Year-End Tax Moves to Save in 2025
As we approach the end of 2025, now is the perfect time to take stock of your financial situation and explore opportunities to reduce your tax bill. With recent tax law changes and inflation adjustments, this year presents unique planning opportunities that shouldn't be overlooked. At Beacon Legacy, Tax, Wealth, we believe smart year-end tax planning isn't just about saving money. It's about making strategic decisions that align with your long-term financial goals.
Let's explore the most effective tax strategies you can implement before December 31st to keep more of what you've earned.
Maximize Your Retirement Contributions
One of the most powerful ways to reduce your taxable income is by maximizing contributions to your retirement accounts. The good news? Contribution limits have increased for 2025, giving you even more room to save.
401(k) and 403(b) Plans
For 2025, you can contribute up to $23,500 to your 401(k) or 403(b) plan, up from $23,000 in 2024. If you're 50 or older, you can make an additional catch-up contribution of $7,500, bringing your total to $31,000.
Here's something exciting: if you're between ages 60 and 63, you're eligible for a "supersized" catch-up contribution of $11,250 instead of the standard $7,500, allowing you to contribute up to $34,750 total. This enhanced catch-up provision is designed to help those in their early 60s accelerate their retirement savings.
Every dollar you contribute to a traditional 401(k) reduces your taxable income for the year. If you haven't maxed out your contributions yet, consider increasing your deferrals before year-end. Even small increases can make a meaningful difference.
Individual Retirement Accounts (IRAs)
For 2025, you can contribute up to $7,000 to a traditional or Roth IRA, with an additional $1,000 catch-up contribution if you're 50 or older, bringing the total to $8,000. While these limits remained unchanged from 2024, contributions to a traditional IRA can still reduce your current tax bill if you meet certain income requirements.
The beauty of IRAs is their flexibility. You actually have until the tax filing deadline (typically April 15, 2026) to make 2025 contributions. However, planning now ensures you don't miss this opportunity.
Self-Employed? Don't Miss Out
If you're self-employed or own a small business, you have access to retirement plans with even higher contribution limits. A SEP IRA or SIMPLE IRA can be set up before year-end and offer higher contribution limits while reducing your taxable income. For 2025, SEP IRA contributions can reach up to $70,000, or 25% of your compensation, whichever is less.
The key is to establish these plans before December 31st, even if you make the actual contributions by your tax filing deadline.
Strategic Charitable Giving
Giving back to causes you care about can also provide significant tax benefits when done strategically. Here are some approaches to consider:
Bunching Contributions
Due to changes taking effect in 2026, including a new 35% cap on itemized deductions and a 0.5% adjusted gross income floor on charitable contributions, donations made in 2025 may be worth more than those made next year. Consider "bunching" multiple years' worth of charitable contributions into 2025 to maximize your deductions.
For example, if you typically donate $5,000 annually but don't itemize deductions, you might consider contributing $15,000 in 2025 to exceed the standard deduction threshold and claim a larger tax benefit.
Donating Appreciated Assets
Instead of writing a check, consider donating appreciated stocks, mutual funds, or other investments you've held for more than a year. When you donate appreciated assets to a qualified public charity, you can deduct the fair market value without paying capital gains tax on the appreciation, subject to a 30% adjusted gross income limitation. This double benefit makes donating appreciated assets particularly attractive.
Qualified Charitable Distributions (QCDs)
If you're 70½ or older, you can make a qualified charitable distribution directly from your IRA to a charity. This strategy allows you to satisfy your required minimum distribution (if applicable) while excluding the distribution from your taxable income. It's a win-win for those who want to support charitable causes while managing their tax liability.
Smart Investment Timing
The way you manage your investment portfolio before year-end can significantly impact your tax bill.
1. Tax-Loss Harvesting
Investment losses can be used to offset any gains you've realized in 2025, or up to $3,000 of ordinary income. This strategy, called tax-loss harvesting, involves selling depreciated securities to realize losses that offset your gains.
If you have investments that have declined in value and no longer fit your strategy or have poor growth prospects, selling them before year-end can create a tax benefit. Any excess losses beyond $3,000 can be carried forward to future tax years.
Important note: November 28th is the last day you can implement tax-loss harvesting and recognize the loss for 2025. Don't wait until the last minute to review your portfolio for opportunities.
2. Consider Your Capital Gains
If you're planning to sell appreciated investments, timing matters. Long-term capital gains (on assets held more than a year) are taxed at preferential rates, while short-term gains are taxed as ordinary income. Understanding where you fall in the tax brackets can help you decide whether to realize gains this year or wait until 2026.
Don't Overlook Key Deductions and Credits
Several deductions and credits deserve attention as the year winds down.
1. Health Savings Accounts (HSAs)
If you have a high-deductible health plan, contributing to an HSA offers triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. For 2025, you can contribute up to $4,300 for individual coverage or $8,550 for family coverage, with an additional $1,000 catch-up contribution if you're 55 or older.
2. Required Minimum Distributions (RMDs)
Generally, taxpayers age 73 or older must take minimum distributions from tax-deferred retirement accounts by the end of the year. Missing the deadline could result in a 25% penalty on the portion you failed to withdraw. If you haven't taken your RMD yet, don't delay. December 31st is a hard deadline for most people.
3. Energy-Efficient Home Improvements
There's still time before December 31, 2025, to complete qualifying energy-efficient home improvements and receive up to $3,200 in tax credits. Projects like installing new doors, windows, or scheduling a home energy audit can reduce both your taxes and utility costs.
4. 529 Plan Opportunities
Recent legislation expanded 529 plan distribution rules to include up to $20,000 of K-12-related expenses and credentialing costs, effective for distributions made after July 4, 2025. Importantly, funds can be used to reimburse expenses incurred at any point during 2025, as long as the distribution is made before year-end. This creates a valuable one-time opportunity if you have eligible educational expenses from earlier in the year.
Estate and Gift Tax Planning
For those with significant assets, year-end is an excellent time to consider estate planning strategies.
Annual Gift Exclusion
In 2025, you can make gifts up to $19,000 to as many beneficiaries as you like, which can help reduce your estate's value without using any of your lifetime gift and estate tax exemption. These gifts must be completed by December 31st to count for 2025.
Lifetime Exemption Opportunities
In 2025, the lifetime estate and gift tax exemption received an inflation adjustment of $380,000, offering those who had already maxed out their exemption an additional opportunity to transfer wealth, as much as $760,000 for a married couple. With future legislation creating even more opportunities, now is a good time to review your estate plan with a professional.
Year-End Financial Planning Tips
Beyond specific tax strategies, here are some general year-end financial planning considerations:
1. Review Your Withholding: Take a look at your year-to-date tax withholding. If you've had major life changes like marriage, divorce, a new child, or a significant income change, you may need to adjust your withholding to avoid surprises at tax time.
2. Update Beneficiary Designations: Review the beneficiaries on your retirement accounts, life insurance policies, and other financial accounts. Life changes often require updates to ensure your assets go where you intend.
3. Organize Your Records: Start gathering receipts, donation acknowledgments, and other tax documents now. Good recordkeeping makes tax preparation smoother and helps ensure you don't miss any deductions.
4. Consider a Roth Conversion: If you believe your tax rate will be higher during retirement, converting some traditional IRA or 401(k) funds to a Roth account could be beneficial. The key is to convert only up to the top of your current tax bracket to avoid paying higher taxes on the conversion.
5. Max Out Flexible Spending Accounts: Most health and dependent care FSAs have a "use it or lose it" rule. If you have unused funds, schedule medical appointments, stock up on eligible supplies, or use dependent care services before year-end.
The Bottom Line
Year-end tax planning isn't one-size-fits-all. The strategies that work best for you depend on your unique financial situation, goals, and circumstances. What matters most is taking action before December 31st, when many of these opportunities expire.
While this guide provides a comprehensive overview of year-end tax strategies, the tax code is complex and constantly evolving. Recent legislation has created new opportunities but also added layers of complexity that require careful navigation.
That's where professional guidance becomes invaluable. A comprehensive approach that considers your entire financial picture, not just your taxes, ensures you're making decisions that support your long-term goals.
Take Action Today
Don't let valuable tax-saving opportunities slip away. The decisions you make in these final weeks of 2025 can have a lasting impact on your financial well-being.
At Beacon Legacy, Tax, Wealth, we're here to help you navigate these complex decisions with confidence. Our team takes the time to understand your unique situation and develop personalized strategies that align with your goals.
Disclaimer: Beacon Legacy Tax Wealth is a DBA (Doing Business As) of Tesfaye O'Neill Financial, a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser, attorney, and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. The views expressed are as of the date of publication, are subject to change without notice, and may not materialize as expected due to changing market or economic conditions. These views may not reflect those of all areas of the firm.
