Surprised by Your Tax Bill? Here’s How to Adjust and Save for Next Year
Did you owe more in taxes this year than expected? With the April 15 tax deadline behind us and summer fast approaching, it’s a good time to start planning ways to lower your tax bill for next year.
Adjust Your W-4
Form W-4 is an IRS tax form that tells your employer how much federal income tax to withhold from each paycheck and send to the IRS.
Adjusting your W-4 is a simple way to better manage your tax situation. If you ended up with a large tax bill and want to avoid another surprise next year, consider increasing your withholding amount. This will reduce what you next tax season.
If you received a significant refund, you might want to revisit your W-4 and your budget. While a refund can feel like a bonus, it’s essentially an interest-free loan you gave to the government. By adjusting your withholding, you could keep more of your money in each paycheck throughout the year instead.
Tax Deduction Checklist
These eight strategic deductions can lower your taxable income so you can keep more of your wealth.
Revisit Retirement Accounts
Want to know a great way to keep your money, lower your income for less tax, and fund your retirement? Revisit your eligible retirement accounts. Many employers may sponsor a 401(k) account, and you can contribute up to $23,500 in 2025.
If you’re at least 50 years old, you can contribute an extra $7,500, and if you’re between 60 and 63, you can add an extra $11,250. The IRS doesn’t tax what you contribute directly from your paycheck into a 401(k).
If you’re self-employed, consider contributing to a Simplified Employee Pension (SEP), which is a one-participant 401(k) plan, or a Savings Incentive Match Plan for Employees (SIMPLE IRA Plan), which is a profit-sharing plan or a money purchase plan.
You can also consider individual retirement accounts in a Roth IRA or a Traditional IRA. Money contributed to a Traditional IRA may be tax deductible depending upon your income and/or if you have a retirement plan through your employer.
Keep in mind that IRAs have contribution limits, with the maximum of $7,000 annually or $8,000 if you’re at least 50. You also need to make this contribution before April 15, 2026.
Also note the contribution limit is a combined limit, so if you contributed $3,000 to a Roth, you can only contribute $4,000 to a Traditional IRA. IRA contributions are not tax-deductible, and your household income must fall below a specific threshold.
Fund Your HSAs, FSAs, and Dependent Care FSAs
If you’re enrolled in a high-deductible health care plan, contribute to a health savings account (HSA). An HSA is an account that you can use to pay medical expenses. Contributions are tax-deductible, and withdrawals are tax-exempt.
In 2025, the contribution limits for an HSA are $8,550, and if you’re at least 55 years old, you can contribute an extra $1,000. Many employers offer an HSA, but if yours doesn’t, you might be able to open one with a bank or a financial institution.
The IRS also allows you to move tax-free dollars into a flexible spending account (FSA) every year for medical and dental expenses. You can use an FSA for various purchases, including prescriptions, eyeglasses, and allergy relief medication. You can contribute $3,300 in 2025, and rollover a maximum of $660.
A dependent care FSA is another option. For 2025, the IRS exclusion is up to $5,000, and you can use it for dependents’ before- and after-school care, tutoring, and day camps.
Save for College
Consider adding money to a 529 plan, a college savings account operated by a state or educational institution. While you cannot deduct the money you contribute to a 529 plan on your federal taxes, you can on your state taxes up to a certain dollar amount. If you contribute more than the gifting exemption of $19,000 per child, you need to file a gift tax return.
Sell Stocks at a Loss
Even if you are a buy-and-hold type of investor, be aware that the IRS gives a deduction when you sell stocks at a capital loss. You can deduct losses up to $3,000 or $1,500 if married filing separately.
Selling stocks at a loss also offsets any taxable capital gains you might have. If you buy back the same stock within 30 days, the IRS considers it a “wash sale” and won’t allow the deduction.
Donate to Charity
If you donate to a legitimate charity in the form of cash, clothing, cars, securities, real estate, or any other property of value and obtain a gift receipt, you may be eligible to deduct between 20% to 50% of your adjusted gross income if you itemize instead of taking the standard deduction. A tax professional can calculate your charitable donations and determine if it makes sense to itemize or take the standard deduction.
Track Medical Expenses
If this year was expensive due to high medical or dental expenses, track those expenses. Itemize these household deductions on Schedule A instead of taking the standard deduction if those expenses exceed 7.5% of your adjusted gross income.
Work with an Advisor to Plan Now for Next Year
Everyone’s financial picture is different, and you should consider working with a trusted financial professional at Savant to identify actionable tax planning items that help you pursue your financial goals and prepare you for next year’s taxes.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant.
Jonathon D. Merickel
Portfolio Advisor
CFP®, MBA