Yuck! While I love this time of year, with all the holiday cheer and events to look forward to, I absolutely detest thinking about taxes!
But…it’s a necessary evil. And if you want to minimize Uncle Sam’s bite on your hard-earned money, you need to maximize your tax strategy. And remember, talk to a tax professional for guidance that’s specific to your situation.
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To get started, here are a few things you can do before the year ends to keep more of your earnings:
Speak with your accountant or tax preparer to ensure that you are getting the most out of the tax changes created by “The One Big Beautiful Bill (OBBBA).”
Those include:
- Permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct.
- Changes to taxes on tips and overtime for certain workers.
- Medicaid reforms.
- Pell Grants and student loan reforms.
Tax-loss harvesting. The stock market has been on fire this year, and if you’ve sold any investments with a gain, you may be facing a bigger-than-expected tax bill. So, you might want to consider offsetting some of those gains by selling investments in which you currently have a loss. The IRS allows you to deduct up to $3,000 of the excess loss against your ordinary income per year; unused losses can carry forward into future years.
Make charitable contributions. You may want to front-load any charitable contributions you were planning to make next year, into 2025, as The One Big Beautiful Bill is changing the rules on charitable donations as of January 1, 2026. The changes include:
- Total allowable charitable deductions are reduced by 0.5% of adjusted gross income (AGI) for those who itemize.
- The overall value of itemized deductions (e.g., charitable contributions, mortgage interest, investment interest paid) is capped at 35% for taxpayers in the 37% tax bracket.
Fund your retirement accounts. For 2025, the maximum contributions are:
- IRAs—$7,000. (For those 50 years of age or older, it’s $8,000.)
- 401(k)s/403(b)s—$23,500. (Those 50 and older can contribute up to $31,000.)
- Taxpayers who turned, or will turn, age 60, 61, 62 or 63 during 2025 can contribute up to $34,750.
- Talk with your tax advisor to determine if converting assets from a traditional IRA to a Roth IRA is a good idea.
It might be if you:
- Estimate that your future income tax rates may be higher
- Can afford to pay the taxes with cash from other sources
- Do not plan to leave IRA assets to charity
- Expect the funds to remain in the IRA for a long period of time
- Take required minimum distributions.
Take your required minimum distributions (RMDs) by year-end to avoid steep penalties. If you have a retirement account and have reached age 73, you most likely will need to take an annual RMD each year by December 31.
Defer compensation. If allowed by your employer, you can defer your 2026 fixed salary and other non-performance-based compensation by December 31, 2025, if not earlier (as specified by your employer). That way, taxes won’t be due on your extra earnings until 2026.
Accelerate expenses, such as:
- Estimated state income taxes due January 15 (unless you are subject to the Alternative Minimum Tax)
- Property taxes that are due early next year
- Doctor or hospital bills.
Make gifts to your children. If you’re in the upper tax brackets, you may want to consider using your lifetime exclusion amount for 2025. That means, individually, you can transfer up to $13.99 million free of gift and estate taxes; for married couples, the tax-free transfer amount is $27.98 million. Under the OBBBA, these amounts will increase to $15 million ($30 million for married couples) beginning in 2026.
For us regular people, each year, the IRS allows an annual gift tax exclusion. For 2025, the exclusion permits individual taxpayers to give up to $19,000 to each donee free of gift taxes. Married couples can give tax-free up to $38,000 per donee.
Get professional tax-planning advice.
My advice: “Get it done” now, and then you can relax and enjoy the holidays!
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