By Haddon Libby
With tax season underway, most of us are looking for ways to reduce what we pay Uncle Sam.
One of the most straightforward and impactful ways to reduce taxes is to contribute to a retirement account. Traditional (pre-tax) contributions lower your taxable income in the current year. For 2025, the limit for employer plans stands at $23,500, with an additional $7,500 catch-up contribution allowed if you are age 50 or older. As most employer plans do not allow contributions in 2026 for 2025, you will need to use a traditional IRA to make contributions that count toward 2025. You can contribute up to $7,000 ($8,000 if 50+) and count this money toward 2025. The only condition is that you make this contribution prior to April 15th. This helps those who didn’t max out workplace plans or who want extra flexibility to reduce adjusted gross income (AGI).
The One Big Beautiful Bill Act made key 2017 Tax Cuts and Jobs Act provisions permanent while adding new deductions for tips, overtime, auto loan interest, and seniors. The new law adds several above-the-line deductions that don’t require itemizing. Qualified tips can be deducted up to $25,000 with phase outs for higher income levels. Qualified overtime pay can be deducted up to $12,500 ($25,000 for married filing jointly). Auto loan interest of up to $10,000 can be deducted so long as the car is for personal use and you earn less than $100,000 ($200,000 for couples).
Seniors, (65+) receive one of the most generous new breaks this year. Each senior receives a $6,000 above-the-line deduction. This amount is in addition to the standard deduction of $15,750 for a single filer or $31,500 for a joint filing. Seniors continue to receive an extra deduction of $2,000 (single) or $1,600 per spouse on joint returns. For many retirees, this combination pushes the total effective deduction to approximately $23,750 (single) or $46,700 to $47,500 (joint). For most seniors, these tax breaks will eliminate federal taxes on Social Security benefits. The deduction begins to phase out at modified AGI of $75,000 (single) or $150,000 (joint), and disappears completely at $175,000 or $250,000, respectively. This senior-specific relief is temporary and set to expire after the 2028 tax year unless extended.
Beyond deductions, prioritize tax credits that deliver dollar-for-dollar reductions. The Child Tax Credit offers up to $2,200 per qualifying child (with refundable portions), while the Earned Income Tax Credit provides substantial help for lower- to moderate-income workers, particularly those with dependents. Education credits (American Opportunity or Lifetime Learning) can also apply if you are funding college expenses.
Most people will use the standard tax deductions when filing taxes. A single filer needs to have more than $15,750 in deductions ($31,500 for a couple) to benefit from an itemized tax return. The typical deductions that lead to an itemized tax return are mortgage interest, charitable contributions and medical expenses. In a high tax state like California, the Big Beautiful Bill doubled the SALT cap from $5,000 (single) and $10,000 (joint) to $20,000 (single) and $40,000 (joint).
As you plan this year for next year’s tax filings, use this year’s tax filings as a springboard. For example, one of the simplest things to keep your taxes down is to contribute to a retirement plan. If you have access to a 401(k), 403(b) or 457 plan, start saving now.
Seniors cannot contribute to retirement accounts unless they have earned income. Earned income does not include dividends, interest or social security. That type of income is referred to as passive income and passive income cannot be contributed to a retirement account. Part-time work can be contributed.
Whenever in doubt, talk to a tax professional.
Haddon Libby is the Founder and Chief Investment Officer of RIA-firm, Winslow Drake Investment Management. For more information on our services, please visit www.WinslowDrake.com.
