2025 Year End Tax Planning Strategies - Simple Check List

Year-end tax planning can help you minimize your tax liability and maximize savings. Below are key strategies to consider for 2025, based on general tax principles and common practices. This is a good starting point for the majority of individuals. If you are considering more complex tax strategies due to an increase in income or if you feel you pay too much in taxes, do not hesitate to reach out. There is about three months left of the year, this is the time to begin thinking about your 2025 tax liability and how to minimize it as strategically as possible.

1. Maximize Retirement Contributions

• Contribute to Retirement Accounts: Increase contributions to tax-advantaged accounts like a 401(k), IRA, or SEP-IRA before year-end. For 2025, check the IRS contribution limits (e.g., 401(k) limits are typically adjusted annually for inflation). Pre-tax contributions reduce your taxable income.

• Consider a Roth Conversion: If you expect to be in a lower tax bracket this year, convert some traditional IRA funds to a Roth IRA. You’ll pay taxes now but enjoy tax-free withdrawals later. Analyze your income and tax brackets to optimize timing.

• Catch-Up Contributions: If you’re 50 or older, take advantage of catch-up contributions for 401(k)s and IRAs to save more.

2. Harvest Tax Losses

• Sell Underperforming Investments: If you have investments in taxable accounts that have lost value, sell them to realize capital losses. These can offset capital gains and up to $3,000 of ordinary income annually. Be mindful of the wash-sale rule—avoid buying the same or substantially identical security within 30 days.

• Offset Gains: If you’ve realized capital gains this year, strategically sell losing investments to minimize your tax bill.

3. Bunch Deductions

• Itemized Deductions: If you’re close to the standard deduction threshold ($14,600 for single filers, $29,200 for married filing jointly in 2024, likely higher for 2025), consider “bunching” deductions. For example:

  • Prepay property taxes or state income taxes (within IRS limits).

  • Make charitable contributions before December 31.

  • Pay deductible medical expenses if they exceed 7.5% of your adjusted gross income (AGI).

• Charitable Giving: Donate appreciated securities (held over a year) to avoid capital gains tax and claim a deduction for the fair market value. Alternatively, use a donor-advised fund to bunch charitable contributions in one year.

4. Leverage Tax Credits

• Review Eligibility: Check for credits like the Child Tax Credit, Earned Income Tax Credit (EITC), or energy efficiency credits for home improvements. Some credits phase out at higher incomes, so plan accordingly.

• Education Credits: If you or your dependents are in school, consider the American Opportunity Tax Credit or Lifetime Learning Credit for qualified education expenses paid before year-end.

5. Defer or Accelerate Income

• Defer Income: If you expect to be in a lower tax bracket next year, defer income (e.g., bonuses, freelance payments) to 2026 to reduce your 2025 taxable income.

• Accelerate Income: If you’re in a lower tax bracket this year, consider accelerating income (e.g., taking a bonus in December) to take advantage of lower rates.

6. Maximize Business Deductions

• Small Business Owners: If you’re self-employed or own a business, consider purchasing equipment or supplies before year-end to claim deductions. Section 179 allows immediate expensing of certain business assets (up to a limit, adjusted annually).

• Home Office Deduction: If eligible, calculate and claim deductions for home office expenses.

7. Optimize Health Savings Accounts (HSAs)

• Contribute to an HSA: If you have a high-deductible health plan, contribute to an HSA (2025 limits typically around $4,150 for individuals, $8,300 for families, plus catch-up contributions for those 55+). Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.

• Pay Medical Expenses Later: If possible, let HSA funds grow tax-free and pay medical expenses out-of-pocket, saving receipts for future reimbursement.

8. Plan for Required Minimum Distributions (RMDs)

• RMD Compliance: If you’re 73 or older, ensure you take RMDs from traditional IRAs or 401(k)s by December 31 to avoid a 25% penalty (or 10% if corrected timely). Consider reinvesting RMDs in taxable accounts or donating to charity via a Qualified Charitable Distribution (QCD) to exclude the amount from taxable income (up to $100,000 annually).

9. Gift Strategically

• Annual Gift Tax Exclusion: Gift up to $18,000 per recipient in 2025 (likely adjusted for inflation) without triggering gift tax or using your lifetime exemption. This reduces your taxable estate and helps loved ones.

• Pay Tuition or Medical Bills: Payments made directly to educational institutions or medical providers for someone else are exempt from gift tax.

10. Review Your Withholding and Estimated Taxes

• Adjust Withholding: Check your W-4 and adjust withholdings if you’re over- or under-withheld to avoid penalties or a large refund (which is an interest-free loan to the government).

• Estimated Taxes: If you’re self-employed or have significant non-wage income, ensure you’ve paid enough estimated taxes to avoid underpay