2025 Year-End Tax Planning

The 2025 year-end is fast approaching. Considering that major tax legislation was passed earlier this year, it is important to start thinking about actions that may help lower your taxes for this year and the years to come.

We have compiled a list of potential actions based on current tax rules that may help you save tax dollars if you ACT BEFORE YEAR-END. Not all of them will apply to you, but you (or a family member) may benefit from many of them. Please review the following list. If you would like us to advise you on which tax-saving moves might be beneficial given your circumstances, please reach out to us at your earliest convenience so we can tailor a particular plan for you.

We have broken out the potential actions into the following sections:

• Individuals
• Stock Market Investor Strategies
• Business

Individuals

• For 2025, many taxpayers won’t need to itemize their deductions due to the high standard deduction ($31,500 for joint filers, $15,750 for singles and married filing separately, and $23,625 for heads of household) and the reduction or abolition of several itemized deductions.
• Consider a bunching strategy to maximize deductions by concentrating medical expenses and charitable contributions into one calendar year.
• Consider postponing income to 2026 (such as deferring a bonus) and accelerating deductions into 2025, especially for those anticipating a lower tax bracket in 2026. However, taxpayers expecting a more favorable filing status in 2025 or higher tax rates in 2026 may benefit more from accelerating income into 2025.
• Consider donating appreciated publicly traded stock to get a two-fold benefit of the deduction for the donation at fair market value without having to pick up the capital gains. If you were planning to do this in 2026 as well, you may want to bunch up the donations in 2025 due to the new limitations below.
• Starting in 2026, there are two new limitations on itemized charitable donations:

1. 1. You only get a benefit once they exceed 0.5% of your income. (e.g. with AGI of $300k, the 1^st $1.5k is not deductible).
   2. Taxpayers in the 37% marginal bracket will be limited to a 35% benefit from donations.

• Starting in 2026, non-itemizers can deduct qualified cash donations up to $1k Single or $2k MFJ.
• Consider using a credit card to pay deductible expenses before year-end.
• Higher-income individuals should be cautious of the 3.8% surtax on certain unearned income. As year-end approaches, strategies to minimize or eliminate the surtax will vary based on estimated modified adjusted gross income and net investment income.
• Higher-income earners may need to take year-end action regarding the 0.9% additional Medicare tax.
• Consider converting your traditional IRA into a Roth IRA in 2025 if you believe a Roth IRA is better for you. A conversion is generally best during a year where you expect lower taxable income and/or when you have funds invested in underperforming stocks or mutual funds. Keep in mind that this conversion will increase your taxable income and could reduce tax breaks subject to phaseouts at higher AGI levels.
• Required minimum distributions (RMDs) from a traditional IRA have not been waived for 2025. However, for 2025 and later years, RMDs are no longer required from designated Roth accounts. Taxpayers may want to take RMDs by the end of 2025 to avoid having to double up on RMDs in 2026.
• Consider making charitable donations via direct qualified charitable distributions (QCD) from your traditional IRAs if you are age 70½ or over by the end of 2025, especially if you are unable to itemize your deductions.
• If facing a penalty for underpayment of estimated tax and increasing wage withholding will not sufficiently address the problem, consider taking an eligible rollover distribution from a qualified retirement plan before the end of 2025. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2025. You can then timely roll over the gross amount of the distribution (the net amount received plus the taxes withheld) to a traditional IRA. No part of the distribution will be includible in income for 2025, but the withheld tax will be applied pro rata over the full 2025 tax year to reduce previous underpayments of estimated tax.
• If you become eligible in December of 2025 to make HSA contributions, you can make a full year’s worth of deductible HSA contributions for 2025.
• Consider making gifts sheltered by the annual gift tax exclusion ($19,000) before the end of the year.
• Consider utilizing energy-related credits and deductions such as the solar credit before it expires at the end of 2025.
• For tax years 2025–2028, individuals age 65 or older (and their spouses, if filing jointly) can claim a new $6,000 deduction per qualified person. To maximize this benefit, seniors should aim to keep their adjusted gross income (AGI) below $75,000 (single) or $150,000 (joint), as the deduction is reduced by 6% of any excess.
• For tax years 2025–2028, you may be able to deduct up to $10,000 per year in interest paid on loans for new personal-use vehicles even if you do not itemize deductions. If you are planning to buy a new vehicle, consider timing your purchase and loan to maximize deductible interest within the eligible years, and manage your income to stay below the phase-out thresholds for the largest benefit. Phase outs begin at $100k for single filers and $200k for married filing joint.
• If you had an eligible child born during 2025 to 2028, you can open up a new tax-deferred investment account for children, called a “Trump account.” Taxpayers can contribute up to $5,000 per year in after-tax dollars for each child, and funds must be invested in a diversified U.S. equity index fund. The federal government will automatically contribute $1,000 to each account.
• Effective 2025–2028 you may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips that are reported on a Form W-2, Form 1099, etc. Therefore, be sure your tips are included by year-end to receive the deduction. Please note, the maximum annual deduction is $25K, and it cannot exceed your net income from the trade or business from which the tips were earned.

Stock Market Investor Strategies

As year-end approaches, you should consider the following moves to make the best tax use of investment gains and losses from your stock market investments:

• Sell investments at a loss to offset earlier gains.
• Keep in mind the wash sale rule which disallows taxpayers from deducting capital losses generated on securities that were sold at a loss and subsequently reacquired within 30 days.
• Since individual taxpayers may carryover excess capital losses indefinitely, there is no reason from a tax perspective to sell appreciated stocks simply to generate offsetting capital gains.
• Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer’s taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate.
• If selling an investment in a qualified small business stock (QSBS), consider the tax savings and rollover provisions. There are significant enhancements for newly acquired QSBS that can exclude up to $15M of gain for federal purposes if the holding period is met. There are also new flexible partial exclusions for holding newly acquired QSBS: holding for 3 years garners 50% exclusion, while 4 years garners 75%.
• Sales of farmland property after July 4, 2025 may qualify to pay capital gains tax on the sale in four equal annual installments.
• Review your ISO, NQ, and RSU holdings to determine strategies to minimize tax, and diversify your portfolio.

Business

New tax legislation normally gives rise to tax planning opportunities. The OBBBA was no exception, as it contains several new provisions that affect later tax years, so ongoing tax planning is necessary to take advantage of the tax saving opportunities or to mitigate adverse law changes. See below for those affecting businesses.

• In 2025, domestic Research and Experimentation costs (commonly called R&D) can once again be expensed. Under prior law, these costs were required to be capitalized and amortized over five years (fifteen years if foreign sourced) instead of being expensed immediately. New rules provide flexible options for switching back to expensing.
• Taxpayers (excluding C-corporations) may qualify for a deduction of up to 20% of their qualified business income, with limitations based on the type of business, the amount of W-2 wages paid, and the unadjusted basis of qualified property held by the business. However, beginning in 2026, there are new thresholds for Qualified Business Income (QBI):

1. 1. Total QBI must be at least $1,000.
   2. The minimum QBI deduction is set at $400.

• More small businesses now can use the cash method of accounting (as opposed to the accrual method), qualifying if their average annual gross receipts do not exceed $31 million over a three-year testing period for 2025. This method allows taxpayers to more easily shift income by delaying billings to the next year or accelerating expenses.
• Expensing qualified business machinery and equipment under Section 179 now allows many small and medium-sized businesses to deduct most or all their expenses for timely purchases (up to $2,500,000 for 2025).
• Under the new law, bonus depreciation deduction was restored to 100% for certain fixed assets purchased after January 19, 2025.

• Businesses may be able to take advantage of the de minimis safe harbor election to expense lower-cost assets and supplies, provided these costs don’t need to be capitalized under UNICAP rules.
• Consider funding a qualified retirement plan and/or setting up a Simplified Employee Pension (SEP). As a reminder, if you have even one employee, you must either set up a retirement plan with CalSavers or set up your own alternative plan by the end of 2025.
• Consider having your flow-through entity pay a portion of your state tax liability under the Pass-Through Entity (PTE) tax credit provisions. This is now a permanent part of the law.
• A corporation (other than a large corporation) expecting a small net operating loss (NOL) for 2025 (and substantial taxable income in 2026) may benefit from accelerating just enough of its 2026 income or deferring 2025 deductions to create a small taxable income for 2025.
• Year-end bonuses can be strategically timed for tax benefits by both cash and accrual basis employers.
• To reduce 2025 taxable income, consider deferring a debt-cancellation event until 2026 or to accelerate, consider finalizing a debt-cancellation event.
• Take steps to utilize prior year suspended basis, at-risk, or passive losses.
• If you have paid any S-corporation or Partnership expenses personally, make sure you are reimbursed before year-end or you will lose the ability to deduct these expenses.
• Corporations should consider making additional charitable contributions in the current year before the 1% limitation on corporate charitable deductions takes effect in 2026.
• Plan an energy efficient commercial building project now before the deduction terminates for the cost of energy efficient commercial buildings.
• Review your fixed assets before year-end and dispose of any that have become obsolete. This allows you to recognize a loss on assets that still have a remaining tax basis and may also help lower your property tax liability at January 1.

These are just some of the year-end steps that can be taken to save taxes. As you can tell from this letter, many provisions are quite complex and require some analysis based on individual facts. Even if you do not believe any of these provisions will apply to your 2025 tax situation, you should consider contacting us prior to year-end to run a tax projection and help you avoid unnecessary surprises come April 2026.