Don't Leave Money on the Table: Your 2025 Year-End Tax Playbook

As 2025 draws to a close, many taxpayers face the same challenge: how to reduce their tax bill before the year ends. Missing key opportunities now means leaving money on the table. Taking action in the final months can make a significant difference in your tax outcome. This guide highlights practical, easy-to-implement strategies that help you keep more of your hard-earned money.

Review Your Income and Deductions

Start by assessing your income for the year. If you expect to be in a higher tax bracket next year, consider accelerating deductions into 2025 or deferring income until 2026. For example, if you are self-employed, you might delay invoicing clients until January to push income into the next tax year.

Look for deductible expenses you can pay before December 31. Charitable donations, medical expenses, and business costs paid before year-end can reduce your taxable income. Keep detailed records and receipts to support your claims.

Maximize Retirement Contributions

Contributing to retirement accounts remains one of the most effective ways to lower taxable income. For 2025, the IRS allows contributions up to $22,500 for 401(k) plans, with an additional $7,500 catch-up contribution if you are 50 or older. Traditional IRAs also offer tax advantages, with a $6,500 contribution limit plus a $1,000 catch-up.

If you have a Health Savings Account (HSA), consider maxing out contributions. HSAs provide triple tax benefits: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.

Harvest Tax Losses to Offset Gains

If you have investments in taxable accounts, review your portfolio for losses you can realize to offset capital gains. Selling investments that have declined in value before year-end can reduce your tax liability on gains from other sales.

For example, if you sold stock earlier in the year for a profit, selling other stocks at a loss can balance out the gains. Keep in mind the IRS wash-sale rule, which disallows a loss deduction if you buy the same or substantially identical security within 30 days before or after the sale.

Take Advantage of Tax Credits

Tax credits directly reduce the amount of tax you owe and can be more valuable than deductions. Check if you qualify for credits such as the Child Tax Credit, Earned Income Tax Credit, or education credits like the American Opportunity Credit.

Some credits require specific actions before year-end, such as paying for qualified education expenses or making energy-efficient home improvements. Research available credits and deadlines to ensure you don’t miss out.

Plan for Required Minimum Distributions (RMDs)

If you are 73 or older, the IRS requires you to take RMDs from traditional IRAs and 401(k)s. Missing the deadline can result in a penalty of 50% of the amount not withdrawn. Plan your distributions carefully to avoid surprises.

Consider donating your RMD directly to a qualified charity through a Qualified Charitable Distribution (QCD). This strategy satisfies your RMD requirement without increasing your taxable income.

Keep Organized Records and Consult a Professional

Tax laws can change, and individual situations vary widely. Keep all your financial documents organized and consult a tax professional if you have complex circumstances. A qualified advisor can help you identify additional savings opportunities and avoid costly mistakes. For more information, contact The Center for Financial, Legal, and Tax Planning, P.C. at (618) 997-3436.