As we approach year-end, it’s a great time to proactively manage your 2025 tax bill. Many of the most effective strategies must be implemented by December 31, 2025. Here are the top actions to consider:
Charitable Contributions
A new charitable giving rule starts in 2026. Beginning next year, only the portion of your charitable donations that exceeds 0.5% of your adjusted gross income (AGI) will be deductible if you itemize. This means that for someone earning $200,000, the first $1,000 of donations won’t count toward an itemized deduction (Note: This does not apply to Qualified Charitable Distributions (QCDs) from IRAs).
Because of this new rule, 2025 may be the last year to deduct 100% of your charitable gifts (subject to normal limits). If you typically give each year, it may make sense to “bunch” several years of donations into 2025. For example, by contributing to a donor-advised fund (DAF), so you can lock in a larger deduction now before the new floor takes effect. If you don’t have a donor- advised fund, let us know and we can open one for you.
Keep in mind donating appreciated long-term securities (held >1 year) lets you deduct fair market value (generally up to 30% of AGI) while avoiding capital gains on the appreciation.
Qualified Charitable Distributions (QCDs)
If you’re age 70½ or older, you can give up to $108,000 in 2025 directly from an IRA to qualified charity, potentially satisfying part or all of your RMD without increasing taxable income. Coordinate timing so Qualified Charitable Distributions apply before you satisfy your RMD.
Retirement Contributions
- 401(k)/403(b)/most 457(b): 2025 employee deferral limit is $23,500. The normal age-50+ catch-up is $7,500, and for ages 60–63 a special catch-up applies of $11,250 (instead of $7,500) in 2025. IRS
- IRAs (Traditional/Roth): Contribution limit is $7,000 ($8,000 if age 50+). Income limits apply for deductibility and Roth eligibility. IRS
- 2026 contribution figures have not been released at the time of the writing of this article but are expected to increase
Roth IRAs & Conversions
If you’re in a relatively low-income year or have room in a lower bracket, consider Roth conversions. For those over income limits for a direct Roth, the backdoor Roth may be an option (be careful of pro-rata rules).
Mega Backdoor Roth (If Your Plan Allows)
If permitted by your workplace retirement plan, a so-called mega backdoor Roth allows high-income earners to save in a Roth account while eschewing the income limits of a Roth IRA and the tax consequences of a regular Roth conversion. To take advantage of this strategy, you first max out your normal, pretax 401(k) contributions for the year – then contribute after-tax dollars up to the overall account limit of $70,000 in 2025 ($77,500 for age 50 and older), after which you can convert those funds to Roth IRA. The cap of $70,000 applies to total employee + employer + after-tax contributions (catch-ups are on top of this). You’ll want to roll over those funds as quickly as possible to avoid being taxed on any additional investment returns.
Required Minimum Distributions (RMDs)
For those over age 72, remember you may have a required minimum distribution from your retirement accounts. The RMD is an annual requirement and must be taken by December 31st of each year. Plan ahead of time to ensure the distribution occurs. To determine whether a required minimum distribution applies to you, please visit the IRS Required Minimum Distributions FAQs.
Tax-Free Gifting
Today, an individual can gift up to $19,000 per recipient in 2025 through the annual exclusion. The lifetime estate/gift exemption is $13.99 million per person in 2025 (combined with estate tax; portability may apply for spouses) subject to certain limitations; married couples, the combined exemption is $27.98 million subject to certain limitations. Filing a gift tax return is required if you give more than the annual exclusion to any one person.
Harvest Losses (and Gains)
The end of the year is a great time to make sure your portfolio is still aligned with your goals. If you have capital losses, you can use them to offset realized capital gains for 2025. To use this strategy, add up your gains, then sell losing positions of equal value. If you have more losses than gains, you can offset up to $3,000 of ordinary income. Be mindful of wash-sale rules.
Property Taxes & SALT Planning
A recent law change has made an adjustment to how much in state and local taxes (SALT) you can deduct on your federal tax return. Starting in 2025, the maximum amount of SALT you can deduct is $40,000 instead of the previous much lower cap of $10,000. This means if you pay big state income or property taxes, the timing of when you pay them (for example, pre-paying or delaying) may matter more now for your tax planning. It may be advisable to delay the payment of state taxes, if no penalty is to be incurred, in certain situations.
Income Deferral & Deduction Acceleration
You may want to consider lowering your taxes in 2025 by deferring income to next year and accelerating deductions like bunching charitable donations into the current year.
Stock Options
- Non-qualified Stock Options: If your company issues NSOs, which are taxed as ordinary income when exercised, waiting until the end of the year allows you to exercise just enough to stay within your tax bracket, thereby keeping your taxes lower than if you had exercised your options all at once.
- Incentive Stock Options: Those with vested ISOs may find it is advantageous to exercise a portion of their options. Consult with your CPA to perform a breakeven analysis, which can guide you on the optimal number of options to exercise without triggering Alternative Minimum Tax (AMT). Keep in mind, each taxpayer is entitled to an AMT exemption annually—make strategic use of this benefit if you’re optimistic on your company’s prospects.
Schedule a meeting with your financial, tax, and estate planning professionals to discuss taking advantage of these strategies before year-end. We’re always mindful of these strategies when we plan with our clients and bring them up in discussion as needed.