The most recent Tax Foundation data estimates that average tax refunds could reach $3,800 this year, an increase from $3,052 on an annual basis.
With Americans expected to receive higher tax refunds, you want to ensure that you set yourself up for the best possible results this tax season.
GOBankingRates consulted with tax experts about the one simple money move people can do to lower their tax bill before filing this year.
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Contribute To Your Retirement Accounts
“The easiest last-minute money move that can help you reduce your tax bill for 2025 is contributing to a traditional retirement account,” said Gene Bott, certified public accountant (CPA), tax advisor and partner at Kevin O’Leary’s Tax Hive.
In addition to investing in your future, you can also benefit from tax advantages when making certain retirement contributions. This means that you’ll want to start off by reviewing your current retirement contributions to ensure that you’ve made the right choices that could help you lower your tax bill.
“The simplest move that most taxpayers can still make to lower their bill is contributing to a traditional IRA before the filing deadline,” said Logan Allec, CPA and owner of Clarita CPA Group in Santa Clarita, California. He also pointed out that this assumes that you’re eligible for a deduction to your traditional IRA.
It’s worth noting that not only are traditional IRA contributions deductible, but you may also qualify for the retirement savings contributions credit, also known as the Saver’s Credit. This credit can be 10%. 20% or 50% of the amount that you contribute. Your applicable percentage and whether you can take the credit at all depend on your filing status and adjusted gross income for the year.
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How Do You Apply This Money Move?
Bott warned against blindly stepping into this strategy. “Moving money into a retirement account means that those funds are supposed to stay in the account until you retire or you’ll pay a 10% early withdrawal penalty,” he explained. If you need to access the money in the near future, it can hurt your cash flow. However, this can be a very effective strategy if you’re looking to lower your tax bill.
As always, it’s recommended that you consult your financial planner to determine whether this fits your overall retirement plan and goals. You’ll want to review the IRS contribution limits to ensure you don’t exceed them and that you’re eligible to contribute.
This article on Vanguard pointed out that you can generally claim your traditional IRA contributions to reduce your taxable income for the year in which you make the contribution. However, your deductibility may be limited if you or your spouse is covered by an employer-sponsored retirement plan or if your income exceeds a certain threshold. The good news is that this simple money move can help you with your short-term and long-term financial goals.
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This article originally appeared on GOBankingRates.com: This One Simple Money Move Can Lower Your Tax Bill Before Filing
