1947: Ask Farnoosh: Tax Season Moves, Optimal Rainy Day Funds, Traditional or Roth IRA?

What It Covers

Farnoosh Torabi covers tax season strategies for 2025, including IRA contribution deadlines, new deductions for seniors and overtime workers, emergency fund sizing by career context, and the Roth vs. traditional IRA debate for retirement tax diversification. The Supreme Court's tariff ruling and its small business implications also receive attention.

Key Questions Answered

• •IRA Deadline Opportunity: Contributions to a traditional IRA can still count toward the prior tax year if made before April 15. Those under 50 can contribute up to $7,000; those 50 and older up to $8,000. This directly reduces 2024 taxable income, making it a viable last-minute tax savings move worth executing before the deadline.
• •New 2025 Tax Deductions: Three notable deductions arrive this tax year: the child tax credit rises to $2,200 per qualifying child and is now inflation-indexed; overtime workers can deduct up to $12,500 (single) or $25,000 (joint); and a new senior deduction offers $6,000 per qualifying individual aged 65 or older, stacking on top of existing age-based standard deductions.
• •Emergency Fund Sizing by Context: The standard four-to-six month emergency fund rule requires adjustment based on industry job search timelines, available severance, and state unemployment benefits. Entrepreneurs should target one full year of cash reserves due to revenue seasonality. Severance packages, while helpful, don't cover health insurance costs, so personal savings remain necessary regardless.
• •Roth IRA for Tax Diversification: Pairing a 401(k) with a Roth IRA creates tax flexibility in retirement. The 401(k) reduces taxable income now but carries taxes on withdrawal; the Roth IRA reverses this, with zero taxes on qualifying withdrawals. Roth contributions phase out above $168,000 for single filers and $242,000 for married filing jointly starting in 2026.
• •Free and Low-Cost Tax Filing Options: Filers with adjusted gross income at or below approximately $89,000 qualify for free filing directly through irs.gov or IRS partner software. Self-employed individuals, rental property owners, investors, or those experiencing major life changes such as divorce or inheritance benefit from hiring a CPA or enrolled agent to reduce errors and capture missed credits.