9 tax hacks for 2025

As we head into the spring, tax changes will take center stage in Washington as Congress debates extending the Tax Cuts and Jobs Act (TCJA) of 2017, along with additional tax breaks on Social Security, tips, and more. A lot remains uncertain. But despite the uncertainty, there are steps you can take now to help you save on taxes this year and beyond.

Numerous questions remain. Many sections of the TCJA sunset at the end of 2025, and Congress will need to resolve uncertainties about expiring provisions. Among these are reductions to federal tax brackets, as well as the fate of the increased standard deduction, the state and local tax (SALT) deduction, which was capped at $10,000 in 2017, and caps on the mortgage interest deduction.

Other changes this year stem from the SECURE Act and the SECURE 2.0 Act and will affect things like catch-up contributions for older workers, and the start of RMDs from workplace plans. Additionally, if you’ve inherited an IRA there are new limits on how long assets can remain in tax-deferred status as the stretch IRA is phased out.

“This is a good year to take stock of positive changes from SECURE 2.0, like the increase of retirement plan catch-up limits for individuals age 60 to 63, and the ability to roll unused 529 funds into a Roth IRA,” says Jillian Enoch, retirement and tax policy director at Fidelity.

While there may be uncertainty about taxes due as Congress considers tax changes and whether to extend key aspects of the TCJA, here are some things to do this year that are designed to help reduce your taxes in 2025 and beyond.

1. Capital gains and dividends

The TCJA lowered taxes on long-term capital gains by setting up separate income brackets for assets held longer than 1 year and for qualifying dividends, though the rates remained the same at 0%, 15%, and 20%. (It also retained the 3.8% net investment income tax, or NIIT, for higher income people.)

Whether these rates and brackets will remain the same or increase following legislative deliberations about extending the TCJA is an open question. Potentially higher capital gains tax rates in future years mean you may want to consider if it makes sense to realize gains in taxable accounts before a possible increase. Or if you expect losses next year, you might consider waiting until future years when you could possibly benefit from offsetting capital gains when they could be taxed at potentially higher rates.

There are 2 important exceptions. Assets held in tax-advantaged accounts such as a workplace savings plan or traditional IRA are not subject to capital gains taxes, though you do owe income taxes on withdrawals. Additionally, short-term capital gains rates for assets held less than 1 year are the same as ordinary income rates.

2024 vs. 2025: Long-term capital gains rates

Long-term capital gains rates 2024

_{Source: Internal Revenue Service. Note: Short-term capital gains rates apply to sales of assets you have held for a year or less and are the same as your current federal income tax rate.}

Long-term capital gains rates 2025

_{Source: Internal Revenue Service. Note: Short-term capital gains rates apply to sales of assets you have held for a year or less and are the same as your current federal income tax rate.}

2. Tax breaks for older retirement savers

In 2025, individuals can contribute $23,500 to a workplace retirement plan, with a catch-up contribution of $7,500 for a total of $31,000. Also starting in 2025, those between the ages of 60 and 63 can make catch-up contributions of $11,250 in place of the $7,500 limit.

You might also consider contributions to a workplace Roth, if your plan allows them, because as of 2024 retirees no longer have to take RMDs from such an account. That can potentially give your savings many more years to grow. Assuming the 5-year aging rule has been met and you’re 59½ or older, withdrawals from a Roth account are also tax-free.

That’s a bit different from a traditional workplace plan, such as a 401(k), where savings can accumulate tax-deferred, but RMDs from such an account must begin once you’ve retired and have reached age 73. 

Find out more in Viewpoints: 5 breaks that could help boost your retirement savings

3. Changes to inherited IRAs

If you inherited an IRA recently, new rules for inherited IRAs go into effect this year that could affect what you do with these assets.

The original SECURE Act, passed in 2019, eliminated the so-called “stretch IRA” in favor of a 10-year period before IRAs must be fully distributed, with RMDs potentially being required throughout this period. It also tacked on many other potentially confusing new rules for inherited accounts, but delayed penalties for the failure to take RMDs for tax years 2020 through 2025. Previously, a younger beneficiary of an IRA was able to lengthen the time of an RMD from the deceased or original owner’s life expectancy to their own, allowing potentially for many more years of tax-deferred growth.

Generally speaking, starting December 31, 2025, funds must be distributed within 10 years of the original owner’s death. Note: The rules did not change for spouses of the original owner as well as for IRA beneficiaries who inherited prior to 2020. Neither is required to empty an account within 10 years.

Find out more in Viewpoints: Inheriting an IRA from your spouse.

A first step might be to understand whether your circumstances require you take distributions from the account within 10 years. For example, if you’re a non-spouse who happens to be close in age to the deceased account owner, you may be able to take RMDs based on your own life expectancy. Additional exceptions may apply for beneficiaries who are disabled, chronically ill, or children younger than age 18, who would be required to take RMDs once they reach the age of majority. Additionally, if an IRA was left to trust, your estate, or charity, the 10-year rule may not apply.

If you are required to begin RMDs within the 10-year period, you may have until the end of the tenth year to empty the account, unless the deceased or original account owner was already taking RMDs in which case a distribution would be required for years 1 through 9 and a complete distribution in year 10. Generally, you might want to avoid taking a lump-sum distribution as it could significantly increase taxable income. As long as the account is empty by year 10, you have some flexibility with the RMD amount. So if your income fluctuates year to year, you could also consider taking withdrawals during years when you know your taxable income will be lower.

Remember, penalties can be steep, equaling 25% of the missed RMD amount, or 10% if corrected in a timely manner. It’s always a good idea to consult with a tax professional to understand how the new rules might affect your own situation.

4. Estate tax reboot

2025 might be the time to start thinking about estate taxes and creating a gifting plan.

Without further legislation in Congress following the sunsetting of the TCJA, the estate tax exclusion will revert to its previous level of $5.6 million from its current level of $12.92 million for single people, adjusted for inflation. No one knows what will happen in Congress in the coming year, but it’s possible that future legislation could reduce the estate tax exemption even further.

Gifting can help reduce the value of your estate without using up your lifetime gift and estate tax exemption. The gift tax exclusion for 2025 increased to $19,000 from $18,000 in 2024. That means you can give up to $19,000 per donor to as many people as you like each year without affecting your lifetime exemption. If you're married and elect to split gifts, each person in the couple can gift this amount without the gift being considered taxable.

You might also consider funding a 529 or custodial account for children in your life. While lifetime contribution limits to 529 accounts are set by states and are often quite high, remember annual contributions over $19,000 will be considered a taxable gift and count against your lifetime gift tax exclusion. But once inside the account, the money is not considered part of your estate. You can also think about bunching, or front-loading 5 years' worth of annual gifts of up to $19,000 at once in 2025, for a total of up to $95,000 per person, per beneficiary without having to pay gift tax or interfere with the lifetime gift tax exclusion. However, after that, you won’t be able to make gifts under the annual exclusion to the same beneficiary for 5 years. You can also contribute to a custodial account, known as an UGMA/UTMA account. While such accounts are the property of the beneficiary once you set one up, the assets are considered part of the donor’s estate until the beneficiary is no longer a minor and takes control of them.

Donations to a qualified charity can also potentially lower the value of your estate while helping your tax planning in the year you’re donating. For example, if you itemize you can contribute to a donor-advised fund (DAF) and receive an income tax deduction. When you die, federal law allows for unlimited deductions of contributions to qualified charities. You can also donate highly appreciated assets held longer than a year and deduct the fair market value without having to pay the capital gains tax. Note: If the goal is to avoid capital gains, your beneficiaries could receive a step-up in basis upon inheriting the assets.

Deducting charitable contributions may be subject to adjusted gross income (AGI) limits depending on the receiving charity and what you donated.

5. Reporting of digital assets

Rules involving cryptocurrency and other digital assetsOpens in a new window are still evolving, and transactions involving them may affect your tax planning this year. If you’re a freelancer, sole proprietor, or small-business owner and you’ve received $10,000 or more in cryptocurrency in a single transaction, you may soon need to report the transaction to the Department of the Treasury on IRS Form 8300Opens in a new window.

Starting January 1, 2025, brokers are required to report transactions involving digital currency on a new IRS Form 1099-DAOpens in a new window. Nevertheless, you must still report payment, gifts, and other transactions involving digital currency, non-fungible tokens, and stable coins on your Form 1040, 1040-NR, or 1040-SR. Nevertheless, you must still report payment, gifts, and other transactions involving digital currency, non-fungible tokens, and stable coins on your Form 1040, 1040-NR, or 1040-SR.

Be sure to work with a tax planner who can help you stay on top of regulatory changes.

6. Claim tax credits and other financial incentives for residential energy improvements

While many clean energy residential credits embedded in the Inflation Reduction Act (IRA) of 2022 extend into 2034, it’s unclear what their ultimate fate might be as Congress continues to debate a new tax package. So consider claiming them while you can.

The IRA had numerous provisions aimed at transitioning the economy to clean energy, including residential energy credits that fall generally into 2 categoriesOpens in a new window. The first, for creating an energy efficient home, allows for a tax credit up to 30% of the cost for improved doors, windows, water heaters, and energy audits up to an annual limit of $1,200 versus a $500 lifetime credit previously. The credit has been extended until 2033. The second, the residential clean energy property credit, allows for a credit equal to 30% of the sum of amounts paid by the taxpayer for certain qualified expenditures, such as for solar panels, geothermal heat, small wind energy, and fuel cells, with no annual limit, according to the IRS. The credit begins to phase out after 2032.

7. Make the most of bigger contribution limits and wider tax brackets

Toward the end of 2024 the IRS increased the income amounts for the 7 tax brackets to account for inflation. It also made inflation adjustments to contribution limits for tax-advantaged accounts, such as workplace retirement plans, IRAs, and health savings accounts (HSAs), for those with a high-deductible health plan.

2024 and 2025 tax brackets

2024 tax brackets

_{Source: Internal Revenue Service}

2025 tax brackets

_{Source: Internal Revenue Service}

You can avoid a phenomenon called tax bracket creep—where wage growth and a bigger paycheck meant to combat inflation can also push you into a higher tax bracket—by reducing your taxable income dollar-for-dollar with yearly contributions to your 401(k), HSA, IRA, and other retirement accounts.

• In 2025, you can contribute up to $7,000 to traditional and Roth IRAs combined. People age 50 and over can make catch-up contributions of $1,000 to an IRA. The contribution limits and catch-up amounts are the same as for 2024. (See above for details about workplace retirement plan contribution limits for 2025.)
• For HSAs, an individual with self-only coverage can contribute $4,150 and for those with family coverage, the contribution limit increased to $8,300, with $1,000 more in catch-up contributions for those 55 and over. If both spouses are covered by a family high-deductible health plan and share an HSA, they are eligible for one catch-up contribution of $1,000 if one of them is 55 or older and not enrolled in Medicare. If both are 55 or older and both are not enrolled in Medicare, however, and they each want to make a catch-up contribution, they must do so in separate HSAs, resulting in a $10,300 limit. Note: The aggregate amount spouses may contribute to separate accounts is $8,300.

Find out more about tax bracket adjustments for 2025 in Viewpoints.

8. 529 rollovers to a Roth

As of 2024, 529 account holders can transfer up to a lifetime limit of $35,000 to a Roth IRA established for a 529 designated beneficiary. Conversions are tax- and penalty-free, although a number of important conditions apply. Among them, the 529 account must be maintained for the 529 designated beneficiary for at least 15 years, the transfer amount must come from contributions made to the 529 account at least 5 years prior to the 529-to-Roth IRA transfer date, and transfers are subject to annual Roth IRA contribution limits. For 2025 a 529 beneficiary owner may transfer up to $7,000 annually for the next 5 years to reach the $35,000 lifetime maximum. Unlike regular Roth contributions, which have modified adjusted gross income limitations, 529-to-Roth IRA transfers do not appear to be subject to this limitation at this time. The IRS has not issued guidance on the 529-to-Roth IRA provision in the SECURE 2.0 Act but is anticipated to do so in the future. Based on forthcoming guidance, it may be necessary to change or modify some 529-to-Roth IRA transfer requirements.¹

Find out more in Viewpoints: How unused 529 assets can help with retirement planning.

9. Free tax filing

You may be eligible to electronically file your 2024 taxes this year using a pilot program from the IRS, called Direct FileOpens in a new window, aimed at making tax filing easier and cheaper. The program reportedly walks users through a step-by-step process for filing a return, and lets customers talk via chat to an IRS agent. The program is free.

However, you must be a resident of one these 25 states to participate:

To qualify you must have W-2 income or income from Social Security, unemployment, or interest income and plan to take the standard deduction, not itemize, among other qualifications. The program is separate from Free File, another free filing option from the IRS run by numerous tax preparation partners.

Everyone’s tax situation is different, and you may want to consult with a tax professional who can help you understand whether tax changes in 2025 affect your personal circumstances. But armed with information about these changes, you can take steps toward maximizing your tax situation now and in the years to come.