Don't Mess With Taxes

Photo by Matheus Bertelli

Happy New Year! I know, we’re well past the Jan. 1 hangover phase, but it is the first full work week of 2025, so I stand by my greeting.

And I up it with Happy New Tax Year!

On Jan. 20, Republicans who crafted that major tax reform bill will be in control of all three branches of federal government. They plan to keep and, if reports are true, expand the TCJA. As for paying for all those tax breaks, well that's another matter.

Like I said, exciting tax times ahead.

But while lawmakers on Capitol Hill begin the hashing out tax laws for 2026 and beyond, all us regular taxpayers are focusing this month on some more mundane, but important to us, tax tasks.

So, to help in that regard, here are six January Tax Moves to consider.

They are varied, and don't apply to all of us, covering situations from wage earners to gig workers to savers to those who've already accumulated some wealth to  dealt with disasters to the wealthier among us. But here's hoping one or two (or more) can help you start 2025 on the right tax track.

1. Pay your estimated taxes. It’s no surprise to regular readers that this is, again, the first tax move to make in January. Even before we can file our annual tax returns for last year, Uncle Sam has his hand out, wanting estimated tax payments from those of us who got income that wasn’t subject to withholding last year. The fourth and final amount for the prior tax year is due by Jan. 15.

These four extra payments cover money that generally isn’t subject to mandated withholding. This includes such things as investment proceeds, gambling and prize winnings, and income from gig jobs.

You can make this final (and all) estimated tax payments electronically or, if you choose the snail mail route, by submitting the appropriate 1040-ES voucher (pictured below).

See more tax forms and more about them at Tax Forms 2024 and Tax Forms 2025.

The full estimated tax packet includes mailing addresses in the instructions. And don’t panic if you plan to mail your fourth payment. It doesn’t have to arrive at the IRS by the due date. The IRS considers it timely paid as long as the envelope has a Jan. 15 postmark.

You actually can skip this final estimated payment if you're sure you'll get your 2024 tax return filed and, if you owe, will pay any due taxes by Jan. 31. Don't take this informal extension lightly. Good intentions don't count.

If you miss the January estimated tax payment and then don't file your annual return by the end of the month, the IRS will penalize you for not paying your estimated taxes on time.

2. Adjust your withholding. Millions of taxpayers are champing at the bit to file their 2024 tax returns. They are expecting tax refunds. Others of us put off the filing until April 15 because we owe Uncle Sam.

Sometimes the refund or tax due is beyond our control. Tax things happen. But if you find the tax cash back or debt is mostly because your withholding is off, then adjust the amount taken from your paychecks this month.

The change can mean that instead of waiting for one lump sum from the IRS, your refund will be parceled out in each paycheck. That’s a little extra cash every payday to cover bills or treat yourself or save for emergencies or retirement.

More-accurate withholding also helps when you find you owe each Tax Day. By having a bit more taken out of your paychecks, you won’t have to worry about how you’ll pay a big federal tax bill next April.

3. Increase retirement savings. If your withholding adjustment gives you more money, but you’ve been making do with the prior lower-per-check amount, then simply shift the money. Increase your automatic paycheck contribution to your 401(k). Since you haven’t been getting the money, you won’t miss it when it goes instead to your workplace retirement plan.

If you don’t have a retirement plan at work, open an IRA. In most cases, a Roth IRA is the way to go, since you won’t owe Uncle Sam when you withdraw the already-taxed contributions and their earnings in retirement. A traditional IRA, however, still works for some, especially those who want to take advantage of the above-the-line deduction for these account contributions.

And in all retirement plan cases, contributors who meet income requirements can claim the Saver's Credit. This dollar-for-dollar offset of your tax liability could be as much as a $1,000.

4. Find and hire a tax professional. If you’re dreading the tax season because you’re tired of hassling with it, consider getting professional help this year. A tax pro can help you track (and meet) deadlines, understand tax laws, and take care of the big task — filling out the myriad IRS forms and getting them (or an extension) to the IRS on time.

Truth be told, you probably should have started your tax adviser hunt last year. But we are where we are, and January is a far better time than deeper into tax season to seek help.

So start your search now for the perfect tax pro for your filing (and more) needs.

Once you and the tax professional strike a deal, be a good tax client. Following all your tax preparer's advice, including getting all the necessary information to your pro on time. It will pay off for both of you. If you ignore that request and other guidance, you could find yourself fired, and have to go through the search process all over again next year.

5. Share your wealth early. For most of us, our financial planning focuses on accumulating enough money to live, and retire, the way we wish. If you’ve done that on a regular basis, you could be looking at a sizeable estate. And if it’s so large that it might be subject to the federal estate tax, you might want to take advantage of the estate planning technique of giving financial gifts up to the annual exclusion amount.

For 2025, the exclusion amount is $19,000. You can give that much to anyone — child, grandchild, sibling, niece, of simply unrelated friends (like your favorite tax blogger, perhaps? 😉) — to help reduce the amount of your eventual estate that might be subject to the estate tax.

Yes, I know this only affects the very wealthy. Yes, I also know you just handed out gifts during December’s holiday season. And yes, I know the GOP has long wanted to do away with the estate tax and just might do that now that they are in control in D.C.

But as the saying goes, we never know what our future holds, personally or legislatively. So if you’re well off enough to considering making financial gifts per the tax exclusion rules, a January present could start your recipient(s)’ year off on a very high note.

6. File your 2023 return. No, I haven’t suddenly flipped to an old calendar. This is a legitimate reminder, although it only applies to certain taxpayers in 14 states and two U.S. island territories who live in locales declared last year as major disaster areas. The key deadline for them is Feb. 3.

But that means the affected taxpayers in all of Louisiana and Vermont, as well as all of Puerto Rico and the U.S. Virgin Islands, and parts of Arizona, Connecticut, Illinois, Kentucky, Minnesota, Missouri, Montana, New York, Pennsylvania, South Dakota, Texas, and Washington state need to get to work on those filings this month.

More January tax moves: OK, I know this is a lot, especially if you extended your New Year's holiday and just now are getting back into the swing of things. But time and taxes march on, so when you’re up to it, take a closer look at the suggestions that fit your tax and financial circumstances.

And if you’re at the other end of the New Year action scale, I applaud and envy your post-holiday energy and enthusiasm. You can find more in the ol' blog's usual monthly tax tasks list in the right column, just beneath the countdown clock ticking off the time left until our 2024 Form 1040s are due on April 15.

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