Taxes aren’t fun but they play a major role in financial health – especially when it comes to long-term goals like retirement. Good news? A little planning goes a long way. With the right strategy, tax season opens doors to opportunity.
Getting started
Preparation is key! Gather all income documents, including W-2s and 1099s, from other income sources (freelance work, investments or digital assets like cryptocurrency, etc.). For the self-employed, organize invoices, receipts, mileage logs, profit-and-loss statements, and records of estimated tax payments. Keep documentation for education expenses, childcare costs, charitable giving, homeownership, medical expenses, health insurance, and retirement contributions. Having everything together saves time and stress.
Understand filing status
Your filing status affects your tax bracket, standard deduction, credit eligibility, and overall strategy. How you file can meaningfully change your tax outcome, so confirm you’re using the status that best fits your situation.
Factor in life changes
Big life moments often bring big tax implications. Marriage, a child, retirement, buying a home. These can shift your tax picture and might lead to child tax credits, dependent care benefits, or deductions for mortgage interest and property taxes. Consider the life changes you’ve had so you aren’t caught by surprise.
Maximize retirement contributions
Always review retirement savings, especially if you haven’t fully funded your accounts. For 2025, 401(k) plans allow contributions up to $23,500 while contributions to Traditional/Roth IRAs are capped at $7,000. Both accounts allow catch-up contributions for those aged 50 and older. SIMPLE IRA contributions cap at $16,500, with higher limits for eligible participants. Increasing contributions can reduce taxable income while strengthening future retirement security.
Be mindful of Required Minimum Distributions. Missing an RMD can result in steep excise taxes. If you turned 73 this year, review RMD options to determine what best fits your scenario. Roth conversions might be of benefit if you expect higher income in retirement – remember, they come with upfront tax consequences.
Bring in a professional
Consider meeting with a CPA or trusted tax professional to ensure your return is accurate and takes advantage of all available deductions and credits. In addition, consider working with a financial planner to proactively strategize for future tax implications – coordinating investment decisions, retirement contributions/distributions, and long-term income planning so your tax strategy supports your broader financial goals.
Taxes aren’t fun, but they don’t have to be intimidating. A proactive, thoughtful approach can reduce surprises, improve cash flow, and strengthen retirement readiness. In the long run, smart tax planning is a powerful tool for building financial confidence.
(Alanna Akre, CFP, ChFC, RICP, is a wealth management advisor with Northwestern Mutual. She can be reached at [email protected].)
