As 2025 winds down, now is the time to take a closer look at your financial picture and make sure you’re making the most of the opportunities still available before year-end. While it’s easy to push tax planning to the back burner during a busy fourth quarter, a few proactive steps before December 31 can make a big difference come filing season.
Year-end planning isn’t just about minimizing taxes; it’s about making informed decisions that align with your broader goals. Whether you’re a business owner managing cash flow or an individual optimizing savings and investments, thoughtful year-end planning can help you enter 2026 with confidence and possibly save you some tax.
Review Your Estimated Income & Tax Liabilities
Before making any major moves, start by reviewing your income, deductions, and projected tax liability for 2025. Understanding where you stand is key to determining whether you should accelerate or defer income and expenses.
As part of that review, keep in mind that standard deduction amounts have increased slightly for 2025, with $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly. Seniors aged 65 and older may also qualify for a new $6,000 personal exemption. These updates could influence whether it makes sense to itemize or take the standard deduction, so it’s worth revisiting your filing strategy before year-end.
If you’ve had a strong year, it may make sense to defer bonuses or delay billing until early 2026 to reduce this year’s taxable income. Conversely, if you anticipate being in a higher tax bracket next year, accelerating income into 2025 could be the smarter move. Timing matters, and even small adjustments can have a significant impact.
Check Your Withholdings and Estimated Payments
Now’s also a good time to make sure your withholdings and estimated tax payments are on track. Adjusting these before year-end can help you avoid underpayment penalties or overpaying the IRS. Think of it as a “paycheck tune-up,” ensuring you’re withholding the right amount based on your current income and deductions.
Maximize Retirement & Savings Opportunities
One of the most effective ways to lower taxable income while strengthening your financial future, is to take full advantage of retirement and savings accounts.
For individuals, that means maximizing contributions to your 401(k), IRA, or HSA before year-end. For business owners, now is the time to review your company’s retirement plan options. Those age 60-63 now have a higher catchup contribution limit. Setting up or funding a 401(k) plan, SEP IRA or SIMPLE IRA can not only reduce your taxable income but also serve as a valuable employee benefit. If you and your spouse are the only eligible employees, establishing a solo 401(k) plan might be an option with its simplified administration.
If you have an HSA and cash flow allows, pay for medical expenses out of pocket. This strategy allows your HSA to grow tax-deferred for potential tax-free medical withdrawals in retirement. Save your receipts should you need to reimburse yourself in the meantime. Your plan might even allow you to invest the HSA funds.
Consider a Roth Conversion and Roth Accounts
Explore converting traditional IRA funds to a Roth IRA. While you’ll pay taxes on the converted amount now, future qualified withdrawals can be tax-free during your lifetime. This minimizes IRMAA implications on your Medicare premiums. There’s also no RMDs on Roth IRAs, allowing the tax-free growth to continue.
This strategy can work well if you anticipate future RMDs to be subject to a higher tax rate than you have now because 1) your income is lower this year (i.e. you retired and RMDs haven’t started yet), 2) you have business losses (perhaps from a cost seg study) or large charitable contributions, or 3) you think future tax rates and tax bracket changes can cause higher tax (possibly with a new administration). A conversion also can make sense if you have a taxable estate and don’t anticipate needing the funds during your lifetime. Paying the conversion tax reduces your taxable estate and freezes the value for income tax purposes, leaving your heirs with a more valuable tax-free asset. That is beneficial in light of the 10-year payout rule they’d likely be subject to. Note it’s important that you have cash outside the IRA for paying the conversion tax.
Backdoor Roth IRA
For high-income earners who can’t contribute directly to a Roth, a “backdoor” Roth strategy may be worth considering. In doing so, you make a nondeductible IRA contribution and convert it to a Roth IRA. This works tax-free if you have no other pre-tax IRA, SIMPLE IRA or SEP IRA balances. Be sure to inform your tax advisor about your non-deductible IRA contribution for tax basis tracking.
Mega Roth Account
If your 401(k) plan allows after-tax contributions and in-plan Roth conversions, consider a Mega Roth strategy for tax-free growth.
Don’t Forget Required Minimum Distributions (RMDs)
If you’re subject to required minimum distributions from your retirement account or an inherited IRA, be sure to take your RMD by December 31 to avoid costly penalties. If you turned age 73 this year, your first RMD is due by December 31 or April 1 next year (you’d have two RMDs next year if you wait until then).
If you don’t need the funds, consider a Qualified Charitable Distribution (QCD), which allows you to donate your RMD directly to a qualified charity, satisfying the requirement while reducing taxable income. See more further below.
Leverage Business Deductions & Credits
Businesses have unique opportunities to reduce taxable income through strategic spending and credit utilization. Consider accelerating expenses such as purchasing equipment, prepaying certain costs, or stocking up on supplies before December 31.
Don’t overlook bonus depreciation and Section 179 deductions, which allow businesses to write off qualifying property and equipment purchases. While these benefits have begun to phase down, they can still provide meaningful savings for 2025.
Additionally, explore whether your company may qualify for research and development (R&D) tax credits. These credits often apply to a wider range of industries than many realize, from manufacturing and software development to architecture and construction.
Businesses should also practice “bracket management,” or strategically timing income and deductions to stay within optimal tax brackets. For instance, deferring large invoices or accelerating deductible expenses can help smooth taxable income and minimize overall tax liability.
Plan for State & Local Tax Impacts
Tax planning shouldn’t stop at the federal level. State and local tax laws can have a major influence on your total liability, especially for businesses operating across multiple jurisdictions.
Many states now offer pass-through entity (PTE) tax elections, which can provide potential savings for owners of S corporations, partnerships, and LLCs. If you haven’t reviewed your options recently, now is a great time to discuss them with your advisor.
It’s also important to evaluate apportionment and filing requirements to ensure compliance and avoid surprises when tax season arrives.
Revisit Charitable Giving Strategies
Charitable giving remains a powerful tool for both philanthropy and tax planning. If you plan to donate, consider contributing appreciated assets like stocks or mutual funds instead of cash. Doing so can help you avoid capital gains tax while still claiming a deduction for the fair market value of the donation.
If you’re over age 70½, Qualified Charitable Distributions (QCDs) of up to $108,000 (2025 limit) from an IRA or inherited IRA can be a particularly tax-efficient way to give, allowing you to satisfy part or all of your RMD without increasing your taxable income. This also keeps your AGI down for other limitations and IRMAA Medicare implications.
Another option worth considering is establishing or contributing to a donor-advised fund, which allows you to make a charitable contribution now, receive an immediate tax deduction, and distribute funds to charities over time. This can enable you to “bunch” a few years of charitable contributions into one year for hurdling over the standard deduction.
Looking ahead, note that new legislation reinstates an above-the-line charitable deduction (up to $1,000 for single filers and $2,000 for joint filers) for those who don’t itemize, effective after 2025. Additionally, starting in 2026, itemized charitable deductions must exceed 0.5% of AGI to qualify, so plan ahead if you intend to bunch future contributions. You might want to do so in 2025.
Contribute to a 529 Plan
Contribute up to $5,000 per taxpayer to NYS 529 plans by year-end for a state tax deduction, even if you need to withdraw it out to cover qualified education expenses shortly thereafter.
Be sure to reimburse yourself for qualified education expenses incurred in 2025 before year-end (distributions have to be within the same year as the expense was incurred).
Consider a lump-sum contribution of up to $95,000 (5-year election) to jumpstart growth. You’ll need to file a gift tax return to elect 5-year averaging for gift tax purposes.
Fine-Tune Your Investment Portfolio
It’s also a good time to revisit your overall investment strategy. Market fluctuations throughout the year may have shifted your asset allocation, so check in with your advisor to ensure your portfolio still aligns with your long-term goals.
Now is the time to also review your investment portfolio through a tax lens.
Tax-loss Harvesting
Tax-loss harvesting (selling investments at a loss to offset capital gains) can help lower your tax bill. Just be mindful of the IRS wash-sale rule, which prohibits repurchasing the same or “substantially identical” security within 30 days before or after the sale.
Note: The wash-sale rule does not currently apply to cryptocurrency transactions, providing flexibility for loss harvesting in digital assets.
This approach can be particularly effective in volatile markets, helping you rebalance your portfolio while capturing valuable tax savings.
Optimize Tax-Efficient Holdings
Actively managed mutual funds can cause havoc on your tax situation with their capital gain distributions you have no control over. They are required to distribute capital gains incurred inside the fund. Holding individual stocks or exchange-traded funds (ETFs) instead can provide greater tax-efficiency by avoiding those capital gain distributions.
Consider using Treasury money market funds for holding your cash reserves. That could allow you to maximize after-tax returns when using a fund that qualifies for state tax-free dividends.
Estate Planning: Make Gifts
Annual exclusion gifts add up over time to reduce your estate and allow you to enjoy seeing how your gift benefits loved ones. The 2025 gift tax annual exclusion is $19,0000 per person ($38,000 for married couples electing gift splitting on a gift tax return or making the gift from a joint account). Consider funding IRAs, Roth IRAs or HSAs for family members. There is also the unlimited gift tax freebie of paying someone’s tuition or medical expenses directly to the institution.
Don’t Overlook the Small but Mighty Moves
Sometimes, the simplest steps can make a big difference. Before the year ends:
- Use your FSA balance to avoid forfeiting unused funds.
- Make your fourth quarter estimated tax payments on time.
- Review your tax documents early to avoid last-minute surprises.
- Check whether you qualify for any of the new above-the-line deductions introduced for 2025–2028, including deductions for qualified tips, overtime pay, and car loan interest. These provisions phase out at higher income levels but can provide real savings for many taxpayers.
These smaller actions can add up to meaningful savings and a smoother tax season ahead.
Start Planning Now for a Stronger 2026
If you anticipate major life changes in 2026, such as a job change, relocation, or family transition, factor those into your year-end decisions now. Timing matters and managing your tax brackets and deductions in advance can make a measurable difference. Year-end planning doesn’t have to be overwhelming. It’s about taking manageable, proactive steps that set you up for success in the coming year.
Working closely with a trusted advisor can help you identify which strategies make sense for your unique situation and ensure you’re positioned for both short-term savings and long-term growth. If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
