Smart Tax Strategies for 2025: Tips from PCM Financial Experts

In this episode, PCM’s Andrew Randisi, CFP®, shares practical tax strategies to help you reduce your 2025 tax burden and keep more of what you earn. From maximizing retirement contributions and making tax-smart charitable gifts to portfolio management and 529 college savings plans, you’ll learn simple, actionable tips to align your tax planning with your financial goals.

Thank you for listening. For more information about how we can help you achieve your financial goals and live a life you love, please visit PCMAdvisors.com.

Transcript

Lesley: Welcome everyone today I'm joined by Andrew Randisi, a certified financial planner here at Pennsylvania Capital Management. We're gonna be talking about smart tax strategies for you. So just some quick and easy tips that you can, pop in your brain and swirl it around and keep in mind as you're going through your financial lives here.

So, we'll get started. Andrew, take it away with some tips for us. 

Andrew: Thanks, Lesley. let's get started with what? An easy one that's right on deck for most of us, W2 employees, and that would be maxing out those annual retirement contributions. A quick way that one can reduce their tax, their taxable income for 2025 is by contributing one to your retirement plan, hopefully you're getting an employer match to incentivize you to contribute. But the thing is if you do contribute on a pre-tax scale, pre-tax dollars, you get a deduction on your income taxes for that current year. For 2025 the maximum for [00:01:00] an individual that's under 50, that can be contributed to a 401k or a 403B, or if you wanna go tax free and Roth 401k, that's great too that is $23,500. For those that are over 50 but there's a bit of a quirk this year if you're over 50, between the ages of 50 and 59, and then over the age of 64, you can contribute an additional $7,500 this year beyond that $23,500. Now this year, there's also now what's just been instituted called, super catchup.

Now, I had just mentioned that there was a bit of a gap there between 50 and 59, and then after 64. For those that are in with 401k plans for ages 60, 61, 62, 63, you can contribute an additional $3750 on top of that $7,500 catch up, so it comes out to [00:02:00] be $11,250, if my math seems to be correct.

Let's not forget outside of the plan, outside of those traditional retirement plans, for those that have IRAs or Roth IRAs, if you're under age 50, you can contribute $7,000 for a IRA or Roth IRA, or if you're over 50, you contribute $8,000 with that extra thousand dollars catch up. 

Lesley: That's a good one Andrew.

And you're right. Really easy, just up your contributions to your 401k plan. That's an easy one to hit. 

Andrew: No brainer. Especially if you're getting a match and your employer is gonna ship in some extra 'cause you're building towards retirement, as well as getting that tax break now too.

Lesley: Yep. Sounds good. What's another one you've got for us? 

Andrew: Another one that often we see a lot of our clients do who those are charitably inclined, would be gifting to charity. Now, I'd say there's many ways that one can gift to charity throughout the year. We've seen client, I'd say for more smaller donations, it can be articles of [00:03:00] clothing, it could be furniture, it could be art.

We've even seen clients gift artwork to museums. But I'd say, but for most, usually it falls in the two categories that clients are gifting. Cash contributions or shares of stock investment securities. I would say often with most of our clients, usually gifting the shares of stock tends to work and be the best bang for your buck when it comes to gifting to charity.

'Cause you're accomplishing two goals. One, you are gifting to charity and satisfying that need that you want to do. If you're so charitably inclined, you're also gifting highly appreciated securities away to that charity. So that's not only are you getting the check, the tax deduction, for gifting to charity, you're also gifting securities that have high, that would be high capital gains, so you're not realizing those capital gains.

 it's a twofold purpose, which would be good on why we usually typically recommend clients donating stock over cash or other items when they wanna do their charitable donations [00:04:00] for the year. 

Lesley: Yep. That's a good one too, Andrew. And you're right, we have a lot of clients that do that. That's a good option.

And one, I think sometimes people don't think of. They think, oh, I, I'll write a check or I'll, Venmo money to the charity, but. You really can, as you said, you can get the two bangs for your buck if you actually donate a highly appreciated. 

Andrew: Yeah. That's part of the reason why I like to look at client's tax return, a tax return from a previous year or for a prospect if we see that they're itemizing 'cause that's when the charitable deductions usually come into play. That's when it counts. You have to be an itemizing if you're giving to charity. You have to itemize in order to get the deduction. You take the standard deduction that won't, that doesn't count, but you next year in 2026, there'll be some, there will be a little bit of a wrinkle for the standard deduction in tax filers to be able to claim some charitable deductions.

But I'd say so far, for 2025 and past years you had to item itemize in order to make the charitable deduction or donating to charity worth your while. Often we'd [00:05:00] see clients that would have 10, 15, $20,000 of cash. I'd see an itemized deduction of charity, and we'd mention a great planning topic for the following year would be, in lieu of donating $20,000 of cash, donate $20,000 of stock X, Y, Z, the embedded capital gain you don't realize and you still get the deduction, and then you can keep your cash.

And if the client is so inclined, you can buy back that stock and you've averaged up your cost basis. Accomplishing, you've you're covering all your bases in one shot. 

Lesley: Yeah, that's a great one, Andrew. Love it. 

Andrew: Donating stock is one part of it. You can also make charitable contributions out of an IRA, which we call qualified charitable distributions, in when financial planning speak there's an acronym for everything, QCDs. For individuals that are over 70 and a half one can distribute out of their IRA and donate to charity $108,000 this year. That's goes up that it gets adjusted [00:06:00] for inflation each year. But what that is enabling a client to do, not only are they. Satisfying that charitable cause that they want to contribute to that's near and dear to them.

If they are in the stage of required, if the client's a little bit older, say they're 73 or 75, depending upon what their birthdate is, if they're subject to RMDs and have to take money out of their pre-tax IRAs, the QCD can satisfy a portion or all of that RMD also, thus saving more on taxes. 

Lesley: Sounds good.

So there's a couple of tips for you on gifting strategies that help with your taxes. Do you have another one? I know we have one on our list about harvesting tax losses. Do you wanna talk about that for a minute? 

Andrew: How the portfolio, so those are some things on how to get some immediate, I'll say get deductions during, through, during the year or through throughout the year.

What are some things that can be done to make your portfolios more tax efficient? So, a couple of [00:07:00] those strategies that come into play is, being mindful, there's asset allocation. Which we work with clients, your mix of stocks to bonds and other asset, alternative asset classes that meet your goals over time.

There's also such a, there's also what we want to be mindful of is asset location. Or what investment instruments we're putting in those various account registrations. So, a great example that usually comes to mind would be for our we'll look at taxable brokerage accounts first. Taxable brokerage accounts client gets a 1099. You'll want to be mindful. So, every year there's gonna be some tax drag. Whether that might be portfolio selling throughout the year interest in dividends. What you wanna have more of an emphasis on if you're looking at taxable brokerage accounts would be qualified dividends which get, which fall into the zero, 15 or 20% bracket for clients.

And then you, [00:08:00] in terms of interest. What we'll wanna also want to emphasize would be more municipal bond interest, which is not taxed at the federal level, or could also be taxed at the state level depending upon if you're buying a state specific muni bond, your, we have a client living in California.

You might wanna have more California muni bonds, or muni bond funds in your portfolio. You live in Florida, not so much of a big deal because there's no state income tax, but you still wanna have more. You can have. A national muni bond or a whole of muni bonds across the country. 'cause you're saving on the federal tax.

 another thing to keep in mind with taxable brokerage accounts would be capital gains. This especially comes with mutual funds. Mutual fund companies have to distribute out their capital gains throughout at the end of the year, or at least on by the end of the year, they have to have what their capital gains distributed out to you.

That can be, I call it phantom income tax. That's the tax drag that comes into the portfolio. [00:09:00] You're more highly active portfolio managers that are buying and selling stocks, or if you're doing a lot of trading as well, you might wanna place, more emphasis and do that in a qualified retirement account like an IRA or a Roth IRA or all that portfolio trading in those capital gain distributions are at least either tax free or they're shielded for more tax deferred.

And also. Corporate bonds we had mentioned between municipal bonds there would be more favored for taxable accounts 'cause you wouldn't be paying the federal income tax during the year at the end of the year. Corporate bonds, whether that be you buy individual corporates, or you are buying a corporate bond or an investment grade AGGG, ETF, or a high yield, corporate bond, ETF or mutual fund that's best reserved for a retirement account, where those, where that ordinary interest and ordinary dividends are [00:10:00] either tax free in the Roth or tax deferred in your IRA. 

Lesley: Sounds good. And then what about that, that one that I had mentioned about harvesting losses, I know that's a big one.

I see that a lot with investors. They get so attached to their, their stock pick, that they don't wanna let it go even when it's at a loss. And, that's something I think a lot of people make a mistake on, 'cause you really could, you can sell it, take the loss, and then buy it back 31 days later if you really love the company.

Andrew: Correct. Correct. Exactly. Tax loss harvesting strategies are definitely a way, and it's really, this was more so for taxable brokerage accounts, whether that be an individual account, a custodial account, joint account a trust account. If you are a especially if a client is drawing on the portfolio and is realizing capital gains selling investments that are not doing as well that might have a, that might have a loss in them, can help reduce taxes.

When you do harvest the, losses. If you don't use all of the losses in that particular tax year you are [00:11:00] able to write off $3,000 of tax loss, harvesting against ordinary income, anything that might be extra left over. The IRS allows you to carry forward into future tax years.

So, the way we try to emphasize for clients is tax loss harvesting. It's not the end of the world. We wanted you to consider it more of as an asset. It's an asset that can be used in the future to either one, reduce income, future income in, in, in following years. Or if you're gonna have capital gains in the future, whether that be you are a business owner that's gonna be selling a business you're gonna have capital gains if you're selling a piece of real estate that might not qualify for the primary home exclusion to reduce some of the capital gains or you're just

selling some investments in your portfolio to support your monthly expenses. Having those losses to offset those gains makes future years more streamlines the tax, the tax bite in the fall in future years. [00:12:00] 

Lesley: Great. Yep. Makes sense. How about one, one last one. Let's just talk for a minute or two about 529 plans, 'cause I know you know, most of our listeners have probably heard about 529 plans. Can you tell a little bit about how that's a smart tech strategy? 

Andrew: Sure. It's, it helps in a couple different ways for taxes. One, depending upon the 529 plan, what state that you live in, gifting to a 529 plan, you might be able to get a state income tax deduction.

Unfortunately, there's no deduction for gifting for federal income tax on gifting to a 529. But what really is the great thing about what happens is it can be used as both an income tax planning and an estate tax planning tool. On the income tax planning, you are getting tax free growth.

So long as when the dollars do come out, they are being used for qualified education expenses. The recent tax package that passed this past 4th of July expanded a lot of the uses for what falls under [00:13:00] the umbrella of qualified education expenses. And then next year it can be, it has been expanded previously.

529s could be used to pay for, K through 12 private school education and it was capped at $10,000. Now, next year that's gonna be expanded to $20,000 can be used for private K to 12. So that's one though. That's one. I would say on the income tax way. The income tax side, how 529s can be great 'cause you're getting put in the funds gross tax free.

And the child, your child or grandchild has, can have those assets. From an estate planning perspective, it also works quite well too. Because when you make the gift of the gift of the 529 you're reducing the taxable assets in your estate. So, from an estate planning perspective, and 529s also have another quirk.

They can be what's called super funded. What the IRS allows is you can donate up to [00:14:00] five year’s worth of 529 plan contributions in one year. And then for the next four, the next five years, you can that's the Superfunding process. If one grandparent or parent did that, it's $19,000 per year is the annual exclusion. So, if my math is right, 19 times five is $95,000. If two grandparents or two parents did that, you can remove nearly $190,000 from your taxable estate and five years later you can wash, rinse, repeat, and do it again. 

Lesley: That's great. A great way to really boost up your child or your grandchild's education savings account and give yourself some tax breaks on that as well.

Andrew: Yeah, it's plenty of added flexibility 'cause you're solving a couple of goals. The federal inherit, the federal lifetime exemption is 13 million and change this year. Next year It [00:15:00] goes up to 15 million. So, for those that have that high level of the net worth.

It's a great tool, especially if you have multiple children or a lot of grandchildren. You can do the super funding and remove quite a lot, quite a bit of dollars from your estate. If you're near those, we'll call it ultra-high net worth levels. Also, you at the same benefit you're giving your child or grandchild allowing tax-free growth for education for the future.

And we know how much the cost of education keeps going up year after year. 

Lesley: That's great. That's a good one. Thank you, Andrew. These are some good tips for our listeners to keep in mind as they, they move through their financial lives. And if you ever have any questions to our listeners that Andrew or anybody at Pennsylvania Capital Management could answer, please feel free to get in touch.

Our website is pcmadvisors.com and we're always happy to help. Thanks for joining us today. 

Andrew: Bye-bye. 

Lesley: See you.