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Your 2025 income taxes are probably not even on your radar yet. Whether you finished your 1040 for 2024, are scrambling to complete everything on time, or filed an extension, you’re probably relieved to have crossed—or almost crossed—the finish line.
But, of course, your current financial activities will affect your return next spring. So, there’s no better time to start planning for next year’s annual obligation than right now, while the impact of your income and expenses on your taxes is top of mind. Instead of looking back next April and wishing you had done some things differently, you can approach your spending (and your income, if you have some control over it) in more tax-advantageous ways.
Here are seven tips for integrating planning for the 2025 tax year into your financial management strategy.
1. Learn How Major Life Changes Affect Your Taxes
Significant life events can affect your 2025 taxes, some of them in big ways. For example, if you get married or divorced, have a spouse or dependent die or move away from your home, make more money, or welcome a new baby, your filing status and tax obligation will look a lot different.
Similarly, buying a home, joining the ranks of the unemployed or self-employed, or starting college will alter how you complete your 2025 Form 1040. If you know ahead of time what impact these new situations will have, you might be able to make adjustments in other areas of your financial profile. The IRS has a helpful page about life events that you should consult for more specific guidance.
2. Decide Now Whether You Should Change Your Withholding or Pay Estimated Taxes
If you’re a W-2 employee, consider the outcome of your 2024 taxes. Did you get a large refund? Or did you have to pay a significant amount? If either is the case, you should think about changing your withholding, especially if you’ve experienced or will experience one or more of the life events listed above. The IRS Tax Withholding Estimator might be helpful here. You have to fill out a new Form W-4 to change your withholding status.
If you are or will be self-employed for the first time in 2025 or you have other income that is not subject to withholding, you need to estimate how much you owe in taxes every quarter based on your income and expenses for each period. Then, you must send that amount to the IRS and state tax agencies. It's not easy, and the amount will be nothing more than an educated guess. If you don't pay in advance and wait until taxes are due next spring, you have to pay an entire year’s worth of taxes at once, plus penalties and interest.
Any personal finance app, like Quicken Simplifi, or small business accounting website, like Intuit QuickBooks Online, can create reports to help you calculate your income and expenses by period and estimate your quarterly obligation, as I discuss later.
The IRS also has helpful information about paying estimated taxes. Having insight into where you stand with income taxes throughout the year helps with your ongoing tax planning. You also avoid big surprises when you complete your 1040.
3. Keep Pristine Records
Keeping accurate records is critical if you’re self-employed. You need to maintain accurate, thorough records of all your business-related income so you can report all the money that comes in (which can be difficult if you have multiple gigs). You must document every expense and figure out the correct tax-related category for each one. If you do this on paper, save every receipt in folders organized by month or category and make a note about its purpose.
As mentioned, personal finance apps and small business accounting software can help tremendously with recording, managing, and storing your financial information. You can import all your banking and credit card transactions, and the service will help you categorize them. So, when tax time rolls around, you can see how much money you spent on tax-deductible items like advertising or office supplies, for example.
These apps help with other bookkeeping tasks, such as budgeting and creating reports at tax time, as mentioned. Very small businesses might be able to get by with a solution like Quicken Classic or Monarch. Larger or more complex businesses might consider QuickBooks Online or Zoho Books. You still need to store your physical expense receipts or scan and upload them in case you get audited down the road, though the IRS will accept some electronic records.
It's not just self-employed individuals who need to keep receipts and other documentation. If you’re an employee who receives a W-2, you should still have digital or physical folders for storing documents such as charitable contribution records and property tax statements. When you start to receive forms like your W-2 and 1099s next year, you can add them to the mix.
4. Know What Expenses You Can Claim
The IRS Form 1040 and its supporting forms and schedules contain hundreds of deductions and credits that can save you a lot of money in tax breaks. If you do your taxes without software, it’s easy to miss some of these tax breaks, even if you're eligible. The trick is to be aware of them so you know when an expense might be deductible as you go through the year.
The IRS has two web pages that list all the major deductions and some lesser-known ones, with links to detailed information. One is for individuals, and the other is for businesses. NerdWallet also has a list of popular credits and deductions for 2024-2025. You can track your financial accounts here and get your credit score periodically for free.
Keep an eye on personal tax preparation websites and the year-round services they offer, too. H&R Block and TurboTax offer extended services for individuals and small businesses who use the sites’ tax preparation tools. Both assign you to a CPA or other tax professional who can answer your questions and troubleshoot your return via video chat. They’re available year-round to help with tax planning.
5. Save for Retirement All Year Round
If you don’t already have an IRA or a 401(k), maybe it’s time to consider investing in your future and making a dent in your tax obligation at the same time. If you do have one and aren’t contributing the maximum amounts, think about bumping up the total you put in.
Self-employed individuals might not have the employer-matching option that W-2 employees do, but they can still put money away for retirement and claim these contributions on their tax returns. Options include a Simplified Employee Pension (SEP) or a one-participant (solo) 401(k) plan. Another is the Savings Incentive Match Plan for Employees, also known as the Simple IRA Plan. The IRS has more detailed information about all these retirement plans for the self-employed.
6. Give Away Some Money
You don’t have to wait until December 31, 2025, to think about philanthropy that will affect your 2025 taxes. Donating money to qualified nonprofits (use this IRS tool to see if an organization is tax-exempt) throughout the year usually translates to a tax deduction—as long as you itemize your deductions on Schedule A. You won’t get a tax break this year if you take the standard deduction. As of this writing, we don’t know what Congress will do with this deduction for 2025, so keep an eye on tax-related news.
You won’t get a deduction for giving a friend or relative a gift of cash or property worth up to $19,000 during the year, but neither will you have to pay the IRS gift tax. If the gift is worth more than that amount, you have to pay the gift tax. That's something to keep in mind as you dole out cash or property as gifts.
7. Review Your Tax-Related Income and Expenses Frequently
If you’re self-employed and have to pay quarterly taxes or you receive income that’s not subject to withholding, you should review your tax-related income and expenses every financial quarter. You really should be looking at them on a weekly or biweekly basis. If you’re running a small business, you should look every day or so. If you use a personal finance or small business accounting application, this is easy. You can even get a rough idea of the balance between incoming and outgoing money by using a paper system and a calculator or Excel.
Keep a copy of your 2023 and 2024 tax returns handy. Even though tax law changes for 2025 won’t be final until the end of the year, you can review these to see why you got the refund you did or had to pay as much as you did over the last couple of years. Unless your financial situation or the tax code has changed drastically, you may have a similar tax bill for 2025. This is more common, of course, with W-2 workers during uneventful tax years.
Conscientious Tax Planning Can Pay Off—Literally
2025 is shaping up to be a momentous year for individual and business income taxes. Pay attention to news about tax law changes as they’re announced. They may affect your financial decisions this year. For example, the IRS has already announced annual inflation adjustments for more than 60 tax provisions in 2025. Also, if you receive payment through a third-party network like Cash App, PayPal, or Square for goods or services you supplied, you (and the IRS) will receive a 1099-K if your transactions total more than $2,500 for the 2025 calendar year. This threshold will go down to $600 for the 2026 tax year.
Tax planning should be a natural part of your overall financial planning—and it should go on for all 12 months of the year. If you treat it that way, you’ll find that preparation and filing season won’t be nearly as painful and panicked. Responsible tax planning may also impact how much you owe because you’ll be making smarter decisions all year.