Dear Client,
The big news of 2025 on the tax front has been the July passage of the One Big Beautiful Bill Act (OBBBA). The act permanently extended nearly all provisions set to expire at the end of 2025 under the Tax Cuts and Jobs Act (TCJA). This included lower tax rates for individuals, the termination of the personal exemption, the increased standard deduction, and many other items. In addition, the act made new deductions applicable to seniors, tip workers, and hourly wage earners receiving overtime pay. The act also terminated many of the green energy credits available to individuals under the Inflation Reduction Act of 2022. These factors create challenges, but also opportunities, in developing a tax plan when there are multiple strategies to consider. However, the usual tactics of deferring income and increasing current deductions still apply for 2025. Each individual taxpayer should consider the unique challenges and opportunities that this year presents.
MINIMIZING INDIVIDUAL TAXES
The key to any year-end planning strategy is to minimize taxes. This is generally done by either reducing the amount of income received or increasing the amount of deductions.
Delaying and reducing gains
Like taxes on ordinary income, taxes on capital gains apply at different rates depending upon the amount of taxable income. For 2025, the thresholds have adjusted upward from 2024 as follows:
| 0% | 15% | 20% | |
| MFJ/SS | $0 – $96,700 | $96,701 – $600,050 | over $600,050 |
| MFS | $0 – $48,350 | $48,351 – $300,000 | over $300,000 |
| HoH | $0 – $64,750 | $64,751 – $566,700 | over $566,700 |
| Single | $0 – $48,350 | $48,351 – $533,400 | over $533,400 |
| E&T | $0 – $3,250 | $3,251 – $15,900 | over $15,900 |
For taxpayers whose income tends to fluctuate from year to year, it would be wise to examine the impact of sales of investment items. For taxpayers who think they may have lower income in 2025, it would be smart to hold off on a sale of a capital item if their income is at or near a threshold for a higher capital gains bracket.
This type of consideration should not be limited to capital gain taxes, but also the net investment income (NII) tax. The 3.8% NII tax kicks in at $200,000 of modified adjusted gross income for single and head-of-household filers, $250,000 for joint filers, and $125,000 for married taxpayers filing separately.
Since the NII thresholds fall right in the middle of the 15% capital gains bracket, a taxpayer to whom the NII applies because of a sale of a capital item would likely not be able to reduce the tax to 0%. But a taxpayer who is barely in the 20% bracket could defer a sale and move into the 15% bracket, meaning a sale of a capital item would only be taxed at 18.8% instead of 23.8%.
Harvesting tax losses. A potential tax strategy involves selling investments at a loss to offset or reduce capital gains generated in the same tax year. However, the benefits only apply to high-income taxpayers. In addition, taxpayers must be mindful of the wash-sale rules that might disallow the loss if they reinvest in a ‘substantially similar’ asset within 30 days.
Maximizing deductions
For 2025, the inflation-adjusted (and OBBBA-increased) standard deduction amounts are $31,500 for joint filers, $23,625 for heads of households, and $15,750 for all other filers. With standard deduction amounts so high, coupled with the $10,000 limitation on the deduction of state and local taxes, it is difficult for many taxpayers to claim enough deductions to make itemizing beneficial. Thus, maximizing deductions may not be beneficial for all taxpayers.
However, exceeding the standard deduction through itemized deductions is much more achievable in 2025 than in recent years due to OBBBA. TCJA put a $10,000 cap on the deduction of state and local income taxes (SALT). With that limitation, it was very difficult for most taxpayers to reach the standard deduction amount with itemized deductions, even with interest and charitable contributions. However, for tax years beginning in 2025, the cap has been increased to $40,000.
Before the increase of the SALT cap, one of the best ways to maximize the amount of deductions was to develop a bunching strategy. This involves accumulating charitable contributions, or even medical expenses, from two or more years into one year. For example, a taxpayer may have not made any of their normal charitable contributions in 2024, and then made double the normal amount in 2025 in order to help surpass the standard deduction amount. Bunching is still a viable strategy for those taxpayers who are close to, but not in excess of, the increased standard deduction amounts, even with the increased SALT cap. However, it will likely be less applicable, especially for taxpayers who live in states with higher income and or property tax rates.
The same bunching strategy can be employed for deductible medical expenses where the timing is somewhat flexible, such as for elective procedures (remember that purely cosmetic procedures are not deductible).
New Deductions
OBBBA created four new deductions for individuals that can be claimed whether the individual itemizes deductions or not, and they are all available for 2025. None of them require any planning before the end of the year, though they may require some additional paperwork to establish eligibility.
First, the new $6,000 senior deduction is available for persons aged 65 or older before the end of the year, subject to income limitations. This is a deduction that either applies or it doesn’t, though it should be included in the consideration of other available deductions, and it may make sense to consider the income limitations when taking retirement distributions.
Next is the $10,000 deduction for interest on an automobile loan. The deduction is available to people purchasing new qualified vehicles (qualification mostly centers on domestic manufacturing requirements) and phases out for taxpayers with adjusted gross income in excess of $100,000 ($200,000 for joint filers). The deduction is available in 2026 as well, so there isn’t an immediate need to take advantage of it, but again, it should be considered in light of additional income deferral/ acceleration decisions.
Finally, the new deductions for qualified tip income and qualified overtime income will need to be accounted for by individuals wishing to claim them for 2025. At this time, it appears that the strict statutory requirements for employers reporting these types of income will be delayed to 2026, so employees wishing to claim the deduction should start keeping track of what income may or may not be eligible for the deductions in 2025.
Green energy
Green energy provisions, particularly those credits applicable to individuals, took a big hit in the One Big Beautiful Bill Act. Already terminated are credits for the purchase of new or used clean vehicles (though the credit can still be claimed for 2025 if the vehicle was purchased before October 1, 2025).
However, two individual energy credits are still available if action is taken before the end of 2025. First, the Energy Efficiency Home Improvement Credit, equal to 30% of the taxpayer’s qualified expenses, which can include doors, windows, other qualifying energy property, and even a home energy audit, is still available for property placed in service before the end of 2025. Also, the Residential Clean Energy Credit, which is equal to 30% of the cost of installation of certain energy property like solar cells, small wind turbines, or battery storage, is available for expenditures made before the end of 2025.
Retirement Savings
The age at which required minimum distributions (RMDs) must begin is 73 for individuals who turn 72 after 2022 and age 73 before 2033.
Remember that taxpayers who are in their first RMD year have until April 1 of the following year to make that first RMD. So, while action isn’t absolutely necessary before the end of the year, affected taxpayers should start to plan for those RMDs. Keep in mind that the subsequent RMD for 2026 is required by December 31, 2026. If a taxpayer were to take both RMDs in 2026, it could push them into a higher tax bracket because both distributions would be taxable in one tax year.
Qualified charitable distributions, or QCDs, offer eligible taxpayers aged 70 ½ or older a great way to easily give to charity before the end of the year. For those who are at least 72 years old, QCDs count toward the IRA owner’s RMD for the year. QCDs are tax free if they are paid directly from the IRA to an eligible charitable organization. The annual QCD limit for 2025 is $108,000 (up from $105,000 in 2024).
Other year-end strategies
A number of other traditional year-end strategies may apply. These include:
- Determining if any adjustments need to be made to tax withholding or estimated payments.
- Maximizing Education Credits. Individuals can claim a credit for tuition paid in 2025 even if the academic period begins in 2026, as long as the period begins by the end of March.
- Maximize retirement contributions. Adjusted gross income can be reduced if individuals increase the amount of their 401(k) contributions. Individuals eligible for deductions for IRA contributions can claim deductions, and thus reduce AGI, for amounts contributed generally through April 15, 2026.
- Teacher deductions. Educators can claim a deduction for up to $300 of classroom expenses (like books, supplies, and computer equipment), and should maximize those expenses by year-end.
- Make annual exclusion gifts. The annual gift exclusion limit is $19,000 for 2025, up $1,000 from 2024 limits.
- Fund FSA or HSA. Consider funding an FSA or HSA during your employer’s annual benefits enrollment period for 2026.
- Roth IRA conversion. The value of pretax contributions and any earnings are taxable and the timing for making this conversion can be optimized in a year with lower income.
- Fund 529 plans. Many states offer a credit for contributions to 529 education plans or 529A ABLE accounts.
- Exercise stock options. Determine whether now is the time to exercise or disqualify company-granted stock options.
Contact Us
Please call our office to schedule an appointment to discuss your year-end strategy. There is no one size fits all for tax planning and any strategy may have unintended consequences if the taxpayer’s situation is not evaluated holistically considering the changing landscape. Please call our office to discuss all your options.