2025 Year End Planning

Year End Tax Planning

The end of 2025 is almost upon us, and  I wanted to reach out with some general tax planning advice before the end of the year as some of these things (like making charitable contributions) need to be done before 12/31 to make a difference for your 2025 taxes. This letter lays out some general proactive steps you can take to reduce your tax liability by leveraging deductions and credits, and highlights new opportunities from the One Big Beautiful Bill Act (OBBBA) that was enacted this July.

1. Maximize Retirement Contributions

Retirement contributions are one of the most effective ways to reduce taxable income while saving for the future. For 2025, the contribution limits for Individual Retirement Accounts (including traditional and Roth IRAs) are $7,000 for individuals under 50 and $8,000 for those 50 and older.

If you’re eligible[CN1] , the amount contributed to a traditional IRA is deducted directly from your taxable income. Alternatively, Roth IRAs don’t offer upfront deductions, but qualified withdrawals in retirement are tax-free. The Roth option is generally better for those with negligible taxable income (reducing your 2025 taxes when they are already very low is not as advantageous as  withdrawing tax-free retirement money in the future).

Self-employed individuals should consider a SEP IRA or Solo 401(k) (for those without employees), which offer higher contribution limits. These plans not only reduce your tax (by reducing taxable income, or qualifying you for tax credits), but also help build long-term financial stability.

2. Review your deductions and potentially itemize

In 2025, single filers receive a $15,750 standard deduction, while married couples filing jointly receive $31,500 as a result of OBBBA. In addition, OBBBA enhanced deductions for seniors. Individuals who are age 65 and older may claim an additional deduction of $8,000 ($16,000 for married couples). This deduction is not available for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers). While many taxpayers opt for the standard deduction, itemizing may result in greater savings if your deductible expenses exceed these thresholds.

Common itemized deductions include:

• Mortgage interest.

• State and local taxes (SALT) (previously limited to $10,000, but now you can deduct up to $40,000).

• Medical expenses exceeding 7.5% of AGI.

• Charitable contributions (see #4 for how this is still beneficial without itemizing).

• Investment interest.

If your calculations show that you can itemize more than the standard deductions above, it will be beneficial to have all of that information handy when the time comes to prepare your tax return. This could help especially if you’ve paid large medical bills or made sizable charitable donations in 2025.

3. Manage your capital gains (and losses)

If you’ve sold investments this year, you may have realized capital gains. To offset those gains, consider selling underperforming assets and reinvesting the proceeds in similar investments to realize capital losses. This strategy, known as tax-loss harvesting, may reduce your taxable income.

In addition, even if you do not have capital gain income, you can deduct up to $3,000 in net capital losses against ordinary income annually, and any excess can be carried forward to future years.

For those in lower tax brackets ($48,350 or less taxable income for single filers or $97,600 or less for married filing jointly), you may qualify for the 0% capital gains tax rate, making it a good time to realize gains strategically.

4. Make charitable contributions

While the tax tail shouldn’t be wagging the personal finance dog, charitable contributions to eligible causes can reduce your taxable income - even If you determined earlier that itemizing is not worthwhile for your situation thanks to the OBBBA. Now, you can take a charitable deduction of up to $1,000 ($2,000 if married filing jointly) for cash donations to public charities (excluding donor advised funds).

For those over 70½, consider making Qualified Charitable Distributions (QCDs) from your IRA. These distributions count toward your Required Minimum Distributions (RMDs) and are excluded from taxable income.

As always, be sure to keep proper documentation, including receipts and acknowledgment letters from the charities.

If you would like specific help calculating the tax consequences of any of these ideas, please reach out! As always, I am glad to work with you and appreciate your trust.

 [CN1]This phrase does all the work in the sentence. You don’t need a second layer of “may be allow you to deduct” because you already said it