Financial Guide

• Defer Income Recognition
• Max Out Your 401(k) or Similar Employer Plan
• If You Have Your Own Business, Set Up and Contribute to a Retirement Plan
• Contribute to an IRA
• Defer Bonuses or Other Earned Income
• Accelerate Capital Losses and Defer Capital Gains
• Watch Trading Activity in Your Portfolio
• Use the Gift Tax Annual Exclusion to Shift Income
• Invest in Treasury Securities
• Consider Tax-Exempt Municipal Bonds
• Give Appreciated Assets to Charity
• Keep Track of Mileage Driven for Business, Medical, or Charitable Purposes
• Contribute to a Pre-tax Account to Fund Medical Expenses
• Check Out Separate Filing Status
• If Self-Employed, Take Advantage of Special Deductions
• If Self-Employed, Hire Your Child in the Business
• Business Records to Retain for 1 Year
• Business Records to Retain for 3 Years
• Business Records to Retain for 6 Years
• Business Records to Retain Indefinitely
• Business Records to Retain for 1 Year
• Business Records to Retain for 3 Years
• Business Records to Retain for 6 Years
• Business Records to Retain Indefinitely
• Other Records Special Circumstances

Most individuals are in a higher tax bracket in their working years than they are during retirement, so using tax-advantaged retirement accounts to defer income until retirement can reduce your current-year taxes plus may ultimately result in paying taxes on that income at a lower rate. Additionally, you may be able to invest the money you would have otherwise paid in taxes to increase the amount of your retirement fund. Deferral can also work in the short term if you expect to be in a lower bracket in the following year or if you can take advantage of lower long-term capital gains rates by holding an asset a little longer.

Another way to use timing to reduce your current-year taxes is to accelerate deductions, for example, by paying a state estimated tax installment in December instead of at the following January due date. But be mindful of the $40,000 ($20,000 if you’re married filing separately) annual limit on the deduction for state and local taxes, which, through 2028, applies to the combined amount of property taxes and income or sales tax.

Many employers offer plans where you can elect to defer a portion of your pay by contributing it to a tax-deferred retirement account. For many companies, these are 401(k) plans. For nonprofit employers, such as universities, a similar plan called a 403(b) is available. If your employer offers such a retirement plan, contribute as much as possible to defer income and accumulate retirement assets.

Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer matching contribution.

If you have your own business, consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting business. Several types of plans are available which minimize the paperwork involved in establishing and administering such a plan.

If you have income from wages or self-employment income, you can build tax-sheltered investments by contributing to a traditional or a Roth IRA. You may also be able to contribute to a spousal IRA even if the spouse has little or no earned income. All IRAs defer the taxation of IRA investment income, and in some cases, contributions may be deductible or withdrawn tax-free.

Related Guide: For details on how Roth IRAs work and how they compare in other respects with traditional IRAs, please see the Financial Guide: ROTH IRAs: How They Work and How To Use Them.

To get the most from IRA contributions, fund the IRA as early as possible in the year. Also, pay the IRA trustee out of separate funds, not out of the amount in the IRA. Following these two rules will help ensure that you get the most tax-deferred earnings possible from your money.

If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you’re self-employed, defer sending invoices or bills to clients or customers until after the new year begins. Here, too, you can defer some of the tax, subject to estimated tax requirements. This may even permanently save taxes if you are in a lower tax bracket in the following year. Be advised, however, that the amount subject to Social Security or self-employment tax increases each year.

If you have investments on which you have an accumulated loss, it may be advantageous to sell them prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).

For most capital assets held more than 12 months (long-term capital gains), the maximum capital gains tax is 20 percent. However, make sure to consider the investment potential of the asset. It may be wise to hold the asset to maximize the economic gain or sell it to minimize the economic loss.

When your mutual fund manager sells stock at a gain, these gains pass through to you as realized taxable gains, even though you don’t withdraw them. So, you may prefer a fund with low turnover, assuming satisfactory investment management. Turnover is not a tax consideration in tax-sheltered funds such as IRAs or 401(k)s. For growth stocks you invest in directly and hold for the long term, you pay no tax on the appreciation until you sell them. No capital gains tax is imposed on appreciation at your death.

You can give away $19,000 ($38,000 if joined by a spouse) per donee in 2025 without owing federal gift tax or using up any of your lifetime gift and estate tax exemption. You can make these annual exclusion gifts to as many donees as you like. While these transfers are not taxable, any income earned on these gifts after the transfer will be taxed at the donee’s tax rate, which in many cases is lower.

Special rules apply to children subject to the “kiddie tax.” Also, if you directly pay the medical or educational expenses of the donee, such gifts will not be subject to gift tax.

For high-income taxpayers who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax. Also, investing in Treasury bills that mature in the next tax year results in a deferral of the tax until the next year.

Interest on state or local municipal bonds is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for greater than that from higher-interest commercial bonds. Gain on the sale of municipal bonds is taxable, and loss is deductible. Tax-exempt interest is sometimes an element in the computation of other tax items. Interest on loans to buy or carry tax-exempts is nondeductible.

If you’re planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity than to sell the assets and give the charity the after-tax proceeds. Donating the assets instead of the cash prevents you from having to pay capital gains tax on the sale, which can result in considerable savings, depending on your tax bracket and the amount of tax that would be due on the sale.

Additionally, you can obtain a tax deduction for the fair market value of the donated assets, assuming you itemize deductions.

Many taxpayers also give depreciated assets to charity. The deduction is for fair market value; no loss deduction is allowed for depreciation in value of a personal asset. Depending on the item donated, there may be strict valuation rules and deduction limits.

If you drive your car for business, medical, or charitable purposes, you may be entitled to a deduction for miles driven. For 2025, it is 70 cents per mile for business, 21 cents for medical and moving purposes (members of the armed forces only for tax years 2018-2025), and 14 cents for service for charitable organizations. To substantiate the deduction, you need to keep detailed daily records of the mileage driven for these purposes.

From 2018 through 2025, employees who drive their own cars for business can’t deduct such expenses. This is due to the Tax Cuts and Jobs Act of 2017 (TCJA) suspension of miscellaneous itemized deductions subject to the 2% of adjusted gross income floor. This means that, generally, only businesses and the self-employed can claim a deduction for business miles driven.

Medical and dental expenses are generally deductible only if you itemize and only to the extent they exceed 7.5 percent of your adjusted gross income (AGI). For most individuals, particularly those with high incomes, this eliminates the possibility of a deduction. You can get a tax benefit similar to a deduction if your employer offers a Flexible Spending Account, sometimes called a cafeteria plan. You can redirect a portion of your compensation to the account to pay these types of expenses with pretax dollars.

Another such arrangement is a Health Savings Account (HSA), though it is available only if you have a high-deductible health plan (HDHP). Self-employed with an HDHP? You can set up an HSA for yourself and make tax-deductible contributions to it.

Certain married couples may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:

• One spouse has large medical expenses, and
• You and your spouse’s incomes are about equal.

You may be able to expense up to $2,500,000 in 2025 for qualified equipment purchases for use in your business immediately, instead of writing it off over many years. Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums as business expenses. You may also be able to establish a SEP or SIMPLE IRA plan, or a Health Savings Account, as mentioned above.

• Correspondence with Customers and Vendors
• Duplicate Deposit Slips
• Purchase Orders
• Receiving Sheets
• Requisitions
• Stenographer’s Notebooks
• Stockroom Withdrawal Forms

• Employee Personnel Records – after termination
• Employment Applications
• Expired Insurance Policies
• General Correspondence
• Internal Audit Reports
• Internal Reports
• Petty Cash Vouchers
• Physical Inventory Tags
• Employee Savings Bond Registration Records
• Time-Cards For Hourly Employees

• Accident Reports, Claims
• Accounts Payable Ledgers and Schedules
• Accounts Receivable Ledgers and Schedules
• Bank Statements and Reconciliations
• Cancelled Checks
• Cancelled Stock and Bond Certificates
• Employment Tax Records
• Expense Analysis and Expense Distribution Schedules
• Expired Contracts, Leases
• Expired Option Records
• Inventories of Products, Materials, Supplies
• Invoices to Customers
• Notes Receivable Ledgers, Schedules
• Payroll Records and Summaries, including payment to pensioners
• Plant Cost Ledgers
• Purchasing Department Copies of Purchase Orders
• Sales Records
• Subsidiary Ledgers
• Time Books
• Travel and Entertainment Records
• Vouchers for Payments to Vendors, Employees, etc.
• Voucher Register, Schedules

Records related to a bad debt deduction or a loss claimed for worthless securities should be kept for 7 years.

The federal government does not require keeping tax records forever. There are or will be some exceptions that you may wish to retain the following documents indefinitely:

• Cancelled Checks for Important Payments (especially tax payments)
• Contracts, Leases Currently in Effect
• Deeds
• Cash Books, Charts of Accounts
• Audit Reports from CPAs/Accountants
• Corporate Documents (incorporation, charter, by-laws, etc.)
• Documents substantiating fixed asset additions
• Depreciation Schedules
• Financial Statements (Year-End)
• General and Private Ledgers, Year-End Trial Balances
• Insurance Records, Current Accident Reports, Claims, Policies
• Investment Trade Confirmations
• IRS Revenue Agents’ Reports
• Journals
• Legal Records, Correspondence and Other Important Matters
• Minute Books of Directors and Stockholders
• Mortgages, Bills of Sale
• Property Appraisals by Outside Appraisers
• Property Records
• Retirement and Pension Records
• Tax Returns and Worksheets
• Trademark and Patent Registrations

• Bank Statements
• Paycheck Stubs (reconcile with W-2)
• Canceled checks
• Monthly and quarterly mutual fund and retirement contribution statements (reconcile with year-end statement)

• Credit Card Statements
• Medical Bills (in case of insurance disputes)
• Utility Records
• Expired Insurance Policies

• Tax Returns – Supporting Documents
• Accident Reports and Claims
• Medical Bills (if claimed as itemized deduction on tax return)
• Property Records / Improvement Receipts
• Sales Receipts
• Wage Garnishments
• Other Tax-Related Bills

Records related to a bad debt deduction or a loss claimed for worthless securities should be kept for 7 years.

• CPA Audit Reports
• Legal Records
• Important Correspondence
• Income Tax Returns
• Income Tax Payment Checks
• Investment Trade Confirmations
• Retirement and Pension Records

• Car Records (keep until the car is sold)
• Credit Card Receipts (keep with your credit card statement)
• Insurance Policies (keep for the life of the policy)
• Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
• Pay Stubs (keep until reconciled with your W-2)
• Property Records / improvement receipts (keep until property sold)
• Sales Receipts (keep for life of the warranty)
• Stock and Bond Records (keep for 6 years beyond selling)
• Warranties and Instructions (keep for the life of the product)
• Other Bills (keep until payment is verified on the next bill)
• Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset)