It is time to review our year-end tax plans. Two months left to take action to potentially cut your federal tax bill.
Of course, always check with your tax advisor first. However, the following offers some suggested opportunities to avoid tax traps. There are opportunities to save on taxes, and tax traps.
It’s important to keep in mind the tax changes in the "One Big Beautiful Bill” (OBBB). It made permanent most 2017 tax law provisions that were set to end after 2025 and enhances some, gives new breaks, axes clean energy credits and more. Many of the tax changes take effect this year. Others begin in 2026.
For individual tax planning, the goal is to reduce your federal income tax liability. The general strategy often suggested for some is to accelerate write-offs such as charitable giving by the end of the year and push income such as bonuses to 2026. Others should consider the opposite approach depending on your income situation.
Itemizers, under the enhanced provisions of OBBB 2025 tax bill have more flexibility to shift write-offs from one year to another for State and local taxes (SALT). Now that the SALT deduction cap on Schedule A is $40,000 up from $10,000 in prior years--more filers are expected to itemize.
Medical expenses, If the medical costs you've incurred this year have topped or are near the 7.5%-of-adjusted-gross-income threshold, consider any elective procedure before year end. Carefully check the List of eligible medical expenses. It’s broader than you may think.
Charitable gifts, Bunch into 2025 gifts you'd usually give over multiple years.
- Consider giving to a Donor Advised Fund to help maximize your charitable write-off. That’s a mutual fund in which you donate a large sum for a tax write off and the fund donates to your listed charity or charities each year from the proceeds of the fund.
Note two changes for 2026 charitable contribution.
- Nonitemizers can deduct up to $1,OOO of charitable cash gifts, starting for 2026. The amount is $2,000 for joint filers.
- Schedule A charitable deduction claimed are subject to a haircut.
They are deductible only to the extent they exceed 0.5% of adjusted gross income (AGI)– generally the amount shown on schedule 1040 line 11. If you are itemizing for this year, you could benefit more than ever by bunching all your charitable gifts, into 2025, before the 0.5%-0f-AGI haircut kicks in. But know this: You can deduct cash donation only to the extent that total charitable gifts don't exceed 60% of your AGL The AGI limit for capital gain assets is generally 30%. Excess donations are carried forward for five years. Please discuss this strategy, if appropriate with your tax professional.
It is always vital to reduce the taxable income reported on our return.
But lowering our adjusted gross income is also more important than ever. Thanks to the OBBB, several popular new breaks begin to phase out at (modified AGI) over a certain amount. They include the $6,000 deduction for filers 65 and older, the $40,000 SALT deduction cap on Schedule A, and the new write-offs for up to $12,500 of overtime pay, $25,000 of tips and $10,000 of car loan interest. Note, the SALT deduction, nontaxable overtime pays, and tips are added back in to calculate modified AGI.
Medicare recipients, consider how taxes could affect the premiums of Joint filers with modified AGIs exceeding $212,000 and singles with over $106,000 of modified AGI to pay higher monthly premiums, known as IRMA for Medicare Parts B and D coverage in 2025 and 2026. The surcharge increase as modified AGI rises. Monthly premiums for 2027 will be based on modified AGIs reported on your 2026 tax returns, So, think about how any tax moves you make now could push your IRMA premiums up or' down in 2027.
- Note, if you have a significant drop in your modified AGI in 2025, or 2026 you can file the SSA–795 form to petition Social Security for any 2024 or 2025 drop in your income to help reduce your IRMA premium. You have till the end of this year to file for a refund of your excess IRMA premium.
Gift tax exclusion – consider using your annual life-time tax exclusion. You can give each person up to $19,000 this year without tapping your lifetime estate and gift tax exemption which is now $13,990,000 and adjusted for inflation.
Required Minimum Distribution (RMD) rules for traditional IRAs. Owners, 73 and older must take annual payouts. TO arrive at the 2025 RMD, you can calculate your RMD yourself or simply contact your financial institution. Yes, of course, you will be taxed on this payout and yes you can defer your first payout to next year. Generally not considered a good idea since you will be taxed for both payouts in the same year. Similar rules apply to 401(K)s and nonprofit plans. However, if you work past age 73 you can generally delay taking RMDs from an employer's 401 (k) until you retire.
Non-spousal beneficiaries of IRAs rules – inherited after 2019. You must fully distribute all monies within 10 years of the IRA owner’s death. Eligible designated beneficiaries are exempt from the 10-year rule. They include surviving spouses, minor children (until 21), beneficiaries Who are disabled or chronically ill, and people who are no more than 10 years younger than the decedent. These people Can do “stretch IRAs”. A spouse can also take an IRA on his or her own. This rule is tricky, so talk with your IRA custodian or financial advisor.
RMD IRA Charitable donation directly from a traditional IRA can save taxes. People 70½ and up can transfer up to $108,3000 in 2025 from IRAs directly to charity. Qualified charitable distributions (QCD) count as RMDs, but they are not taxable. More importantly they're not added to your adjusted gross income, the QCD strategy is a good way to get tax savings from charitable gifts for taxpayers taking the standard deduction. Even those who itemize benefit as it keeps their AGI amounts down to help qualify for various tax breaks and to mitigate Medicare IRMA premium surcharges.
Roth conversion strategy may make sense. You'll pay tax on the converted amount, but future earnings are tax-free and can reduce future RMD requirements. However, there are lots of factors in determining whether to convert an IRA to a Roth IRA is a good strategy for you. You may want to talk to your tax advisor to evaluate if the strategy makes sense for you.
Tax savings strategies – Max out your 2025 401(k) and IRA contributions. You have until Dec. 31 to put money in 401(k)s and other workplace retirement plans, and until April 15, 2026, to contribute to an IRA for 2025.
Avoid tax penalties – Boost your federal income tax withholding if you expect to owe tax for 2025. By paying at least 90% of your 2025 total tax bill or 100% of what you owed for 2024 (110% if your adjusted gross income for 2024 exceeded $150,000) You’re off the hook for the penalty. Consider raising your withholdings if you’re still working by changing your W-4 form at work.
Investment Portfolio opportunities- They can provide plenty of tax-saving opportunities.
- The 0% tax rate, if your taxable income other than long-term gains or dividends doesn't exceed $48,350 on single returns, $64,750 for head-of-household filers or $96,700 for joint filers, you qualify for the 0% rate on long term gains and qualified dividends on sales Of assets owned more than a year.
- The 15% or 20% Tax rate. For those of us whose income is over the above rates mentioned above there is still the 15% to 20% tax on long-term capital gains. The 20% rate applies to those whose income is $533,401 for singles, $566,701 for household heads and $600,051 for joint filers. The 15% rate is for filers with taxable incomes between the 0% and 20% break points.
- Estates and trust have less leeway to reach the highest capital gains rate. The 20% rate begins at $15,901 Of income.
Limit the sting of 3.8% tax on net investment dividends, capital gains, and annuities, plus passive through rents, royalties etc., from schedule E to form 1040.
- How, investment expenses for example from real estate reduce income subject to the 3.8% tax.
- Municipal bond investing, installment sale to spread out a large gain over several years.
- Keep modified AGI below the $250,000/ $200,000 thresholds so that the surtax won't even kick in.
Tax loss harvest-is a way investors can lower their tax. The strategy involves selling stocks of other taxable that have declined in value for the purpose of generating capital losses to offset gains from the sale Of winners.
Capital losses can offset capital gains plus up to $3,000 of other income. You can carry over excess capital losses to the next year to help offset future gains.
- Wash sale rules – stock sold that results in capital losses if you purchase or re-purchase substantially identical securities within 30 days before or after a sale.
- The wash sale rule can trip you up on mutual fund management frequent sales and purchases.
REITs or publicly traded partnerships investing can give you a tax break. The OBBB made permanent the popular 20% qualified business income deduction for pass-through entities businesses such as schedule C, subchapter S companies, and partnerships.
Energy-efficient home improvements. Two credits end after this year:
1 The energy-efficient home improvement credit is for homeowners who install heat pumps, exterior doors and windows, boilers, Central air-conditioning systems, etc.,
2 The 30% residential clean-energy credit is for taxpayers who install solar panels and the like in their residences.
Both are repealed for property that is placed in service after Dec. 31,2025.
Self-employed and owners Of LLCS, S corporations save with the 20% deduction for qualified business income, which the OBBB made permanent.
- Independent contractors and “gig” workers- such as Uber drives who aren't employees can take this tax break, too.
- Schedule E rental income may also be eligible for the 20% deduction in certain cases.
- Businesses using Cash Accounting Method can shift some income and expenses between 2025 and 2026 by delaying year-end billings to collect less revenue and juggling expenses from one year to another.
- Generous write-offs for business assets put into service after January 19, 2025, have more advantageous regular rules as does section 179 expenses thanks to the OBBB.
Best to talk to your tax advisor or CPA as the savings has limitations.
Important Disclosures:
Coastal Virginia Wealth Group and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.
This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting.