By Steve Garmhausen

Tax season is once again upon us. And while tax law didn't change much for the 2024 filing year, there has been plenty of news. The Trump administration has begun laying off what are expected to be 6,700 of the Internal Revenue Service's 84,000 employees. And provisions of the Tax Cuts and Jobs Act are due to expire after the end of the year if they're not extended by Congress.

For this week's Barron's Advisor Big Q, we asked financial professionals what they're telling clients about filing their taxes this year. They weighed in on whether the IRS staff cuts might impact taxpayers, and shared proactive steps individuals can take to mitigate present and future tax bills.

Patrick Malloy, tax director, Crescent Grove Advisors: There's certainly a lot of noise right now around the tax world, with looming tax law changes, budgetary concerns and decreased staffing within the Treasury Department. But I don't see these factors impacting the 2024 filing season, at least right away. Decreased IRS staffing shouldn't impact your ability to electronically file your 2024 return. We'll see how the layoffs affect wait times on the phone, or if there are delays processing paper returns, but it's unclear where and when the effects will be felt.

For the 2024 filing season, we want to focus on limiting processing delays for clients. We've seen in recent years that the IRS will delay a refund if they think there may be identity theft involved in a taxpayer's account. The IRS goes through various procedures to verify the tax return, which may include sending a letter to the taxpayer asking them to verify certain information. I advise creating an IRS online account, which allows you to see current and past tax history and can alert you if there's any issues on your account. This can help you avoid some of the administrative problems we've seen in recent years.

Something else that is relevant now is that the IRS may grant automatic penalty relief and extensions of time to file tax returns and pay taxes for taxpayers in certain federally declared disaster zones. For 2024, certain parts of Florida and California come to mind. If someone is having trouble filing their taxes on time, they can visit the IRS website to check whether they're eligible for these extensions.

Tara Popernik, Head of Wealth Strategies at Bernstein Private Wealth Management: There are still a few things individuals can do to potentially reduce their tax bill for this year or going forward. One is contributing to an IRA or a SEP IRA. If you hadn't made one before year-end 2024, you have until April 15 to get those in for the 2024 tax year. Some individuals who may not be eligible to deduct those contributions to IRAs may make a nondeductible contribution if they wish to. We find that some clients like to convert into a Roth IRA, and while that's not necessarily saving tax today, it will save tax going forward by sheltering assets for growth in a tax-free environment.

You can think today about what you can do to potentially minimize future tax bills. Take a look at how your investment assets performed: Does your asset manager consider the tax impact of every trade? Are they taking long-term gains or short-term gains? Are you invested in a tax-efficient portfolio, such as a muni bond portfolio? Are you sheltering ordinary income tax through deferred or tax-free structures? We think the market volatility of the past couple of weeks could be an opportunity to harvest losses to offset gains. Finally, make sure you are taking full advantage of your tax-deferred accounts. Contribution limits for 401(k)s went up to $23,500 for 2025 -- and if you're between the ages of 60 and 63 you have a special catch-up opportunity in 2025 to defer up to an additional $11,250.

Martin Gross, founder and president, Sandalwood Securities : The 2024 filing year is pretty benign as far as tax law changes. So we're encouraging people to take a longer term look at what's coming in the future, including whether the Tax Cuts and Jobs Act provisions sunset or not. A perfect example of something we can do today is to figure out whether to fund a traditional IRA or 401(k) or a Roth IRA. Health savings accounts are another tool that people don't completely understand. I spend more time on HSAs than anything else, trying to get people to maximize their contributions.

Yesterday I had a client couple who were in a 22% bracket and had had an unusual year as far as capital gains contributions. They're both retired, except he has a part-time gig, so he made $11,400. I recommended that they go ahead and fund a traditional IRA for that $11,400. It took them completely out of the 22% bracket and left them with about $3,000 left to go in the 12% bracket. And it created a situation where most of those capital gains were now tax-free.

If you can file early, do it. But of course, some clients have to wait on K-1 forms, and we file an extension every year. But a lot of people should probably file an extension, just because we might then get a clearer picture of what will happen with the tax law. And there could be some current year elections we could make with that tax return, as opposed to filing early and not being able to make them.

Josh Hederick, financial advisor, Prime Financial Capital: We do a lot of business with Schwab institutional. If clients with Schwab accounts have switched over to receiving statements electronically, they want to make sure they pay attention. Because if they don't give them to their CPA, they're going to miss something, and that's going to make their taxes for 2024 inaccurate. Some clients aren't as technologically savvy, and they don't check their email for statements. It helps if you have all your accounts set up the same way, either for all paper statements or all electronic statements.

Another big issue is that people will often get revised statements. Normally in the early part of February Schwab, the custodian we use for most of our clients, will send out their 1099s and clients are then in a big rush to get those to their CPAs and get their returns filed. Well, there's usually a revision that takes place at the end of February or in early March. If a fund company updates their filing to correct a mistake or add something that's new, Schwab is obligated to send out a revised statement. So filers should wait until early- or mid-March if they can, to make sure they have an accurate return.

One other small thing: If taxpayers are stuck with a tax bill they can't afford to pay, they can set up payment plans with the IRS. I don't think people know that. They're just afraid of the IRS, which is not necessarily the best way to handle it.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 06, 2025 08:23 ET (13:23 GMT)

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