The year 2025 has been significant for income taxes. We began the year with the expectation that the Tax Cuts and Jobs Act (TCJA) would sunset at the end of the year. However, in July, the One Big Beautiful Bill Act (OBBBA) was passed, retaining some aspects while introducing changes that could have a material impact on certain taxpayers.
As the year comes to a close, here are some year-end tax planning items you may need to take action on before year end, by April 15, or those that don’t require action but could impact your income taxes this year and in the years to come.
Items you may need to act on before year-end
Tax Projections
Developing a tax projection before the end of the year is a great way to start your tax planning. Not only can it help you take advantage of year-end tax planning opportunities, but it can also help you avoid surprises come tax time in 2026 and allow you to manage your cash flow better throughout the year.
Typically, the best place to start is by using last year’s return and making applicable updates based on events that occurred throughout the year. Although it won’t be 100% accurate since the numbers aren’t final until year-end, you can usually get close.
Recognizing More Income
No one likes paying taxes, but there is a time and place where it could make sense to pay more taxes today to save on taxes over your lifetime. If you believe you’re in a lower tax bracket today than you will be in the future, it could make sense to incur additional income and pay taxes today. Listed below are some way you could recognize more income.
- Utilizing a Roth conversion -A Roth conversion is implemented by taking a distribution from a pre-tax retirement account, moving the funds to a Roth (after-tax) IRA, and paying taxes on the distribution in the year of conversion. Withdrawals from a Roth IRA are tax-free, so if you pay the tax today you can avoid future taxation on these fund. To take full advantage of this, you’ll want to pay the taxes due using cash you have on hand rather than from the pre-tax retirement account in order to maximize the amount of assets going into the Roth IRA. In light of the SECURE Act 2.0 and rule changes around inherited IRAs (requiring liquidation by the end of the 10th year following the year of the death of the IRA owner), a Roth conversion can be an effective estate planning tool in some circumstances.
- Utilizing tax-gain harvesting – This entails selling stocks or bonds, recognizing the gain, then buying right back into the holding and increasing your basis which can potentially lower a future tax liability. If you are in the 0% long-term capital gains tax bracket, this can be a particularly valuable strategy.
- Accelerating income – You can withdraw funds from pre-tax accounts for current or future cash needs while taking advantage of low tax rates by paying tax at these lower rates.
Deferring Income
Conversely, if you experienced a higher-than-normal income this year, anticipate being in the highest tax bracket for the foreseeable future, or plan to retire soon and expect to be in a lower tax bracket once you step away, it could make sense to defer income this year. Some ways to do this include:
- Maximizing pre-tax contributions to employer-sponsored plans; your year-end bonus may be an option for increasing your contribution.
- Establishing a retirement plan for your business that allows you to contribute more than the standard amounts. You can consider a SEP IRA, SIMPLE IRA, Solo 401k, or Defined Benefit Plan and select the plan that best fits your business structure and the number of employees.
- Spreading income out over several years through an installment sale if you’re selling a business or real estate.
- Taking advantage of a deferred compensation plan offered by your company.
Taking your Required Minimum Distribution (RMD)
If you opted to defer the taxation on your retirement accounts during working years, the government eventually wants its tax revenues from those funds. Once you turn 73 (in 2033, this will increase to 75 for those born on or after 1960), you’re required to start distributing a portion of these accounts on an annual basis. The amounts are based on the 12/31 account value from the prior tax year and a factor based on your age. It’s essential that these distributions are made by year-end, or you could be subject to penalties.
For those who are charitably inclined and over 70 ½, a great option to further avoid taxes on these funds is to make a qualified charitable distribution (QCD). Rather than taking the retirement account assets in hand, you can write a check directly from the account to the charity of your choosing. The tax advantage is that QCDs can help satisfy any RMD obligation yet are not included as income. To avoid getting caught up in some of the ordering rules regarding QCDs, it is best to make the gifts prior to taking distributions for yourself. You can learn more about QCDs here – Qualified Charitable Distribution (QCD)
Donor Advised Fund
If you’re charitably inclined but prefer to donate after-tax assets consider using a donor-advised fund. This involves gifting assets to a designated charitable account (typically, highly appreciated assets) and receiving a tax deduction for the fair market value of the gifted amount (if you itemize). An added benefit is that no taxes are paid on any unrealized gains from the position(s). The beauty of these accounts is that you can make multiple years’ worth of gifts at once to take advantage of the tax deduction, but you can distribute the funds out of the account over many years. This concept is especially important this year as there will be an adjusted gross income (AGI) floor of 0.5% on charitable gifting starting in 2026. As an example, if your income is $500,000 in 2026, the first $2,500 you gift in 2026 will not be deductible for tax purposes.
Another benefit of these accounts is that it’s easy to track all your gifts, as all inflows and outflows will occur in one spot.
Gifting to Family and Friends
Making gifts to the next generation during your lifetime can be rewarding for the giver and the receiver. If you intend to do this, you can gift $19,000 to anyone you choose this year without filing a gift tax return and having the gift count towards your lifetime exemption.
If you have young children or grandchildren, gifting to a 529 plan could be a great option to fund future educational expenses. An added bonus: you are allowed to front-end load up to 5 years of annual gifts to fund the account. The account grows tax-deferred, and distributions are tax-free if used for qualifying educational expenses.
In some states, you can get a tax deduction for contributions made to these accounts.
Read more about the importance of 529 plans in our Insight: What are 529 Plans and Why are they important?
And if you’re looking to do some longer-term planning and have a desire to gift a significant amount from your estate now (provided you have the assets that qualify you for this), it could make sense to start using some of your lifetime exemption. Right now, the lifetime exemption amount is $13.99 million, and for married couples, it’s twice that amount.
Items You May Need to Act on by April 15
Health Savings Account Contributions
If you’re part of a high-deductible health plan and qualify for an HSA, this is a great opportunity. Contributions to HSAs will give you a tax deduction when you contribute, the funds will grow tax-free, and any distributions that are used for qualified healthcare expenses are also distributed tax-free (triple tax advantage). Although the contribution limits are relatively small ($8,550 for families and $4,300 for individuals), if done over many years, this money can add up. And if you’re over 55, you can contribute an additional $1,000.
If you’re looking to make this tax-efficient vehicle even more advantageous, check if your employer allows contributions through payroll deductions to avoid payroll taxes.
If you’d like to learn more about HSAs, you can check out our Insight.
Individual Retirement Account (IRA)/Roth IRA Contributions
In addition to your workplace retirement plans, individuals can make extra tax-deferred or tax-free contributions to IRAs. However, unlike workplace retirement plans, there are income limits to the deductibility of IRAs and the ability to contribute directly to a Roth IRA (see below).
Source – fppathfinder
For those who earn too much to make deductible IRA contributions or to contribute directly to a Roth IRA, a backdoor Roth IRA can be a great option. This process involves making a non-deductible contribution to a traditional IRA and then immediately converting that amount to a Roth IRA. After this conversion, the money you contributed will not be taxed again in the future.
Items That Require No Action
Increased State and Local Income Tax (SALT) Deduction
One of the most debated topics since the TCJA went into effect in 2018 is the SALT deduction. Before the TCJA, there was no limit on the amount of SALT one could deduct on their tax return. However, starting in the TCJA era, the deduction was capped at $10,000. Now, with the passage of the OBBBA, some taxpayers may be able to deduct up to $40,000 in SALT on their tax returns. If your modified adjusted gross income (MAGI) is below $500,000, you can deduct up to $40,000 of SALT in 2025. Unfortunately, for higher-income earners, this $40,000 deduction begins to phase out starting at a MAGI of $500,000 and goes back down to $10,000 for folks with income over $600,000.
Increased Standard Deduction
Another OBBBA change that will impact many taxpayers is the increase in the standard deduction. Prior to the passing of the bill, the 2025 standard deduction was set to be $15,000 for singles and $30,000 for married couples filing jointly. However, the bill increased these amounts by $750 for individuals, to $15,750, and by $1,500 for married couples filing jointly, to $31,500.
Enhanced Senior Deduction
In addition to the larger standard deduction noted above, if you are over 65, you may also qualify for the enhanced senior deduction. This $6,000 for an individual or $12,000 for married filing jointly (if both partners are over 65) is an additional amount that can be used to reduce taxes. There is a phase-out range, so if income falls within this range, the deduction will be reduced, and it will be eliminated once income exceeds the range. For those filing as single, the phase-out range is $75,000 to $175,000, and for those who file as married filing jointly, the phase-out range is $150,000 to $250,000.
Albert Einstein once said, “The hardest thing in the world to understand is the income tax.” While this may be true for some, working with a knowledgeable advisor and tax preparer can help make this far-off concept easier to understand.
If you or someone you know would like to speak with a financial advisor, you can contact us anytime.
