| ||||||||||||
Want to lower your 2025 tax bill? A number of opportunities to offset prior-year income and capture credits are still available until the tax filing deadline.
Those include:
Taxpayers who are looking to minimize their tax liability, of course, had dozens of tools at their disposal before the New Year hit, including potentially deferring income, accelerating deductions, or selling off losing stocks to offset capital gains — a concept known as tax-loss harvesting. But those opportunities abruptly ended on Dec. 31 for the 2025 tax-filing season.
“There were a whole host of tax moves you could make before the end of the year,” said Paul Morrone, a certified public account and financial planner for U.S. Wealth Management in North Haven, Connecticut, in an interview. “Most have expired, but not all.”
Those that remain, he said, revolve primarily around retirement plan contributions, tax credits, and penalty avoidance.
Retirement plans: Prior year contributions
Your traditional Individual Retirement Account, or IRA, offers the biggest potential bang for the buck.
The Internal Revenue Service (IRS) allows taxpayers to make deductible prior-year contributions all the way up to the tax-filing deadline. For 2025 tax returns, that deadline is April 15, 2026.
For tax year 2025, total contributions to all of your traditional and Roth IRAs for taxpayers under age 50 cannot be more than either $7,000, or your total compensation for the year if you earned less than that amount. Those 50 and older can make an additional $1,000 catch-up contribution, for a total of $8,000.1
Deductible contributions could save you big. A taxpayer in the 25 percent federal and 5 percent state tax brackets, said Morrone, “effectively gets a 30 percent return right out of the gate by virtue of a reduction in their federal and state tax bill.” On a $7,000 contribution, that amounts to a $2,100 tax savings.
Your actual tax deduction, however, may be limited if you or your spouse are covered by a retirement plan at work and your income exceeds certain levels.
For those covered by a workplace retirement plan, the deduction begins to phase out for single tax filers who made more than $79,000 in 2025 and disappears completely at $89,000 and beyond — $126,000 and $14,000 respectively, for married taxpayers who file jointly.2
Eligible taxpayers can also make retroactive contributions to their Roth IRA until the tax filing deadline. Different phaseout limits apply for Roth contributions.
Because Roth IRAs are funded with after-tax dollars, your contribution will not yield a current-year tax deduction, but it could potentially produce a better investment return since earnings upon retirement can be distributed tax free.
Simplified Employee Pension IRA (SEP IRA) account owners who get an extension to file can potentially delay their contribution further still, until October.
Contributions to a SEP-IRA, geared for small-business owners and the self-employed, cannot exceed the lesser of 25 percent of total compensation or $70,000 for 2025. (Related: SEP or Simple: Which IRA is right for your business?)
If you operated a business last year, the “SEP may be a terrific way to receive a deduction and save for retirement with contribution limits well over those available with regular IRAs,” said Elliot Herman, a CFP® and CPA with PRW Wealth Management in Quincy, Massachusetts, in an interview.
Tax deductions: Roll up your sleeves
Most taxpayers take the standard deduction, an amount set by Congress that reduces the amount of income on which they are taxed. This amount can change each year, depending on inflation. (Learn more: Overlooked tax deductions)
Why?
Because it’s a lot less work. You don’t have to keep track of your expenses, or individually deduct them on IRS Schedule A. The standard deduction for tax year 2025 is $15,750 for single filers, $31,500 for married taxpayers filing jointly, and $23,625 for heads of household.
New rules for itemized deductions
That said, the rules for itemized deductions in 2025 have changed considerably under the One Big Beautiful Bill Act (OBBBA), making it potentially more beneficial for taxpayers to itemize their expenses this year — particularly those who live in states with high property taxes.
To determine whether you might come out ahead by itemizing, you must compare your eligible itemized expenses to the standard deduction for your filing status.
According to the IRS, you should itemize if the total amount of your allowable itemized deductions is greater than your standard deduction or if you must itemize deductions because you can't use the standard deduction. You may also want to itemize deductions if your standard deduction is limited because another taxpayer claims you as a dependent.3
Itemized deductions, subject to certain dollar limitations, include amounts you paid during the taxable year for state and local income or sales taxes (SALT), real property taxes, personal property taxes, mortgage interest, disaster losses, gifts to charities, and medical and dental expenses.
The limitation on itemized deductions was previously eliminated for tax years 2018 through 2025. OBBBA eliminated the limitation permanently, although it capped itemized deductions to 35 cents on the dollar for taxpayers in the highest (37 percent) tax bracket. That limit does not apply to taxpayers in all other tax brackets.
For those who itemize in 2025, here are the highlights:4
- SALT: You will be able to deduct up to $40,000 in state and local taxes (SALT), up from a cap of $10,000, with a phase-down for taxpayers with modified adjusted gross income (MAGI) above $500,000. That cap is slated to increase by one percentage point each year through 2029, then return to $10,000 in 2030. The SALT deduction includes state income, property and sales taxes.
- Mortgage interest: You can potentially deduct some of the interest you pay on your home mortgage loan. The limit on deductible home mortgage interest is permanently set at $750,000 of qualifying mortgage debt for married joint filers ($375,000 for single filers). Interest on home equity loans is only deductible if the funds are used to buy, build, or substantially improve the taxpayer's home.
- Medical expenses: You may be able to deduct unreimbursed eligible medical expenses that exceed 7.5 percent of your Adjusted Gross Income (AGI).
- Casualty and theft losses: Personal casualty losses are limited to federally declared disasters through 2025; starting in 2026 state declared disasters also qualify. Theft losses aren’t required to be related to a disaster, but generally must come from some activity engaged in for profit. There are also dollar limitations on the loss and AGI.
- Miscellaneous: The ability to itemize miscellaneous deductions was suspended. Taxpayers are no longer able to itemize deductions that exceed 2 percent of their adjusted gross income.5
New OBBBA tax deductions for all eligible taxpayers
OBBBA also created new deductions for tax years 2025 through 2028 for all eligible taxpayers, regardless of whether they itemize or claim the standard deduction:6
- Senior bonus deduction: Taxpayers aged 65 and older may now claim an additional $6,000 deduction ($12,000 for qualifying married couples). The deduction is reduced by 6 percent for every dollar of MAGI over $75,000 for single filers or $150,000 for married taxpayers filing jointly.
- No tax on tips: Employees and self-employed individuals who receive tips in occupations listed by the IRS may be able to deduct up to $25,000 of qualified tip income. The deduction is reduced for taxpayers with MAGI over $150,000 (single) or $300,000 (married filing jointly).
- Overtime pay deduction: Individuals can potentially deduct up to $12,500 ($25,000 for married couples filing jointly) of qualified overtime compensation. The deduction begins to phase out for taxpayers with MAGI over $150,000 ($300,000 for joint filers).
- Car loan interest deduction: You can potentially deduct up to $10,000 in interest on a loan used to purchase a new, U.S.-assembled vehicle. The deduction is reduced for single taxpayers with MAGI over $100,000 or married couples filing jointly with MAGI over $200,000. There are some detailed rules around what vehicles and loans qualify—the vehicle must be a car, minivan, SUV, pickup, van, or motorcycle; weight under 14,000 pounds, brand new; and the loan must have been originated at the beginning of 2025 or later.
Tax penalties
The only thing worse than giving Uncle Sam his due is leaving him a tip.
To avoid a potentially hefty late-filing penalty, you must submit your income tax return on time, regardless of whether or not you can afford to pay.
Indeed, the failure-to-file penalty can be as much as 5 percent of your unpaid taxes for each month or part of a month that your tax return is late, up to 25 percent of your unpaid taxes.
By comparison, the penalty for failure to pay is far less: one-half of 1 percent of your unpaid taxes for each month or part of a month for which your balance is unpaid after the due date, up to a maximum of 25 percent.
If you can’t afford to pay your taxes in full, you can reduce additional interest and penalties by paying as much as you can with your tax return, according to the IRS.
Remember, too, that simple mistakes on your tax return may result in a rejected claim or underpayment of your balance due, which opens the door to late-payment penalties.
Historically, the most common errors include missing signatures, math errors, insufficient postage, and incorrect identification information such as name, taxpayer identification number, and current address. Others select the wrong filing status, forget to date their return, or check the wrong exemption boxes for their personal, spousal, and dependency exemptions.
Double-check before you file to minimize the risk of costly penalties.
Submitting your tax return electronically ensures greater accuracy than mailing it in since the IRS e-file system flags common errors and kicks back returns for correction.
Tax credits
When it comes to lowering your taxable income, you are your best advocate.
Tax deductions, which reduce the amount of your income subject to tax, are great, but tax credits, which reduce your tax bill dollar for dollar, are even better. So don’t leave any tax credits or deductions for which you are eligible on the table.
Families with dependent children may be eligible to claim a credit of up to $2,200 per qualifying child under the Child Tax Credit.7 The tax credit begins phasing out for married couples filing jointly with modified adjusted gross income over $400,000 and for all other filers who make more than $200,000. Additionally, a non-refundable credit of $500 is provided for certain non-child dependents.
If you paid for someone to care for your child, spouse, or dependent so you could work or look for a job, you may be able to claim the Child and Dependent Care Credit. The amount of the credit is a percentage of the amount of work-related expenses you paid to a caregiver, and is based on your income. Total expenses may not exceed $3,000 for one child or dependent or $6,000 for two or more qualifying individuals, and the amount of your credit is between 20 percent and 35 percent of allowable expenses.
Low- to moderate-income taxpayers, especially families, should also check to see if they can claim the valuable Earned Income Tax Credit. For tax year 2025, the maximum credit for those with no children is $649, while those with one child may receive a credit of $4,328, two children $7,152, and three or more children $8,046. To qualify, you must meet certain federal requirements and file a tax return, even if you owe no taxes.
Single taxpayers with adjusted gross income of $39,500 or less in 2025 ($79,000 for married couples filing jointly) may also be able to claim the Retirement Savings Contributions Credit, or Saver’s Credit, which provides a credit up to $1,000 ($2,000 for married couples filing jointly) for amounts they voluntarily save for retirement, including amounts contributed to their IRAs, 401(k) plans, and other workplace savings plans.
Similarly, those paying for higher education expenses may be able to claim one of two tax credits: the American Opportunity Tax Credit, which provides up to $2,500 in tax credits on qualifying education expenses per eligible student, or the Lifetime Learning Credit, which may be as high as $2,000 per eligible student. You cannot claim both credits for the same student in the same year.
If you haven’t yet filed your tax return for 2025, there’s still much you can potentially do to minimize the amount you may owe.
By taking advantage of tax-favored retirement tools, filing an accurate return, and educating yourself on available deductions and credits, you might just save enough to pay off your credit card debt or catch a flight somewhere warm.
Since 1851, MassMutual has been focused on helping people secure their financial future and protect the ones they love. That mission is why we have over 7,500 financial professionals to assist you on your journey through insurance, investing, retirement planning, estate management, and more. You can find a MassMutual professional with this tool or you can let us know you’d like to talk to one and we’ll have one of our financial professionals can contact you.
Learn more from MassMutual…
Life insurance: 3 income tax advantages
Building your financial pyramid
Need financial advice? Contact us
This article was originally published in March 2019. It has been updated.
_________________________________________
1 Internal Revenue Service , “Retirement Topics – IRA Contribution Limits,” Sept. 22, 2025.
2 Internal Revenue Service, “ IRA Deduction Limits,” Aug. 26, 2025.
3 Internal Revenue Service, “Topic no. 501, Should I itemize?” Sept. 19, 2025.
4 Internal Revenue Service, “One Big, Beautiful Bill provisions,” Oct. 24, 2025.
5 Internal Revenue Service, “ Publication 529 Miscellaneous Deductions,” March 28, 2025.
6 Internal Revenue Service, “One Big, Beautiful Bill provisions,” Oct. 24, 2025.
7 Jackson Hewitt, “Child tax credit 2025: Child tax credit updates and payments,” July 21, 2025.
