7 Year-End Tax Moves to Consider for 2025
As the year comes to a close, it’s important to review potential tax strategies that could benefit you for the current tax year. Below are seven key moves to consider before the end of 2025 to help optimize your tax situation.
Defer Income to 2026
If you anticipate being in a lower tax bracket next year, consider deferring any income to 2025. Postponing a year-end bonus or delaying the collection of payments could allow you to avoid paying taxes on that income this year.
Accelerate Deductions
You might want to accelerate certain deductions into this tax year. If you itemize, paying for deductible expenses such as qualifying interest, state taxes, and medical expenses before 2026 could reduce your 2025 taxable income.
Make Deductible Charitable Contributions
Charitable donations are a great way to give back while reducing your tax burden. Depending on the type of property you donate and the organization you contribute to, you may be able to deduct up to 60% of your adjusted gross income (AGI). Any excess contributions can be carried forward for up to five years.
Increase Withholding to Cover Shortfalls
If it looks as though you will owe federal income tax for the year, consider increasing your withholding on Form W-4 for the remainder of the year to cover the shortfall. Time may be limited for employees to request a Form W-4 change and for their employers to implement it in time for 2025. The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are actually taken from your paycheck. This strategy can be used to make up for low or missing quarterly estimated tax payments.
Boost Retirement Contributions
Deductible contributions to a traditional IRA and pretax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2025 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so. For 2025, you can contribute up to $23,000 to a 401(k) plan ($30,500 if you’re age 50 or older) and up to $7,000 to traditional and Roth IRAs combined ($8,000 if you’re age 50 or older).* The window to make 2025 contributions to an employer plan generally closes at the end of the year, while you have until April 15, 2026, to make 2024 IRA contributions.
*Roth contributions are not deductible, but Roth qualified distributions are not taxable.
Take Required Minimum Distributions (RMDs)
If you are age 73 or older, you generally must take required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (special rules may apply if you’re still working and participating in your employer’s retirement plan). You have to make the withdrawals by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 25% of any amount that you failed to distribute as required (10% if corrected in a timely manner).
Review Year-End Investment Moves
Reviewing and making these tax moves before the end of 2024 can help you lower your taxable income and position you for success in 2025.
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