Maximize Your 2025 Tax Return: Expert Tips

As we approach the 2025 tax season, investors and business owners alike are looking for ways to maximize their returns and minimize their tax liabilities. With the new Trump administration set to implement significant changes, including the extension of many provisions in the Tax Cuts and Jobs Act (TCJA), there are several strategies that can help you make the most of the upcoming tax season. Here are some expert tips to help you navigate the complexities of the 2025 tax landscape.

Understanding the New Tax Landscape

The Trump administration's plans for tax relief, including the potential reduction or elimination of taxes on Social Security, tips, and overtime, could significantly impact your overall tax burden. While these changes are not yet guaranteed, it's essential to stay informed and be prepared to adjust your financial strategies accordingly. For businesses, this could mean increased investment and expansion opportunities, while individuals may see a reduction in their tax liabilities.

Utilizing an S Corporation for FICA Savings

One of the most effective strategies for reducing your tax burden is to utilize an S corporation to save on FICA taxes. By structuring your income as a mix of pass-through income and W-2 salary, you can limit your FICA (Social Security and Medicare) tax liability. This is because pass-through income is not subject to FICA taxes, while W-2 salary is. For example, if you expect to make more than $60,000 of net income in your business this year, you can split your income between pass-through (getting the 199A deduction) and W-2 (limiting your FICA responsibility) and create significant tax savings.

However, it's crucial to ensure that the salary paid to the owner is reasonable. The IRS closely scrutinizes S corporations to ensure that the salary is commensurate with the services provided. If the IRS determines that the salary is too low, they may reclassify some of the pass-through income as W-2 salary, negating the tax savings. Therefore, it's essential to have a constructive conversation about how much salary to take and to ensure that your pass-through income is greater than your payroll.

Integrating Family Members into Your Business

Integrating family members into your business structure can also provide significant tax savings. By compensating family members for their services in the business, you can shift income to family members who are in lower tax brackets, thereby reducing the overall tax liability of the business. For example, children under age 18 should not be paid with a W-2 or a 1099, but compensated as "outside labor" through a sole proprietorship. When set up properly, this can be achieved through the use of a support company for a client's S corporation.

Children age 18 or older will typically be compensated with a 1099 when helping the business from afar while at college or serving on the company's Board of Directors or Advisers. However, if they are acting like a "rank and file employee," they must be paid through a W-2 and comply with state and federal regulations. It's important to ensure that the compensation is reasonable and commensurate with the services provided, as the IRS may scrutinize such arrangements for potential abuse.

Healthcare Expenses and Insurance

Healthcare expenses and insurance are another area where you can save on taxes. The Health Savings Account (HSA) is a powerful tool for both business owners and non-business owners. The HSA is deductible for taxpayers on the front page of their tax return, no matter their income, and it never phases out. The funds grow tax-free and aren't a "use it or lose it" plan. A taxpayer can even invest the money in a self-directed way, including in real estate.

The Health Reimbursement Arrangement (HRA) is another fantastic strategy for business owners with higher-than-average medical expenses. The HRA allows business owners without other employees to set up their own "benefit plan" for healthcare and reimburse themselves for all of their healthcare expenses, thereby getting a 100% write-off for all of their medical expenses. Finally, it's important for business owners to remember that health insurance is 100% deductible for a small-business owner, whether the business owner covers other employees or not.

Preparing for the Future

As we look ahead to 2025, it's essential to stay informed about future investment trends and tax changes. Sustainable investing, disruptive technologies, and emerging markets are all areas that offer significant growth potential. By keeping track of these trends, investors can position themselves to benefit from the changing financial landscape.



Conclusion

The 2025 tax season presents both challenges and opportunities for investors and business owners. By staying informed about the new tax landscape, utilizing strategies like S corporations and family integration, and taking advantage of healthcare savings, you can maximize your tax return and position yourself for future success. As always, it's essential to consult with a tax professional or financial advisor to ensure that your strategies are implemented correctly and in compliance with all relevant laws and regulations.