Smart Year-End Tax Planning For 2025

Maximize Wealth, Minimize Taxes

As the end of 2025 approaches, it’s more important than ever to be proactive about your tax strategy. Whether you’re a real estate investor, small business owner, or high-income earner, taking the time to plan can significantly reduce your tax burden and position you to grow your wealth in the coming year. With the tax landscape changing due to new legislation, economic uncertainty, and shifting IRS thresholds, year-end tax planning is no longer optional; it’s essential.

The months of September through December are critical for financial positioning. December 31 is the hard deadline to delay income, accelerate deductions, and make tax-advantaged gifts or investments that affect your 2025 return. Knowing where you currently stand, income levels, expected deductions, and your projected tax bracket allows you to make informed decisions now, not after it’s too late.

Understand Where You Stand

Before making any moves, take stock of your financial situation. Are you earning more or less than last year? Do you expect to be in a higher or lower tax bracket next year? Have you sold or plan to sell assets like real estate, stocks, or business equipment? These factors help determine whether you should defer income or accelerate it, and which deductions to take this year versus next. If your income will be lower in 2026, you may benefit from deferring income into the new year while accelerating deductions into 2025. On the other hand, if you anticipate a higher income in the future, it might make more sense to recognize income now and delay some deductions.

Key Tax Law Changes for 2025:

What You Need to Know The recently passed One Big Beautiful Bill (OBBB) brought sweeping tax updates that will affect investors, business owners, and wage earners alike. Many of the tax breaks originally enacted under the Bush and Obama administrations have expired, been phased out, or replaced. The OBBB cements several key provisions for years to come, but also introduces new rules worth your attention. For real estate investors, the bill extends the Opportunity Zones program to 2033, with added benefits for rural developments. Bonus depreciation is also made permanent through 2029, allowing 100% first-year write-offs for qualified real estate purchases.

The State and Local Tax (SALT) deduction cap has increased to $40,000 for joint filers, offering much-needed relief for those in high-tax states. Additionally, the expansion of the Low-Income Housing Tax Credit opens up more affordable housing projects, which may offer new investment opportunities. Small business owners will see lasting benefits from the permanent Qualified Business Income (QBI) deduction, which allows a 23% write-off for pass-through income. Section 179 expensing thresholds are now set at $2.5 million, and R&D expenses can now be deducted immediately, even retroactively to 2022, for businesses earning up to $25 million. Startups also benefit from a higher asset limit under the Qualified Small Business Stock (QSBS) rules, now increased to $75 million, making it easier to qualify for favorable tax treatment on future exits.

For individual taxpayers, several generous provisions are now in place. The standard deduction has been increased, and tips up to $25,000 and overtime pay up to $12,500 are tax-free for earners making under $150,000. The Child Tax Credit has been expanded to $2,200 per child, and individuals aged 65 and over now receive a new $6,000 deduction. However, not all changes are favorable. Medicaid funding has been reduced, and up to 12 million people could lose coverage due to new work requirements.

Year-End Tax Strategies to Consider

The core of any year-end tax strategy lies in the timing of income and deductions. If you expect to be in a lower tax bracket next year, deferring income can reduce your overall liability. This can be accomplished by pushing year-end bonuses into January, delaying the exercise of incentive stock options, or postponing distributions from retirement accounts beyond the required minimums. At the same time, accelerating deductions by paying mortgage interest, property taxes, or charitable donations before year-end can maximize your write-offs in 2025.

For those expecting to be in a higher tax bracket next year, the opposite strategy applies. Recognize income now, and defer deductions into the following year when they’ll be more valuable. Don’t overlook retirement and healthcare contributions, which are also powerful tools for reducing taxable income. In 2025, 401(k) contribution limits are $25,500 for those under 50 and $33,000 for those over 50. Contributions to health savings accounts (HSAs) and flexible spending accounts (FSAs) should also be maximized where possible.

Capital Gains and Losses

Now is a good time to evaluate your investment portfolio. Selling underperforming stocks or mutual funds before the end of the year can generate capital losses that offset any gains. If your losses exceed your gains, you can use up to $3,000 of the remaining loss to offset ordinary income. Any excess losses can be carried forward indefinitely to reduce future gains or income. A particularly smart strategy for wealth transfer is gifting appreciated assets to a family member in a lower tax bracket. For example, a child in the 10% or 12% bracket may pay zero capital gains tax when they sell the gifted investment. This approach allows you to reduce your taxable estate and avoid capital gains taxes entirely, making it a powerful part of a long-term estate plan.

Charitable Giving

Making charitable donations before year-end is another effective way to lower taxable income. Donating appreciated securities rather than cash allows you to deduct the full fair market value while also avoiding capital gains tax on the appreciation. For 2025, cash donations are deductible up to 60% of your adjusted gross income (AGI), while donations of appreciated assets are generally limited to 30% of AGI. Be sure to donate to qualified charities and retain proper documentation for tax filing.

The Pease Limitation: A Hidden Tax Trap

High-income earners should be especially aware of the Pease Limitation, which reduces the value of itemized deductions once income exceeds certain thresholds. For 2025, the phase-out begins at $372,000 for joint filers and $278,000 for single filers. This limitation affects deductions for mortgage interest, state and local taxes, and charitable contributions, and it can significantly impact your final tax bill. Strategic planning can help mitigate this reduction by managing AGI levels and optimizing deductions.

I address many of these issues in my Wealth Building Plan. Make sure you are getting the best tax advice. Let me evaluate your financial and tax situation, then develop a customized tax strategy just for you. Together, we will come up with a strategic plan designed to answer your questions as you build your own customized wealth-building plan. You can get more information at Ultimate Wealth Building Plan.