If your tax bill caught you off guard this year or your refund was smaller than expected, it might be a good idea to review your tax situation and start planning ahead for next year.
With a few smart strategies, you could potentially lower your tax bill next year and keep more money in your pocket.
Here are six ways to pay less in taxes on your income for 2025.
1. Maximize Deductions and Claim Eligible Credits
Take advantage of tax deductions that reduce your taxable income and keep detailed records of qualifying purchases throughout the year. Some examples of purchases that are tax-deductible include:
- Energy-efficient home upgrades — solar panels, energy-efficient windows or home energy audits.
- Eligible education expenses — some scholarships and specific education expenses can be deducted.
- Childcare expenses — the Child and Dependent Care Tax Credit can help with costs like daycare or nannies.
- Medical expenses — with an HSA or FSA, certain medical costs may be deductible. Learn more about a Capitol Federal® Health Savings Account.
2. Adjust for Major Life Changes
Life events can change your tax liability, so be aware of how certain changes might impact your tax situation. Watch for these changes:
- Collecting retirement benefits while working — Social Security retirement benefits can be subject to federal (and sometimes state) income tax.
- Children aging out as dependents — Dependents turning 17 in 2025 will no longer qualify for the Child Tax Credit.
- Dependent income thresholds — For non-child dependents (like a domestic partner), their gross taxable income in 2025 cannot exceed $5,200 for you to claim them.
3. Make Estimated Tax Payments throughout the Year
If you expect to owe more than $1,000 in federal taxes after accounting for deductions and credits, the IRS advises making estimated tax payments quarterly. Employees can also increase their paycheck withholding. This helps you avoid late fees and underpayment penalties.
Use the IRS Tax Withholding Estimator to make sure you’re on track.
4. Contribute to Retirement Accounts
Contributing to retirement accounts like a traditional 401(k) or IRA can help lower your tax bill or increase your tax refund. Because contributions to these accounts are withdrawn from your paycheck before you’ve paid taxes, your taxable income will be lower, potentially reducing the amount you owe in federal taxes.
Learn more about our IRA products and how they may reduce your overall tax bill.
5. Factor in Inflation Adjustments
The IRS typically adjusts federal income tax brackets, standard deductions and other tax provisions annually for inflation. Keeping these adjustments in mind as you plan can help you understand how your income might be taxed in the coming year, potentially allowing you to optimize your deductions and contributions.
6. Review and Update Your Tax Withholding
The IRS reminds taxpayers to reassess their tax withholding each year, regardless of their tax liability in the previous year. Adjusting your withholding can prevent owing a large sum at tax time or receiving a smaller refund than desired. You can use the IRS Tax Withholding Estimator tool to help determine the correct amount.
By proactively implementing these strategies, you can take control of your tax situation and potentially reduce your tax liability for next year. Remember to keep detailed records and consult with a financial advisor for personalized tax planning advice. Contact one of our Financial Advisors today for a personalized plan to maximize your savings.