2025 End-of-Year Tax Planning: 4 Essential Strategies to Reduce Your Tax Burden Now

As the 2025 calendar year winds down, it’s easy to lose focus on financial housekeeping, but the final weeks are a critical window for reducing your tax liability. Strategic year-end tax planning is an indispensable element of holistic financial wellness, allowing you to maximize deductions, defer income, and optimize your portfolio before the clock runs out on December 31st.

These four proven strategies, spanning retirement savings, investment management, and charitable giving, can help you make informed decisions to lower your taxable income and improve your overall financial health for the current year.

1 – Maximize Tax-Advantaged Retirement Savings

One of the most effective ways to immediately lower your Adjusted Gross Income (AGI) is by maximizing your contributions to pre-tax retirement accounts. Every dollar contributed to a Traditional 401(k) or Traditional IRA is a dollar removed from your taxable income. 

• 401(k) Contributions: Be sure to review your paycheck deferral rates. For 2025, the projected IRS limit for employee contributions to a 401(k) is $23,500. If you are age 50 or older, you can contribute an additional $7,500 as a catch-up contribution. If you haven’t hit this limit, consider ramping up your deferrals for the final pay periods. This is a crucial element of maximizing your 2025 Tax Limits.
   

• IRAs: Contributions to a Traditional or Roth IRA can be made up until the following year’s tax filing deadline (typically April 15th), but funding it by year-end is an excellent habit. 

• • Note: For the 2025 tax year, income phase-out limits apply to Roth IRAs, limiting eligibility based on your Modified Adjusted Gross Income (MAGI). Traditional IRAs have no income limits for contributions, but your ability to deduct those contributions is subject to phase-out rules if you or your spouse is covered by a workplace retirement plan
     

• 529 to Roth IRA Rollover: High-Income Earners should review any long-standing, unused 529 education savings plans. The SECURE Act 2.0 now allows for a lifetime limit of $35,000 to be rolled from a 529 plan into the beneficiary’s Roth IRA, subject to certain rules. This is a game-changer for avoiding potential penalties on unused funds. The 529 must have been open for at least 15 years, and the annual rollover amount cannot exceed the annual Roth IRA Contribution Limit. This new flexibility makes stale 529 accounts a powerful retirement planning tool.

   

Read More: Highlights of 401(k) limit changes for 2025 

2 – Implement Strategic Tax-Loss Harvesting 

Though this is a year-round discipline, year-end is the final opportunity to “harvest” any losses in your non-retirement (taxable) investment accounts. Tax-loss harvesting involves selling investments that have lost value to offset capital gains you realized throughout the year.

• Offsetting Gains: Losses can be used dollar-for-dollar against any capital gains.
• Ordinary Income Deduction: If your losses exceed your gains, you can deduct up to $3,000 of the net loss against your ordinary income (like salary). Any remaining loss can be carried forward indefinitely to offset future gains. 
• The Wash Sale Rule: Be mindful of the “wash sale” rule. If you sell a security for a loss, you cannot repurchase the same or a “substantially identical” security within 30 days before or after the sale. If you violate this rule, the loss will be disallowed for tax purposes. To stay invested, consider immediately repurchasing a similar, but not identical, ETF or mutual fund.

3 – Retirement Savings Accounts

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For those who are philanthropically inclined, year-end contributions offer some of the most powerful tax optimization opportunities, particularly if you are in a higher income bracket or approaching retirement age. 

1. Gifting Appreciated Securities
   Instead of selling appreciated stock or mutual funds and donating the cash proceeds, donate the securities directly to a qualified 501(c)(3) charity.
   • Double Tax Benefit: By doing this, you receive a charitable deduction for the full fair market value of the security, and you avoid paying capital gains tax on the appreciation. It’s one of the most tax-efficient ways to give.
      
2. Qualified Charitable Distributions (QCDs)
   If you are age 70½ or older, you can direct up to $108,000 per year from your IRA directly to a qualified charity.
   • RMD Satisfaction: If you are age 73 or older and are subject to Required Minimum Distributions (RMDs), a QCD counts toward satisfying your RMD. Crucially, a QCD bypasses your AGI entirely, reducing your taxable income, which can help lower Medicare premiums and reduce the taxability of Social Security benefits.

      

3. Deduction Bunching with Donor-Advised Funds (DAFs)
   With the higher standard deduction amounts ($15,750 Single, $31,500 Married Filing Jointly for 2025), many taxpayers continue to no longer benefit from itemizing every year.
   • The Strategy: If your itemized deductions are close to the standard deduction, consider bunching multiple years’ worth of charitable contributions into a single tax year. By contributing a large sum to a Donor-Advised Fund (DAF) in one year, you push your itemized deductions far above the standard deduction threshold.

     In the subsequent year, you simply take the standard deduction. You can then distribute funds from the DAF to charities over the next few years, maintaining your giving schedule while maximizing your deductions every other year.

     Read More:  Increase Your Giving Power with Schwab Charitable Donor-Advised Funds 

4. OBBBA’s Impact on Charitable Giving and Top Tax Brackets
   For the filers who itemize, there are two new limits from One Big Beautiful Bill Act of 2025 (OBBBA) that affect the tax savings possible through charitable donations made in or after 2026. First, the amount of the charitable donation that is included on Schedule A is reduced by 0.5% of Adjusted Gross Income (AGI). This means if you have an AGI of $100,000, the first $500 of your donations will not be included on your charitable deduction line. The takeaway is that itemizers may benefit from making their intended 2026 donations in 2025.

    

   The second limitation from OBBBA applies to those in the highest tax bracket of 37%. It is a new overall limitation on the total of all itemized deductions listed on Schedule A. The amount of itemized deductions otherwise allowable would be reduced by 2/37 of the lesser of (1) the amount of the itemized deductions or (2) the amount of the taxpayer’s taxable income that exceeds the start of the 37% tax rate bracket. Itemizers who project to fall in the top tax bracket should consider making their 2026 donations in 2025, since itemized deductions in 2026 will offset taxes at no higher than a 35% rate.

    

5. Key OBBBA Updates: SALT, Senior Deductions, and Retirement Strategy
   There are two more new tax code changes of last July’s OBBBA that may be relevant for optimizing year-end tax planning. First, there is a new $40,000 State and Local Tax (SALT) deduction cap for years 2025-2029, which is a huge increase from prior $10,000 cap. Strategic planning is important if you itemize deductions in high-tax states, since income-based phase-outs for both single and married jointly taxpayers begins at $500,000 AGI and fully disappears at $600,000 AGI. You should leverage careful year-end income and deduction timing strategies maximize SALT benefits while managing other possible tax triggers.

    

   OBBBA also provides a new $6,000 bonus deduction from years 2025 through 2028 for any individual taxpayer who is age 65 or older. However, this senior deduction begins to phase out when a taxpayer’s Modified Adjusted Gross Income (MAGI) exceeds $75,000 for individual filers ($150,000 for married filing jointly). The added deduction is completely phased out for singles with a MAGI of $175,000 or more and couples with MAGI exceeding $250,000.

   Year-end tax planning is essential in assessing whether income can be either postponed into a future year or accelerated into the current year to lower the combined tax bill for those years. As a retiree, you can consider deliberately increasing your income by tax-efficient withdrawals from retirement accounts or executing Roth conversions before reaching the age for RMDs. You would benefit with getting those funds taxed at a lower rate now than you would project paying if you take the funds in the future.

4 – Consult Your Financial Team

As you navigate the complexities of year-end tax planning, consider exploring the tax planning opportunities that may be available to you with the assistance of a CERTIFIED FINANCIAL PLANNER® professional. They can run scenarios to determine the optimal timing for your deductions and contributions, ensuring that your tax planning strategy fits seamlessly into your overall financial roadmap.

Before determining your next step, consult with your tax advisor and work together to identify the best approach for your situation. If you’re unsure of what to do, contact one of our CERTIFIED FINANCIAL PLANNER™ professionals today. We will work with your CPA to help ensure that your overall financial plan fits well with your tax situation. And we can refer you to a CPA if you don’t have one.

Our team is here to help you make informed decisions that align with your financial aspirations. Finding opportunities for reducing the amount of taxes you pay is key to your financial wellbeing.

Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future.