Changes to retirement accounts

The Consumer Price Index, the preferred measure of inflation in the US, has risen by 2.9% over the last 12 months (compared to 2.4% this time last year). This means retirement account limits are increasing modestly, and in some cases a bit more than they increased last year.

IRA limits didn’t change at all last year, so a $500 increase is welcome. For those of you contributing to your Roth IRA every month, you will need to invest an even $625 every month to maximize your account. If your New Year’s resolution is to max out your 401(k), you’ll need to contribute a little over $2,000 every month to do so.

One Money Guy metric I like to keep an eye on is the gross income someone needs in order to complete Step 6 of the FOO without contributing more than 25% of their income. Assuming you can’t make catch-up contributions and have a Roth IRA, individual HSA, and a 401(k), in 2026 you would need an income of $145,600 to complete Step 6 of the Financial Order of Operations. This essentially means if you make under that amount, contributing to a 401(k), Roth IRA, and HSA will meet the 25% investing goal. If you make over that amount, you may need to utilize a mega backdoor Roth strategy and/or contribute to a taxable brokerage account.

The income phaseouts for retirement plans are also adjusted each year for inflation. If you are expecting your income to stay the same or decrease next year, you could potentially now qualify for Roth IRA contributions without using the backdoor Roth strategy. If you think your income may be higher than these phaseout limits, it is worth planning ahead and utilizing a backdoor Roth if necessary.

Standard deductions and marginal tax rates

This is a weird year for the standard deduction. Legislation passed in July modestly increased the standard deductions for 2025 (by 5% across the board), so when you file taxes in a few months you can expect to get a little extra back than you would have otherwise. About 91% of taxpayers take the standard deduction instead of itemizing.

Marginal tax rates remain unchanged, but income thresholds are also subject to annual inflation increases. Again, if you are expecting your income to decrease or remain the same next year, this means you will be paying a bit less in taxes, all else being equal.

If you are an accountant or tax enthusiast, you can review the full IRS release of changes next year and their separate release detailing changes to retirement accounts. Make sure to download our 2025 Tax Guide as you prepare your taxes next year, and be on the lookout for our 2026 Tax Guide with all of the changes mentioned here and more.

I’ve had years in college where I only had one job and only had one form to worry about at tax time. Those were the days. Now, I have an entire stack of 1099s, W-2s, and other miscellaneous correspondence I need to file my taxes. It seems like a new form comes in the mail everyday. I’m certainly not looking forward to the work of filing our taxes, but it can be made easier and less stressful. I’ve compiled the top resources for filing your taxes, starting with resources for those with simple returns and gradually building to more advanced tax situations.

1. The Money Guy 2025 Tax Guide

The annual Money Guy Tax Guide has all of the latest inflation-adjusted tax information from the IRS. The free download includes income tax rates, standard deductions, retirement account contribution limits, and Social Security tax information. This guide is a great starting point for those who want to refresh themselves on the tax-filing basics.

2. VITA (Volunteer Income Tax Assistance)

There’s no better free resource than the IRS’s Volunteer Income Tax Assistance (VITA) program. Qualifying taxpayers, including those making under a certain amount, persons with disabilities, and those with limited English-speaking ability, may qualify for assistance filing their taxes. If you think you may qualify, I highly encourage you to check out the IRS VITA page to find a center near you and make an appointment. It’s best to make an appointment sooner rather than later.

In college, I worked in the VITA program and helped local residents file their taxes. Not only was the experience extremely useful, it was really satisfying to help people file their taxes for free. There are many large corporations and businesses out there that want to squeeze every last dollar out of taxpayers, so it was refreshing to provide a valuable service completely free of charge with no strings attached.

3. FreeTaxUSA and IRS Free File partners

We don’t have any affiliation whatsoever with FreeTaxUSA, it’s just the best tool I’ve found to file our taxes. It is significantly cheaper than some other tax-filing services because they don’t spend nearly as much on marketing and advertising. Consequently, not as many Americans are aware of FreeTaxUSA or other software that is just as good (or better) than the big names at a fraction of the price. With FreeTaxUSA, filing your federal income tax return is always free and state returns are under $20, according to their website. FreeTaxUSA is an IRS Free File partner along with several other companies. Check out the other IRS partners for some more tax filing software options.

4. Hire a professional

Unless you are a tax professional yourself, you may get to a certain point where the time and energy required to file your own taxes simply isn’t worth it anymore. There’s also the obvious risk of making a mistake when filing your own taxes that a professional would not have made. When we say a “tax professional,” we usually mean a trusted CPA that is experienced in filing tax returns. If you aren’t sure how to find a trusted CPA, ask friends and family what their experiences are like with their tax professional and if they are taking on new clients. The cost of hiring a CPA to do your taxes might seem expensive at first, but the benefits of having an experienced professional do your taxes can be substantial.

As far as filing my taxes goes, I really miss being in college. I didn’t make much money and only had one job, so filing taxes was super quick and I always got a refund. Now that I’ve gotten older and our tax situation is more complex, I really appreciate the value of high-quality tax-filing software. We are currently in our FreeTaxUSA era, but I have no doubt that if I wasn’t a CFP® professional I would be paying someone else to do our taxes. Even so, I don’t think we will file our own taxes for much longer.

If you aren’t a financial professional but have a simple return, using FreeTaxUSA or other similar software may be a great option for filing your taxes. If you qualify for VITA assistance, I can’t recommend the program enough. If you have a more complicated tax return, it may be a good idea to reach out to a tax professional for assistance. No matter what your tax situation looks like, I wish you a low-stress tax filing season filled with nothing but joy.

What is tax planning really?

There are a lot of misconceptions floating around about what tax planning is and what it isn’t. First, let’s define what it isn’t. Tax planning is not a magical solution to pay nothing in taxes and may not even significantly reduce the amount of taxes you pay. It is not shady and unethical, and it is not only available to the rich or high-income earners. Good tax planning optimizes your current financial life by making (typically small and moderate) changes to save on taxes.

Contributing to a Roth IRA is good tax planning. Contributing to an HSA is good tax planning. Making sure you take all deductions and credits you are eligible for is good tax planning. While tax planning is available to anyone, regardless of income, there are some strategies that are available more broadly and others that may only apply in more specific situations.

Tax planning for all

There are some tax planning strategies that are more accessible than others. You don’t need a high income, a large investment portfolio, or a complicated tax situation to take advantage of these strategies.

Contributing to retirement accounts

Making contributions to tax-advantaged retirement accounts is one of the best tax planning strategies out there. If you aren’t sure exactly which account to contribute to first, check out our Financial Order of Operations. Consider maximizing any employer match first, then maximizing your Roth IRA and HSA, and next maximizing your employer-sponsored account if you are able to. The following table shows the maximum amount that can be contributed to these tax-advantaged accounts.

All of the above accounts have tax advantages, but some work differently than others. Roth IRAs have no tax deduction at the time your contribution is made, but all contributions grow tax-free and qualified distributions are tax-free, which is an incredible benefit. HSAs do offer a tax break on contributions, and also grow tax-free and offer tax-free distributions, just like Roth IRAs. The “catch” is distributions are only qualified (and tax-free) when used for eligible medical expenses. Roth employer-sponsored plans, such as Roth 401(k), work very similarly to Roth IRAs. Pre-tax employer sponsored plans offer a tax break on contributions, but qualified distributions count as taxable income.

Tax deductions and credits

What are called “above-the-line” tax deductions and credits are available even if you don’t itemize, but are often narrow in scope. You might need to have paid student loan interest, or have children and make under a certain amount, or contribute to a retirement plan and have a low income. Most tax software and tax professionals are pretty good at recognizing tax deductions and credits you may qualify for, but it’s always worth double checking just to be sure. Check out our list of some of the lesser known tax deductions and credits.

Tax planning for some

Some more “advanced” tax planning may only be relevant to you if you have a higher income, large investment accounts, own a business, or have a more complicated tax situation. Being more advanced, these strategies may not always be easy to do yourself. If you are ever in doubt, consult a trusted tax professional and/or a fee-only financial advisor.

Business ownership

Owning your own business can have some great tax advantages. When you think of “owning a business,” you might imagine a wealthy store owner, but owning and operating your own business has never been more accessible. Do you drive for Uber Eats? You own your own business. Do you sell handmade goods on Etsy and at craft fairs? You own your own business. One of the biggest tax advantages of business ownership is that money you invest back in your business saves you money on taxes. If you have an extra surplus of cash one year, it might be a good year for major business purchases.

Itemizing deductions

Close to 90% of Americans take the standard deduction, as most Americans wouldn’t have enough itemized deductions for it to make sense. However, if you have a larger number of itemized deductions, there is tax planning you can do to maximize your tax breaks. One common example is with charitable contributions. If you are on the border of itemizing and taking the standard deduction and make generous contributions to charity, bunching charitable contributions could be a strategy worth considering. Here’s an example:

Joanne contributes $10,000 per year to her favorite charity. She takes the standard deduction on her taxes each year. Her financial advisor suggests she “bunch” charitable contributions and instead contribute $30,000 to her favorite charity every three years. By doing this, Joanne can itemize on her taxes once every three years and use her charitable contributions to lower her tax burden.

Capital gains avoidance and tax-loss harvesting

If you have a large amount of money invested in a taxable brokerage account, realized capital gains could be a big issue for you come tax time. However, there are strategies that may be worth implementing to reduce your tax burden. In some cases, it could make sense to sell an investment fund before capital gains are distributed to avoid taxation. If some of your investments have losses, it could make sense selling those at a loss to offset gains. Capital gains avoidance and tax-loss harvesting can be complicated, so if you ever have questions feel free to reach out to us at Abound Wealth.

Tax planning isn’t some shady area of financial planning that can drastically reduce your tax burden. Good tax planning is about optimizing your finances to keep more money in your pocket and in your retirement accounts. If there’s one thing the vast majority of Americans can agree on, it’s that paying a little less on our own taxes wouldn’t be a bad thing.

Changes to retirement accounts

The Consumer Price Index (CPI) has risen 2.4% over the past 12 months, so inflation  adjustments this year aren’t as notable as they have been in recent years when inflation was higher.

Most limits are going up a little bit next year, but there’s nothing to write home about. The IRS was especially stingy with the 401(k) annual additions limits, raising it just $1,000. If you do have automatic contributions set up for your 401(k) to max out your account, make sure you adjust them ever so slightly next year.

One Money Guy metric I like to keep an eye on is the gross income someone needs in order to complete Step 6 of the FOO without contributing more than 25% of their income. Assuming you can’t make catch-up contributions and have a Roth IRA, individual HSA, and a 401(k), in 2025 you would need an income of $139,200 to complete Step 6 of the Financial Order of Operations. This essentially means if you make under that amount, contributing to a 401(k), Roth IRA, and HSA will meet the 25% investing goal. If you make over that amount, you may need to utilize a mega backdoor Roth strategy and/or contribute to a taxable brokerage account.

The income phaseouts for retirement plans are also changing again next year. If you are following the FOO, the traditional IRA phaseout isn’t as important since you would prioritize a Roth IRA, but the Roth IRA income phaseout does matter. If you are single and will make under $150,000 in 2025, you can make regular Roth IRA contributions. The same goes for couples filing jointly that will make less than $236,000 next year. If you will or may make over those amounts, you may need to consider utilizing the backdoor Roth strategy.

Standard deductions and marginal tax rates

The standard deduction, which 87% of Americans take, is increasing modestly in 2025. While the increase may not be that exciting, I would argue it is a very exciting year for those of us that love round numbers. A standard deduction of $15,000 for single filers and $30,000 for married filing jointly is just about perfect. We’ll have to enjoy it while it lasts, as it will almost certainly change to another imperfect number in 2026.

Marginal tax rates remain the same next year, but income thresholds subject to those rates increase annually for inflation. This could be good news if you are making the same amount in 2025 as you did in 2024: the amount of taxes you owe will decrease, all else being equal, even if your taxable income stays the same.

If you are thirsty for even more IRS tax changes heading into 2025, check out the IRS rundown of notable changes for tax year 2025. It is worth pointing out that we are getting ahead of ourselves – it is fun, at least for tax nerds, to look ahead at future changes, but when you file taxes next year you are going to be using tax year 2024 numbers. Fortunately for you, we have a handy Tax Guide PDF that we update annually to reference as you prepare your taxes next spring (or winter).