Originally published Dec 3, 2015, Updated November 14, 2025.
Every November and December, I work with clients on their year-end tax planning, providing them with a final opportunity to reduce their tax liability when they file next spring. Inflation-adjusted brackets, phase-outs, and the One Big Beautiful Bill Act (OBBBA). The adjustment makes this year especially important. Here are 12 ways to make smart moves before December 31.
1. State Income Tax
Prepay state income tax. If you are expected to owe in April, it may be good to pay state income tax before year-end to realize a federal income tax deduction. Individual taxpayers use the cash method of accounting when computing taxes, so you must pay the tax before year-end to realize the deduction. In certain situations, this can now apply to businesses, as many states have enacted pass-through entity (PTE) tax legislation in response to recent federal legislation.
2. Traditional IRA
Contributing to a Traditional IRA or increasing your deferrals to an employer-sponsored retirement plan is one of the most effective ways to lower your taxable income while saving for retirement. For 2025, the annual contribution limit for IRAs is $7,000 (or $8,000 if you are age 50 or older). For 401(k) and similar workplace plans, you can contribute up to $23,500, plus an additional $7,500 catch-up contribution if you are 50 or older.
Your deduction for IRA contributions may be limited if a workplace plan covers you or your spouse and your income exceeds certain levels. Your CPA can help determine how much of your contribution qualifies as deductible based on your adjusted gross income and filing status. Note that IRA contributions can be made up to the tax filing deadline (Usually April 15, 2026).
If you are self-employed, consider setting up a Solo 401(k) or SEP IRA before year end. These plans allow much higher deductible contributions than a Traditional IRA and can be a powerful way to build retirement savings while reducing your 2025 taxable income.
3. Charitable Contributions
Instead of donating cash, consider giving appreciated stock, mutual funds, or other investments you have held for more than one year. You can usually deduct the fair market value of the asset and avoid paying capital gains tax on its appreciation.
For 2025, cash donations to public charities are deductible up to 60% of adjusted gross income (AGI), while appreciated assets are limited to 30% of AGI. Contributions must be made to qualified 501(c)(3) organizations before December 31.
If you don’t itemize, you can still benefit by “bunching” several years of donations into one. A donor-advised fund can help you make a large gift now, claim the deduction this year, and direct grants later. Always keep receipts for contributions of $250 or more.
4. Mortgage Interest
If you have loans with non-deductible interest, consider refinancing or consolidating them into a mortgage or home equity loan that qualifies for a tax deduction. For interest to be deductible, the borrowed funds must be used to buy, build, or substantially improve the home that secures the loan. Simply paying off personal debt or other expenses with a home equity loan does not qualify for a deduction.
The mortgage interest deduction remains limited to interest on up to $750,000 of acquisition debt for most taxpayers ($1 million if the loan originated before December 15, 2017). Interest on home equity loans or lines of credit is deductible only if the loan proceeds were used to improve the property itself.
If you are paying higher interest on personal or investment debt, discuss refinancing options with your CPA or lender. Shifting that debt into properly structured home acquisition or improvement debt may lower your after-tax borrowing cost and improve your cash flow.
5. Capital Gains
Consider investing in stocks or mutual funds that pay qualified dividends, rather than interest. Dividends from qualified domestic corporations and long-term capital gains are generally taxed at 0%, 15%, or 20%, depending on your income level. High-income taxpayers may also be subject to the 3.8% net investment income tax on these earnings.
If you expect your income to rise next year, you may want to realize some gains in 2025 to take advantage of a lower rate now. Remember that investments held less than a year are taxed as ordinary income.
Utah residents should review the state's capital gains rules, as state treatment may differ from federal law. Discuss the best timing and approach with your CPA before year-end.
6. Itemized Deductions
If your itemized deductions are close to the standard deduction each year, consider bunching your deductions into one tax year to maximize your benefit. For 2025, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly. When your total itemized deductions—such as mortgage interest, property taxes, charitable donations, and medical expenses—fall just below that threshold, combining or timing payments can increase your total deductions and lower your tax bill.
For example, if you regularly give to charity, you could delay your December contributions and make them in January of the next year, then also give again in December of that same year. This way, two years of giving fall in one calendar year, pushing you well above the standard deduction for that filing.
Beginning with the 2025 tax year, the deduction limit for the itemized deduction for state and local taxes (known as the SALT deduction) is being raised. Previously, under the Tax Cuts and Jobs Act (TCJA) the cap was $10,000 (or $5,000 if married filing separately).
Under the new law, the One Big Beautiful Bill Act (OBBBA), the cap for 2025 is increased to $40,000 for many filers (and $20,000 for married filing separately).
However, the increase is not unconditional. There is a phase-out for taxpayers whose Modified Adjusted Gross Income (MAGI) exceeds certain thresholds (for example, above $500,000 for joint filers). Beyond that threshold, the allowed deduction begins to shrink, and at higher income levels it essentially reverts toward the old $10,000 limit.
7. Capital Loss
Selling investments that have decreased in value can reduce your tax bill for 2025. When you sell an asset at a loss, that realized loss can offset capital gains from other investments. If your capital losses exceed your gains, you can deduct up to $3,000 ($1,500 if married filing separately) against other types of income, such as wages or business earnings. Any unused losses are carried forward indefinitely to future years.
This strategy, often referred to as tax-loss harvesting, is most effective when integrated with your investment plan. Review your portfolio before year-end to identify positions that are unlikely to recover soon.
Be careful to follow the wash-sale rule, which disallows the deduction if you repurchase the same or substantially identical security within 30 days before or after the sale. The IRS has not yet extended the wash-sale rule to cryptocurrency transactions, but proposals remain under discussion. Always confirm timing and reporting with your CPA before executing trades.
8. Real Estate
Consider adding real estate to your investment mix. Residential and commercial properties often generate tax losses in the early years due to depreciation deductions and other expenses. These paper losses can help offset passive income from other rental or investment activities.
If your adjusted gross income exceeds $150,000, passive losses are generally limited unless you qualify as a real estate professional or actively participate in the rental activity. Qualifying professionals can deduct losses without the same limitations if they meet the IRS time and participation tests.
For higher-income taxpayers, real estate can still provide valuable depreciation and long-term appreciation benefits even if current losses are limited. Work with your CPA to ensure proper recordkeeping, cost segregation, and compliance with passive activity loss rules under IRC Section 469.
9. Business
Investing in a business can offer significant tax benefits. Purchases of machinery, equipment, or technology may qualify for 100% bonus depreciation or Section 179 expense, allowing for an immediate deduction rather than spreading the cost over several years. In the 2025 tax year, the Section 179 deduction limit remains indexed for inflation, allowing small and midsize businesses to deduct most equipment purchases in the year they are placed in service.
Losses generated by business operations can offset other ordinary or investment income, depending on your level of participation and the at-risk and passive-activity rules. Before year-end, review planned purchases and projected income with your CPA to confirm the optimal timing for equipment, vehicle, or software acquisitions and to accurately document business-use percentages.
10. Cryptocurrency Transactions
If you trade or invest in cryptocurrency, be aware that each sale, exchange, or payment can create a taxable event. The IRS treats crypto as property, not currency, so gains are taxable and losses can be used to offset other capital gains.
Keep accurate records of every purchase, sale, and transaction fee, as exchanges may not always accurately report these details. If you’re thinking about harvesting losses or rebalancing before December 31, talk with your CPA first to make sure it fits your overall tax plan.
11. Business
If you run an S corporation, partnership, or sole proprietorship, you may qualify for the 20% Qualified Business Income deduction. This deduction reduces your taxable income based on the profit your business earns, and you don’t have to spend anything to get it.
For 2025, the deduction remains in place, but it begins to phase out when taxable income exceeds approximately $394,600 for joint filers and $197,300 for single filers. Once you exceed those limits, the rules become more complex and depend on your trade or business type, the wages you pay, and the assets your business owns.
If your income is close to those levels, talk with your CPA before year-end. Adjusting when you take income or make deductible purchases could help you stay under the limit and keep the full deduction.
12. Tax Bracket Management
Smart year-end planning isn’t just about finding deductions — it’s also about managing when you recognize income and deductions to take advantage of favorable tax brackets. If you expect your income to fluctuate, consider these strategies before December 31:
Accelerate or defer income: If you expect to be in a higher bracket next year, accelerating income into 2025 may reduce overall lifetime taxes. Conversely, if your income drops next year, deferring income can push it into a lower bracket.
Roth conversions: Converting part of a Traditional IRA to a Roth IRA while you’re in a lower bracket allows you to pay tax now and enjoy tax-free growth later. This can be especially powerful in years with unusually low income.
Reviewing your projected taxable income with your CPA before year-end can help you “fill up” the lower brackets strategically and avoid surprises when you file your 2025 return. A little bracket management now can save you thousands over time.
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