I figure out what my marginal tax rate/tax bracket is?

To determine your marginal tax rate, you need to:

• Calculate your total taxable income after deductions.
• Refer to the current IRS tax bracket chart to see where your income falls.
• Identify the highest tax bracket that applies to any portion of your income—this is your marginal tax rate.

Understanding how these brackets apply to your income can help you make strategic financial decisions, such as deferring income or increasing deductions to lower your taxable income.

Why Is It Important to Understand Your Tax Bracket?

Your income and filing status determine your tax liability. The IRS updates tax brackets annually, so it’s important to know where you fall and how it impacts the amount you owe.

• Review the current tax brackets for your filing status (single, married filing jointly, head of household, etc.).
• Consider ways to reduce taxable income, such as contributing to tax-advantaged accounts.

2. Maximizing Deductions and Credits

Deductions and credits can lower your taxable income and overall tax burden. Some of the most common deductions and credits include:

• Standard vs. Itemized Deductions: Compare the standard deduction ($13,850 for single filers, $27,700 for married joint filers in 2023) with your total itemized deductions (e.g., mortgage interest, medical expenses, and state taxes) to determine which option lowers your taxable income the most.
• Charitable Contributions: Donations to IRS-qualified 501(c)(3) organizations can be deducted if you itemize. Cash contributions are deductible up to 60% of adjusted gross income (AGI), while non-cash donations follow different limits.
• Education Credits: The American Opportunity Tax Credit (AOTC) offers up to $2,500 per eligible student for the first four years of college, while the Lifetime Learning Credit (LLC) provides up to $2,000 per tax return for tuition and related expenses without a time limit.
• Energy Efficiency Credits: The Residential Clean Energy Credit covers 30% of costs for solar panels, wind turbines, and battery storage, while the Energy Efficient Home Improvement Credit provides up to $1,200 annually for upgrades like insulation, windows, and heat pumps.

3. Retirement Contributions and Tax Benefits

Retirement savings accounts not only help secure your future but also provide tax benefits. Consider maximizing contributions to:

• 401(k) and 403(b) Plans:
  • Employee contributions lower taxable income (up to $22,500 in 2023; $23,000 in 2024).
  • Employers may offer matching contributions, which are not taxed when received.
  • Catch-up contributions allow those 50+ to contribute an extra $7,500 annually.
• Traditional and Roth IRAs:
  • Traditional IRA: Contributions may be tax-deductible (deduction limits apply based on income and employer-sponsored plan participation). Withdrawals in retirement are taxed as ordinary income.
  • Roth IRA: Contributions are made with after-tax dollars, but qualified withdrawals (after age 59½ and holding period of five years) are tax-free. Contribution limits for both IRAs: $6,500 in 2023 ($7,500 for 50+); and $7,000 in 2024 ($8,000 for 50+).
• SEP IRAs and SIMPLE IRAs (for self-employed & small business owners):
  • SEP IRA: Employers can contribute up to 25% of an employee’s compensation or $66,000 in 2023 ($69,000 in 2024), whichever is lower.
  • SIMPLE IRA: Employees can contribute up to $15,500 in 2023 ($16,000 in 2024), with a $3,500 catch-up limit for those 50+. Employers must match up to 3% or contribute 2% of employee salary.

4. Managing Capital Gains and Losses

Investment income is subject to capital gains tax, but strategic planning can help reduce liabilities:

1. Tax-Loss Harvesting: Offset Gains by Selling Investments at a Loss

• Investors can strategically sell underperforming investments at a loss to offset capital gains from other profitable investments.
• The IRS allows losses to be used to offset an equal amount of capital gains, reducing taxable income.
• If capital losses exceed capital gains, up to $3,000 ($1,500 for married filing separately) can be deducted from ordinary income per year.
• Excess losses beyond the annual limit can be carried forward to future years (see Capital Loss Carryforwards below).

2. Holding Periods: Lower Tax Rates for Long-Term Capital Gains

• Short-term capital gains (for assets held less than one year) are taxed at the investor’s ordinary income tax rate, which can be as high as 37%.
• Long-term capital gains (for assets held over one year) are taxed at preferential rates of 0%, 15%, or 20%, depending on taxable income.
• This strategy benefits investors looking to minimize tax burdens by carefully timing their sales.

3. Utilizing Capital Loss Carryforwards: Apply Past Losses to Future Gains

• If total capital losses exceed gains in a given year, the IRS allows taxpayers to carry forward the unused portion to offset gains in future tax years.
• There is no time limit on how long losses can be carried forward, meaning they can be applied indefinitely until fully used.
• This is particularly beneficial for investors with fluctuating investment returns, ensuring they can minimize taxable gains over time.

5. Planning for Self-Employed Individuals and Business Owners

Unlike employees who have taxes withheld from their paychecks, self-employed individuals must pay taxes directly to the IRS. To avoid penalties, the IRS requires self-employed individuals and business owners to make quarterly estimated tax payments on:

• Income tax (based on your projected earnings for the year)
• Self-employment tax (which covers Social Security and Medicare contributions, totaling 15.3% of net earnings)

 Who Needs to Pay Estimated Taxes?

• If you expect to owe at least $1,000 in taxes after subtracting credits and withholding.
• If you are a freelancer, contractor, or business owner without employer tax withholding.

Due Dates for Quarterly Payments:

• April 15 (for income earned January – March)
• June 15 (for income earned April – May)
• September 15 (for income earned June – August)
• January 15 (following year) (for income earned September – December)

How to Calculate Payments:

• Use IRS Form 1040-ES or online tax calculators.
• Consider using last year’s tax liability as a baseline and paying at least 90% of the current year’s taxes or 100% of the previous year’s taxes to avoid underpayment penalties.

Deductible Business Expenses: Reduce Taxable Income with Allowable Deductions

Self-employed individuals and business owners can lower their taxable income by deducting ordinary and necessary business expenses. Some common deductions include:

Home Office Deduction

• If you use a dedicated space in your home exclusively for work, you may deduct rent/mortgage interest, utilities, and property taxes.
• The simplified method allows a deduction of $5 per square foot (up to 300 square feet).

Office Supplies and Equipment

• Includes computers, printers, software, business cards, and office furniture used for business purposes.

Business Travel and Meals

• 50% of business meal expenses are deductible.
• Travel costs (flights, hotels, rental cars) are 100% deductible if the trip is primarily for business.

Vehicle Expenses

• If you use your car for business purposes, you can deduct mileage using the standard mileage rate (67 cents per mile in 2024) or actual expenses (gas, insurance, maintenance).

Professional Services and Education

• Fees paid to accountants, attorneys, business consultants, or online courses for skill development may be deductible.

Qualified Business Income (QBI) Deduction: Reduce Taxable Income by Up to 20%

The Qualified Business Income (QBI) Deduction allows eligible self-employed individuals and owners of pass-through businesses (sole proprietors, partnerships, LLCs, S corporations) to deduct up to 20% of their qualified business income.

Eligibility Requirements:

• Applies to business profits (not wages).
• Phase-out begins if taxable income exceeds $182,100 (single filers) or $364,200 (married filing jointly) in 2024.
• Certain service-based businesses (like consultants and lawyers) may have limitations on eligibility.

How It Works:

• If your business earns $100,000 in qualified income, you may be able to deduct $20,000 from your taxable income.

Health Insurance Deductions: Save on Premiums for You and Your Family

Self-employed individuals can deduct health insurance premiums paid for themselves, their spouses, and dependents.

Who Qualifies?

• You must be self-employed with no access to employer-sponsored health insurance.

What Can Be Deducted?

• Medical, dental, and vision insurance premiums
• Long-term care insurance premiums
• HSA (Health Savings Account) contributions, which provide additional tax benefits

Additional Benefit:

• This deduction reduces your adjusted gross income (AGI), lowering your overall tax burden.

6. Reviewing Changes in Tax Laws

Tax laws and regulations change frequently. Stay informed about:

• New deductions or credits introduced by the government.
• Adjustments to standard deduction amounts and tax brackets.
• Changes in contribution limits for retirement accounts.
• State and local tax updates that may impact your filing.

7. Preparing for Filing Season

Being proactive about tax preparation can prevent last-minute scrambling:

• Organize Documents Early: Gather W-2s, 1099s, receipts, and any relevant tax forms.
• Use Tax Software or a Professional: Choose between tax software for DIY filing or hiring a tax professional for complex situations.
• File Electronically for Faster Processing: E-filing speeds up refund processing and reduces errors.
• Consider Direct Deposit for Refunds: This ensures you receive your refund faster and securely.

8. Avoiding Common Tax Mistakes

Simple errors can lead to delays or audits. Avoid these common mistakes:

Incorrect Personal Information: 

Simple typos or incorrect personal details can cause your return to be flagged or rejected by the IRS.
Common Errors to Watch For:

• Misspelled names or names that don’t match Social Security records.
• Incorrect Social Security Numbers (SSN) or Individual Taxpayer Identification Numbers (ITIN) for yourself, dependents, or spouse.
• Incorrect bank account number or routing number for direct deposit refunds.

How to Avoid It:

• Cross-check your tax return with your Social Security card and that of any dependents.
• Use electronic filing (e-file), which catches many data entry errors automatically.
• If using direct deposit, verify your bank details to avoid refund delays.

Math Errors: Reduce Mistakes by Using Software or a Tax Professional

Incorrect calculations on your return can lead to underpayment, overpayment, or IRS audits.

Where Do Math Errors Commonly Happen?

• Addition and subtraction mistakes when calculating total income or deductions.
• Incorrect application of tax credits, deductions, or exemptions.
• Incorrect calculation of estimated tax payments for self-employed individuals.

How to Avoid It:

• Use IRS-approved tax software
• If filing manually, double-check calculations or use an online calculator.
• Consider hiring a tax professional or CPA to ensure accuracy, especially if you have complex finances.

Overlooking Deductions or Credits: Don’t Miss Out on Potential Savings

Many taxpayers miss out on valuable tax savings because they don’t claim all eligible deductions and credits.

Commonly Overlooked Deductions & Credits:

• Earned Income Tax Credit (EITC) – Available for lower-income earners.
• Child Tax Credit & Childcare Credit – Helps offset the cost of raising children.
• Education Credits – The American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) reduce education costs.
• Student Loan Interest Deduction – Up to $2,500 of interest paid can be deducted.
• Retirement Contributions – Contributions to 401(k), IRA, or HSA accounts may be tax-deductible.
• Medical and Dental Expenses – Deductible if they exceed 7.5% of your adjusted gross income (AGI).
• Charitable Donations – Ensure you keep records for deductions on cash or goods donated.

How to Avoid Missing Deductions & Credits:

• Keep detailed records and receipts throughout the year.
• Review IRS tax credit eligibility requirements to see what you qualify for.
• Work with a tax preparer or use tax software that automatically checks for deductions.

Missing Filing Deadlines: File on Time to Avoid Penalties and Interest Charges

Failing to file your taxes by the deadline can result in unnecessary penalties and interest.

 Key IRS Deadlines to Remember:

• Tax Day: Usually April 15, unless it falls on a weekend or holiday.
• Estimated Quarterly Tax Payments: If self-employed, payments are due April 15, June 15, September 15, and January 15 of the following year.
• Tax Extension Deadline: If you file an extension, your final deadline is October 15, but you must still pay any taxes owed by April 15 to avoid interest charges.

How to Avoid Late Filing or Payment Penalties:

• Set calendar reminders for deadlines.
• If you can’t file on time, submit IRS Form 4868 for an automatic six-month extension (but pay any estimated taxes to avoid interest).
• Use direct debit or IRS payment plans if you owe taxes but can’t pay in full.

Conclusion

Proper tax planning is essential for minimizing liabilities, maximizing deductions, and ensuring compliance with IRS regulations. By taking proactive steps now, you can approach the upcoming tax season with confidence and financial peace of mind. 

Whether utilizing tax-advantaged accounts, staying informed about new tax laws, or working with a professional, strategic planning can make all the difference in your tax outcome. Start preparing today to take control of your financial future!