New Year’s Tax Resolutions for 2025: Smart Moves for a Stronger Financial Future

The New Year is the perfect time to make financial resolutions—and taxes deserve a spot on your list. Taxes affect nearly every part of our lives, from earning and investing to buying a home, saving for retirement, and supporting charitable causes. Here are actionable steps to make 2025 a year of smarter tax decisions.

1. Avoid Tax-Underpayment Penalties

• Why it matters: Underpayment penalties may be costly, with rates remaining high at 7%.
• Action steps:
  • Ensure at least 90% of your estimated 2025 taxes are paid by deadlines (Dec. 31 for withholding or Jan. 15, 2025, for quarterly estimates).
  • Alternatively, pay 100% of your 2023 taxes (or 110% if your income is higher).
  • Use IRS tools like Direct Pay to make payments quickly if needed.
  • Check for disaster-area extensions if applicable.

2. Understand Your Effective Tax Rate

• Why it matters: Many taxpayers confuse their marginal tax rate (applies to the last dollar earned) with their effective rate (average rate paid).
• Action steps:
  • Calculate your effective rate by dividing your total federal taxes by your income.
  • Use your marginal rate to guide decisions like Roth conversions or tax-efficient investing/portfolio construction.  The IRS's annual inflation adjustments for tax year 2025 are here and you can find more information from Taxfoundation.org

3. Be Cautious With Backdoor Roth IRAs

• Why it matters: Backdoor Roths can be advantageous, but they come with complexities if you hold pre-tax traditional IRA funds.
• Action steps:
  • Think twice about avoid backdoor Roth contributions if you have traditional IRAs with pre-tax funds or consider a workaround.
  • Consider consulting a tax professional or Financially In Tune to evaluate your specific situation.
  • Track after-tax contributions to avoid errors when withdrawing funds in the future.

4. Capitalize on Low-Tax Years

• Why it matters: A low-tax year is an opportunity to reduce your long-term tax burden.
• Action steps:
  • Convert part or all of a traditional IRA to a Roth IRA.
  • Contribute after-tax dollars to a Roth IRA if eligible.
  • Sell appreciated assets to take advantage of a 0% capital gains tax rate (if income thresholds allow).

5. Review your Tax  Landscape, Benefits & Potential Pitfalls on a Regular Basis

• Why it matters: While tax rules are complex, they often work in your favor and they may change or your life circumstance may change strategies
• Action steps:
  • Review available deductions and credits, such as the child tax credit, long-term capital gains rates, and retirement savings contributions.
  • Focus on strategies that align with your financial goals rather than wishing for oversimplified systems like a flat tax.

Final Thoughts

Tax planning is an ongoing process that requires attention and adjustment throughout the year. By adopting these resolutions, you’ll not only have an opportunity to possible reduce your tax burden but also maximize opportunities to strengthen your overall financial health. For personalized guidance, consider consulting Financially in Tune to tailor strategies to your unique situation.

What are your tax resolutions for 2025? Let’s start the conversation!

Disclosure:

Financially in Tune, LLC (“Financially in Tune”) is a Registered Investment Adviser. 

This content is intended to provide general information about Financially in Tune. It is not intended to offer or deliver investment advice in any way. Information regarding investment services are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information