On individual tax planning, look at the overall impact on 2025 and 2026. The goal is to reduce your federal income tax liability over both years, not just one.
Most taxpayers will benefit taxwise by accelerating write-offs from 2026 into 2025 while deferring taxable income. Others should consider the opposite approach. Itemizers have flexibility in shifting write-offs from one year to another. 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 elective procedures before year-end.
Charitable gifts. Combine into 2025 gifts you’d usually give over multiple years. Give to a donor-advised fund to help maximize your charitable write-off. Contribute appreciated property. Don’t donate assets that have fallen in value.
Note two changes to the charitable contribution deduction that begin in 2026. Nonitemizers can deduct up to $1,000 of charitable cash gifts, starting with 2026 1040s filed in 2027. The amount is $2,000 for joint filers. And charitable deductions claimed on Schedule A are subject to a haircut. They are deductible only to the extent they exceed 0.5% of adjusted gross income. 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%-of-AGI haircut kicks in. You can deduct cash donations only to the extent total charitable gifts don’t exceed 60% of your AGI. The AGI limit for capital gain assets is generally 30%. Excess donations are carried forward for five years.
It is always vital to reduce the taxable income reported on your return. But lowering your adjusted gross income is also more important than ever…Thanks to the OBBB, several popular new breaks begin to phase out at MAGI (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.
If you are over age 65 and have Medicare, consider how taxes could affect the premiums you pay.
Joint filers with modified AGIs exceeding $212,000 and singles with over $106,000 of modified AGI pay higher monthly premiums for Medicare Parts B and D coverage in 2025. The surcharges increase as modified AGI rises. Monthly premiums for 2027 will be based on modified AGIs reported on your 2025 tax returns. So, think about how any tax moves you make now could push your premiums up or down in 2027.
Use your annual gift-tax exclusion. You can give each person up to $19,000 this year without tapping your lifetime estate and gift tax exemption, paying gift tax or filing a gift tax return. Gifts over this amount will trigger the filing of a gift tax return, but you won’t owe tax unless your lifetime gifts exceed $13,990,000. Note that the lifetime estate and gift tax exemption for 2026 increases to $15 million. Recipients don’t pay income tax on their gifts.
Pay attention to the required minimum distribution rules for traditional IRAs. Owners 73 and older must take annual payouts.
If 2025 is your first RMD year, you have until April 1, 2026, to take the RMD. If you opt to defer your first RMD to 2026, you will be taxed in 2026 on two payouts: The deferred one for 2025 and the RMD for 2026. This will hike your 2026 income. Similar rules apply to 401(k)s. However, people who work past age 73 can generally delay taking RMDs from their current employer’s 401(k) until they retire.
Know the rules for nonspousal beneficiaries of IRAs inherited after 2019. There is a 10-year cleanout rule. Funds must be fully distributed within 10 years of 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 as his or her own. The 10-year rule is tricky, so talk with your IRA custodian or financial advisor.
Charitable donations made directly from a traditional IRA can save taxes. People 70½ and up can transfer up to $108,000 in 2025 from IRAs directly to charity. Qualified charitable distributions can count as RMDs, but they are not taxable, and 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 instead of itemizing, and for taxpayers wanting to keep their AGI amounts down to qualify for various tax breaks and to mitigate Medicare premium surcharges.
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. You can stash up to $23,500 in a 401(k). People 50 and up can put in $7,500 more. If you’re 60-63, the catch-up amount jumps to $11,250. The 2025 contribution limit for IRAs is $7,000, plus $1,000 more if age 50 or older. Boost your federal income tax withholding if you expect to owe tax for 2025. It can help avoid an underpayment penalty when you file your 2025 return.
You’re off the hook for the penalty if you prepay, through estimated tax payments or withholding, 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 can give your employer a new W-4 to have more tax taken from wages. Fill out Form W-4V to have tax withheld from your Social Security benefits.
Retirees taking RMDs from traditional IRAs can use this popular strategy: Have more tax withheld from a year-end distribution from your traditional IRA. Tax withheld at any point in the year is treated as if evenly paid throughout the year.
Your investment portfolio provides plenty of tax-saving opportunities. See if you qualify for the 0% rate on long-term gains and qualified dividends. If 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, then your qualified dividends and gains on sales of assets owned more than a year are taxed at a 0% federal tax rate until they push you over the threshold amounts. Some words of caution on 0% long-term capital gains and dividends. They might not be taxed at the federal level, but they do increase your AGI. Also, capital gains may be taxed differently for state income tax purposes. If you’re not eligible for the 0% rate, there’s always the 15% or 20% rate. The 20% rate on long-term capital gains and qualified dividends begins at incomes of $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.
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Take steps to limit the sting of the 3.8% tax on net investment income dividends, capital gains, taxable interest, annuities, passive rents, royalties and certain income from passive activities. Investment expenses reduce income subject to the 3.8% tax. The tax hits joint filers with modified AGI over $250,000 and singles over $200,000 and is due on the lesser of NII or the excess of modified AGI over the threshold amounts.
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Here are a few ways to keep the 3.8% tax at bay. Invest in municipal bonds. Use an 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 harvesting is a way investors can lower their tax bills. The strategy involves selling stocks or other securities in your taxable investment accounts that have declined in value for the purpose of generating capital losses to offset gains from the sale of winners. Investors commonly do this closer to the end of the year, when they have a better idea of the amount of capital gains they will have. 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. If you have capital loss carryforwards, cull your portfolio for capital gains.
The OBBB made permanent the popular 20% qualified business income deduction for pass-through entities. The break also applies to holders of PTP units and interests in REITs. Individuals can deduct 20% of qualified REIT dividends…distributions not taxed under the favorable rules for capital gains and dividends…and 20% of their share of a PTP’s qualified business income. Claim the write-off on Form 8995.
Act quickly if you want a tax break for energy-efficient home improvements. Two credits end after this year. The energy-efficient home improvement credit is for homeowners who install heat pumps, exterior doors and windows, boilers, central air-conditioning systems, etc. 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.
Paying for the improvements before Jan. 1, 2026, isn’t enough to get a credit. You will need to pay for them and get them completed before year-end.
Businesses on the cash method of accounting can shift income and expenses between 2025 and 2026. Professionals can delay year-end billings to collect less revenue in 2025. Firms can juggle income by shifting expenses from one year to another.
There are very generous write-offs for business asset purchases this year. Firms can save taxes, now that 100% first-year bonus depreciation is revived. Businesses can deduct the full cost of new and used qualifying business assets, with lives of 20 years or less, that are first put in service after Jan. 19, 2025. The break, which was gradually phasing out, is now permanent, thanks to the OBBB.
Buyers of business vehicles get big tax breaks. For new and used cars, with bonus depreciation, the first-year cap is $20,200. Second- and third-year caps are $19,600 and $11,800. Absent bonus depreciation, the first-year cap is $12,200. Buyers of heavy SUVs used solely for business can write off the full cost. And up to 100% of the cost of a big truck used in business can be expensed, subject to the rule that total expensing can’t exceed taxable income from the business.