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Taxes

Tax tips to help you prepare for 2025

Tax-saving tips you can do now to help you get on track for 2025
4 minute read
  •  
October 07, 2024
Taxes
Taxes on investments
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Tax tips
IRAs
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It's hard to believe that the end of the year is just around the corner. Taxes may not be as exciting as the holidays, but thinking about them now can help you start 2025 on the right foot.

 

Here are 4 tax-saving tips you can use to help you get on track for next year.

Max out your IRAs

IRAs are a great way to save for retirement and reduce your taxes. For 2024, the maximum contribution for both traditional and Roth IRAs is $7,000 ($8,000 if you're age 50 or older).

Investing in a traditional IRA and contributing the maximum can help reduce your taxable income.1 And while your contributions to a Roth IRA aren't tax-deductible, you can save money on taxes later. That's because Roth IRAs allow you to make tax-free withdrawals as long as you're age 59½ or older and you've owned the account for at least 5 years.2

Offset gains by harvesting your losses

If you have investment losses in 2024, you can use them to offset both your investment gains and ordinary income up to $3,000. This strategy, known as tax-loss harvesting, offers a way to help reduce your taxable income. In short, you can sell investments at a loss to offset your gains from other investments.3

If you buy the same investment or any investment the IRS considers "substantially identical" within 30 days before or after you sold at a loss, you won't be allowed to claim a deduction on the loss. This is known as the wash sale rule. If you need guidance on whether an investment would be considered substantially identical, consult a tax advisor.

Learn the implications of changing your filing status

Your tax-filing status can have a significant impact on your tax liability. If you're considering making a change to your filing status, be sure to understand the tax implications.4 For example, if you're married and filing jointly, you'll have a higher standard deduction and a lower tax bracket than if you file separately. However, if you have a high household income, you may be able to save money on your taxes by filing separately. Considering your options now can make for a smoother tax season in 2025.

Seek tax-efficient investments

When you choose tax-efficient investments, you can help reduce your tax bill for 2025 and beyond. Here are some examples:

  • Tax-deferred accounts like traditional IRAs and 401(k) plans allow you to defer your investment gains until you start withdrawing your money.
  • Investments like municipal bonds are generally exempt from federal income tax.
  • Tax-advantaged accounts like 529 plans and health savings accounts offer tax benefits that can help reduce your tax liability.

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1The amount you can contribute to a traditional (or Roth) IRA depends on your income and IRS limits.

2Withdrawals from a Roth IRA are tax-free if you're age 59½ or older and have held the account for at least 5 years; withdrawals taken prior to 59½ or 5 years may be subject to ordinary income tax or a 10% penalty tax, or both. The 5-year holding period for Roth IRAs starts on the earlier of: (1) the date you first contributed directly to the Roth IRA, (2) the date you rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA, or (3) the date you converted a traditional IRA to the Roth IRA. If you're under age 59½ and you have one Roth IRA that holds proceeds from multiple conversions, you're required to keep track of the 5-year holding period for each conversion separately.

3Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you consult a tax advisor before taking action.

4We recommend that you consult a tax advisor if you have questions about your tax-filing status. Additionally, Vanguard Digital Advisor considers your personal circumstances to determine which of the available tax strategies best fits your personalized investment plan. 

All investing is subject to risk, including the possible loss of the money you invest.

Vanguard does not provide tax or legal advice. This information is general in nature and should not be considered tax or legal advice. We recommend you consult with a tax or legal advisor about your individual situation.

Although tax-exempt mutual funds usually produce lower yields, you generally don't have to pay federal taxes on earnings from tax-exempt money market and bond funds.

Although the income from municipal bonds held by a fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal alternative minimum tax.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.