Tax Tips to Help You Survive 2025
Brace yourselves, folks—it's that time of year again. The holidays are coming, and you know what else is lurking around the corner? Taxes. Yup, not quite as joyous as decking the halls, but getting a jump on your tax game now will save you a world of hurt come 2025.
Although we would rather focus on holiday shopping than the next tax season, understanding the basics can save you a headache later. After reading about four tax-saving hacks to help you kick off the new year without a tax-induced meltdown, check out the answers to common tax questions about different accounts, capital gains, and that magical trick called tax-loss harvesting.
In this article:
1. Max Out Your IRAs
2. Harvest Those Losses
3. Reconsider Your Filing Status
4. Go for Tax-Efficient Investments
Your Top Tax Questions Answered
How Are Taxable Brokerage Accounts and Retirement Accounts Taxed?
What’s Capital Gains Tax and When Do I Pay It?
What Are Realized and Unrealized Gains?
Does the Length of Time I Own the Investment Affect My Tax Rate?
What If I Have More Losses Than Gains?
What’s Tax-Loss Harvesting?
What Are Examples of "Substantially Identical" Investments?
1. Max Out Your IRAs
IRAs are like your financial fairy godmother, ready to wave a wand and save you money for retirement and on taxes. For 2024 and 2025, you can contribute up to $7,000 to your traditional or Roth IRA ($8,000 if you’re 50 or older—yay for aging!).
Traditional IRAs reduce your taxable income right now.
Roth IRAs let you enjoy tax-free withdrawals later.
Think of it as choosing between a holiday bonus now or an all-expenses-paid vacation later. It’s a smart money move for parents.
2. Harvest Those Losses
Has your day trading during naptime resulted in a few investment flops this year? Turn those lemons into lemonade with tax-loss harvesting. You can use your 2024 losses to offset gains and even reduce your ordinary income by up to $3,000.
Basically, you sell those dud investments to cancel out the gains from your winners. Just beware of the wash sale rule—don’t repurchase the same or a “substantially identical” investment within 30 days. If you’re unsure, call in a tax advisor for backup. Read more about this in the common questions section.
3. Reconsider Your Filing Status
Your filing status can seriously mess with your tax bill. Not everyone can switch theirs, but if you can, know the implications.
For instance, married and filing jointly usually means a higher standard deduction and a lower tax bracket. But if your household income is sky-high, filing separately might save you some dough. Weigh your options now so you're not scrambling during tax season.
4. Go for Tax-Efficient Investments
Choosing tax-efficient investments is like finding hidden treasure. Here are a few gold nuggets:
Tax-deferred accounts like traditional IRAs and 401(k)s let you postpone taxes until you withdraw your money.
Municipal bonds usually dodge federal income tax.
Tax-advantaged accounts like 529 plans and health savings accounts come with sweet tax benefits that can lower your liability.
Get on these tips now, and you'll slide into 2025 like a pro, with more cash for the things that really matter—like that holiday feast or the post-holiday recovery spa day.
Your Top Tax Questions Answered
How Are Taxable Brokerage Accounts and Retirement Accounts Taxed?
With taxable brokerage accounts, you’re investing cash you’ve already paid income tax on—think paycheck money. But don’t get too comfortable; you still owe taxes on any future income or growth from these investments.
For instance, dividends are taxed the year you get them, even if you’re just sitting on your investments. And those sweet capital gains? Taxed when you sell.
Retirement accounts like traditional and Roth IRAs, along with 401(k) plans, get the VIP tax treatment. Traditional IRAs and 401(k)s let you deduct contributions in the year you make them, but you’ll pay taxes when you withdraw.
Roth IRAs and 401(k)s? Contributions are made with after-tax dollars, so you’ve already paid Uncle Sam. The perk? No taxes on qualified withdrawals later. It’s like the gift that keeps on giving.
What’s Capital Gains Tax and When Do I Pay It?
Capital gains tax hits you on the profits from selling investments. Sell for more than you bought it? Congrats, you owe taxes. The rate depends on your income and how long you held the asset. Usually, you pay when you file your tax return unless you’re on the hook for estimated tax payments.
Example Time: Buy a share of ABC Company for $10. Sell it for $15. Your profit (capital gain) is $5. You only owe tax on that $5 profit, not the entire $15. Your original $10 is your “cost basis.”
What Are Realized and Unrealized Gains?
Realized gains happen when you sell an investment for more than you paid. Haven’t sold your growing investment? That’s an unrealized gain. No tax on unrealized gains.
Does the Length of Time I Own the Investment Affect My Tax Rate?
Absolutely. Own it for over a year? You get the long-term capital gains tax rate, which is kinder—usually 0%, 15%, or 20%. Less than a year? You’re stuck with the short-term rate, taxed as ordinary income (up to 37%). Long-term investing pays off in more ways than one.
The IRS gives us the tax brackets for tax year 2025. The top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). The other rates are:
35% for incomes over $250,525 ($501,050 for married couples filing jointly).
32% for incomes over $197,300 ($394,600 for married couples filing jointly).
24% for incomes over $103,350 ($206,700 for married couples filing jointly).
22% for incomes over $48,475 ($96,950 for married couples filing jointly).
12% for incomes over $11,925 ($23,850 for married couples filing jointly).
10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).
What If I Have More Losses Than Gains?
Sell for less than you paid? That’s a capital loss. Nobody wants losses, but here’s the silver lining: you can use those losses to lower taxable income or offset future gains. This is where tax-loss harvesting comes in.
What’s Tax-Loss Harvesting?
Tax-loss harvesting is like cleaning out your investment closet. Sell securities at a loss to offset gains. Offset all capital gains with losses in the same year, plus up to $3,000 of ordinary income if you’re single or married filing jointly ($1,500 each if married filing separately). This strategy can help lower your tax bill when rebalancing your portfolio.
Tax-loss harvesting is strictly for taxable brokerage accounts. It’s complex but offers a way to turn market dips into tax savings.
Example:
Holding 1 share of ABC with a $5 gain and 1 share of XYZ with a $5 loss. Sell both: your capital gain is $0—loss offsets the gain.
If ABC has a $10 gain and XYZ still has a $5 loss, sell both: capital gain is $5—$5 loss offsets part of the $10 gain.
What Are Examples of "Substantially Identical" Investments?
When it comes to the wash sale rule, "substantially identical" can sometimes be tricky to navigate. Here are a few examples to help clarify:
Same Stock or Security: If you sell shares of ABC Company at a loss and then buy back shares of ABC Company within 30 days, that’s considered substantially identical.
Mutual Funds and ETFs: Selling shares of a mutual fund that tracks the S&P 500 and then buying shares of another mutual fund or ETF that tracks the same index within 30 days would likely be considered substantially identical.
Options and Contracts: If you sell stock options on XYZ Company at a loss and then purchase stock options on XYZ Company within the wash sale period, those options are considered substantially identical.
Convertible Securities: Selling a convertible bond at a loss and then purchasing the underlying stock that the bond converts to within 30 days can be seen as substantially identical.
Series of Bonds: If you sell a bond issued by a company at a loss and then buy a different bond issued by the same company with similar terms (like maturity date and interest rate) within 30 days, this might be viewed as substantially identical.
In essence, the wash sale rule is there to prevent you from claiming a tax deduction on a loss if you quickly turn around and repurchase the same investment. When in doubt, consulting with a tax advisor can help ensure you’re following the rules correctly and avoiding any pitfalls.
