Article Highlights:
- Not Needing to File a 2025 Return?
- Are Your Children Attending College?
- Did You Sell Your Home This Year?
- Do You Have an Employer Health Flexible Spending Account?
- Did You Become Eligible to Make Health Savings Account (HSA) Contributions This Year?
- Have You Funded Your Retirement Savings?
- Married and Spouse Does Not Work?
- Are You Age 60 to 64 This Year?
- Are You Expecting a Bonus This Year?
- Is Your Income Unusually Low This Year?
- Must You Take a Required Minimum Distribution (RMD)?
- Do You Have Stocks That Have Declined in Value?
- Do You Have Stocks That Have Appreciated in Value and Your Income Is Low This Year?
- Have You Considered Prepaying State Income and Property Taxes?
- Are You Planning Your Charitable Deductions?
- Do You Have Outstanding Medical or Dental Bills?
- Have You Forgotten the Annual Gift Tax Exclusion?
- Do You Think You May Have Under-Withheld Taxes This Year?
- Did You Suffer a Disaster Loss This Year?
- Divorced or Separated This Year?
- Do You Qualify for Energy or Environmental Tax Credits?
o Credit for Energy Efficient Home Modifications
o Solar Credit
The end of the year and the Christmas season are swiftly coming. So, before you become distracted by the holiday festivities, it may be in your best advantage to contemplate year-end tax maneuvers that will boost your 2025 tax file. Here are some last-minute tax considerations you should consider:
Is it unnecessary to file a 2025 tax return? If your income and tax circumstances do not need you to file for 2025, don't pass up the opportunity to generate some more revenue that is tax-free. Consider selling valued stock or taking a tax-free IRA distribution if you are 59½ or older or younger and meet the "early withdrawal" penalty exception.
Also, just because you do not have to file a tax return does not imply you should not. If you do not file, you may miss out on significant refundable tax credits.
Is your income unusually low this year? If your income is especially low this year, consider converting some or all of your regular IRA to a Roth IRA. The decreased income is likely to result in a lower tax rate, allowing you to convert to a Roth IRA at a lower tax amount. Also, if you have equities in your retirement plan that have declined significantly in value, now would be a good time to transfer to a Roth.
Do Your Children Attend College? If you qualify for American Opportunity or Lifetime Learning education credits, calculate how much you will have paid in eligible tuition and related fees by 2025. If it is not the maximum allowed for credit calculation, you may prepay 2026 tuition for an academic period commencing in the first three months of 2026. This will allow you to raise the credit in 2025. This is especially useful for students who are just starting college and only have tuition costs for a portion of the year.
Have You Sold Your Home This Year? assuming so, and assuming you meet the ownership and occupancy conditions, the gain from selling your primary residence will be tax-free up to $250,000. However, if you do not fulfill the conditions of owning and using your house for two years within five years of the selling date, you may still be eligible for a partial home sale gain exclusion. You may be eligible for a reduced exclusion if you sold your property to relocate this year owing to a change in employment or health. We can calculate the amounts of exempt income and taxable gain and forecast how your taxes will be affected.
Do you have an Employer Health Flexible Spending Account? If so, and if you contributed too little to cover expenditures this year, you may want to increase the amount you set aside for the following year. The maximum donation in 2025 is $3,300. The $660 carryover from 2025 must be spent within the first 2½ months of 2026.
Did you become eligible to make HSA contributions this year? If you become eligible to make health savings account (HSA) contributions late this year, you can make a full year's worth of deductible HSA contributions, even if you were not eligible for HSA contributions throughout the year. This option is available even if you first become eligible in December. In short, if you qualify for an HSA, you can deduct contributions to the account (up to IRS restrictions), earn tax-deferred earnings, and receive tax-free disbursements for qualifying medical costs.
Have you contributed to your retirement savings? Make sure you maximize your retirement plan contributions before the end of the year. Once the year is over, you will never be able to make this year's yearly tax-advantaged contribution to your savings for future retirement, which will be unpleasant if you do not have a big nest egg. If your company matches a portion of the amount you contribute to your 401(k) or another eligible retirement plan, make sure to contribute as much as possible to fully take advantage of this benefit. If the contributions are tax-deductible, such as to a conventional IRA, or made with pre-tax income, increasing them may reduce your tax payment.
Have you contributed to your retirement savings? Make sure you maximize your retirement plan contributions before the end of the year. Once the year is over, you will never be able to make this year's yearly tax-advantaged contribution to your savings for future retirement, which will be unpleasant if you do not have a big nest egg. If your company matches a portion of the amount you contribute to your 401(k) or another eligible retirement plan, make sure to contribute as much as possible to fully take advantage of this benefit. If the contributions are tax-deductible, such as to a conventional IRA, or made with pre-tax income, increasing them may reduce your tax payment.
Married and Spouse Doesn't Work? If one spouse works while the other does not, tax law permits the non-working spouse to base his or her IRA contribution on the working spouse's income. This tax benefit is sometimes ignored when spouses have been working and making individual contributions based on their own income for years before one of them retires. Even if the working spouse has a workplace retirement plan and his or her salary precludes an IRA contribution, the non-working retired spouse can still contribute depending on the working spouse's earnings.
Are you between the ages of 60 and 64 this year? Beginning in 2025, people are eligible for greater retirement plan catch-up contribution limits of 150% of the regular catch-up limit, which corresponds to $11,250 for employer plans and $5,250 for SIMPLE plans. These catch-up contributions are intended to improve retirement savings during the final working years and are subject to cost-of-living changes to ensure they remain helpful in terms of inflation. This provision focuses on SIMPLE, 401(k), 403(b), and other qualifying employer plans, providing a strategic advantage to older employees looking to maximize their retirement contributions in a limited period of time before retirement. These increased amounts are not applicable to IRAs.Are you expecting a bonus this year? If a job-related bonus is scheduled to be paid near the end of the year, you may be able to defer that income until the next year if it is acceptable in your circumstances, such as when you expect less 'other' income next year. See whether your company is willing to postpone payment until after the first of the year.
Do You Need to Take the Required Minimum Distribution (RMD)? When U.S. taxpayers reach the age of 73, they must take an annual "required minimum distribution" from their qualified retirement plan or conventional IRA. If this is your first year under this rule and you haven't yet withdrawn the required amount, don't worry; you won't have to do so until sometime in the first quarter of next year. Of course, if you wait until 2026 to receive your 2025 payment, you will have to take two distributions in one year: one for 2025 and one for 2026.
If you were forced to take an RMD before 2025, you only have until December 31st to complete the required distribution for 2025 and avoid penalties.
Those who inherited a retirement account and are obligated to distribute the whole account within 10 years should be aware that RMDs from those funds will also be required beginning in 2025.
Do you own any stocks that have declined in value? While most stocks have risen this year, you should still analyze your stock portfolio to find any losers and consider selling those underperforming equities to offset capital gains that would otherwise be subject to the 15% or 20% long-term capital gains tax rate. Capital losses can also offset up to $3,000 ($1,500 for married taxpayers filing separate returns) of ordinary income if they exceed capital gains by at least that much. Recognizing capital losses to offset capital gains can help to lower the amount of income subject to the net investment income surtax. Be cautious of the wash sale regulations, which state that you cannot deduct a loss if you repurchase loser stocks within 30 days after the sale dateDo you own stocks that have appreciated in value, but your income is low this year? Long-term capital gains are taxed at zero percent for taxpayers with taxable income less than the 15% capital gains tax level. This may allow you to sell valued securities that you haven't held in an IRA or retirement account for more than a year and pay no or little tax on the gain. The 2025 15% capital gains tax rate begins at $96,701 for married joint filers, $64,751 for individuals filing as head of household, and $48,351 for all other filers.
Have you considered prepaying your state income and property taxes? The One Big Beautiful Bill Act (OBBBA) doubled the deduction limit for state and local taxes (SALT) beginning in 2025. If you do not pay the alternative minimum tax and itemize your deductions, you can deduct both your property taxes and state income (or sales) tax up to a maximum of $40,000 in 2025, an increase from $10,000 in 2024. Did you know that, in some situations, and assuming you haven't surpassed the cap, you can boost the amount you deduct on your 2025 return by prepaying some of the taxes by December 31, 2025? You can ask your employer to increase your state withholding by a fair amount, or if you are self-employed, pay your fourth-quarter state estimated tax installment in December (which would otherwise be due in January) to enhance your deduction. The same is true for real estate taxes: if you pay your first 2026 installment in 2025, you can include it in your 2025 deduction.
Are You Planning Your Charitable Deductions? Many people who itemize benefit from the ability to deduct payments to their favorite organizations or places of worship. Did you know that you can pay all or part of your 2026 planned donation in 2025, increasing the amount you can deduct in 2025? Though this may not appeal to people who itemize each year, alternating between taking the standard deduction one year and itemizing the next can provide a significant benefit.If you itemize deductions, there's another reason you should consider boosting your 2025 contributions instead of making them in 2026. Beginning in 2026, there will be a 0.5% floor on charitable deductions for persons who itemize, reducing the amount of charitable contributions for the year by 0.5% of the taxpayer's adjusted gross income. This is similar to how the medical deduction works, in which medical expenses are reduced by 7.5% of AGI.
Charitable contributions are deductible in the year they are made. If you charge a donation to your credit card before the end of the year, it will be counted for 2025. This applies even if you do not pay your credit card debt until 2026. Furthermore, if you mail a check in 2025, it will count for that year. For last-minute shipments, the USPS may provide proof of mailing. Also, make sure to obtain an acknowledgment letter or paperwork from each qualified organization that clearly indicates the amount donated and whether the charity provided you with goods or services (other than some token items and membership perks) as a result of your contribution.
Did you know that you can make charitable deductions from your IRA account? Transferring monies from an IRA to a qualifying charity organization directly by the IRA trustee is tax-free for anyone aged 70½ or older (up to $108,000 in 2025). If you are obligated to make an IRA distribution (i.e., you are 73 or older), you can have it wired directly to an eligible charity, and the amount will be included toward your annual RMD.
Although you will not receive a tax deduction for the transferred amount, this qualified charitable distribution (QCD) will be excluded from your income, which may have the additional benefit of reducing the amount of your Social Security benefits that are taxable. Also, because your adjusted gross income will be smaller, tax credits and some deductions that are subject to phase-outs or limitations based on AGI may be impacted positively.
If you intend to make a QCD, notify your IRA trustee or custodian well in advance of December 31 so that they have time to complete the transfer to the charity. If you have contributed to your traditional IRA since turning 70½, the amount of the QCD that isn't taxed may be limited. Check with this office to determine how your tax might be affected. You should get an acknowledgement from the charity, as described in "Are You Planning Your Charitable Deductions?" above.
It's important to understand that traditional IRA contributions made after age 70½ will lower the benefit.
Have any outstanding medical or dental bills? Taxpayers who itemize their deductions may deduct eligible medical and dental expenses that exceed 7.5% of their adjusted gross income. If you have achieved or are approaching that barrier, it may be more cost effective to pay off any outstanding obligations rather than deferring them. If you are close or above the limit, it may be worthwhile to consider what your medical and dental expenses will be in the coming year and move those that you can into 2025 to enhance the deduction. These costs could include dental work or eyewear. Another essential consideration: if you plan to use a credit card to make the payment and do not intend to pay off the card amount right away, make sure you are not paying more in interest than you are saving from the greater tax deduction.Have you forgotten about the annual gift tax exclusion? Though gifts to persons are not tax deductible, you are permitted to make presents to individuals up to a certain amount each year without incurring any gift tax or filing requirements. For the tax year 2025, you can give $19,000 (increasing from $18,000 in 2024) to as many people as you wish without paying any gift tax. If this is something you want to do, make sure you do it before the end of the year, because you cannot carry the $19,000, or any unused portion of it, into 2026. Such gifts do not have to be in cash, nor do they have to be given to a relative. If you are married, you and your spouse can donate the same person up to $19,000 (for a total of $38,000) without having to file a gift tax return or pay any gift tax. In terms of spouses, there is no limit on the amount that a spouse can give to their wife or husband.
Do you think you might have under-withheld taxes this year? If your liabilities exceed your prepayments by $1,000 or more, you may be liable to underpayment penalties. This could simply be the result of under-withholding on your salary or underpaying anticipated tax if you are self-employed, or of unusual income, such as stock gains, the sale of a business or rental, or even a large lottery win. There are safe harbor prepayments to avoid a penalty that need prepayment.
- 90% of current-year tax liability.
- 100% of prior year's tax liability, or
- If the prior year's AGI exceeded $150,000, the tax liability is increased to 110%.
If you believe that the income taxes you've paid so far for 2025 are insufficient, you should increase your withholding in the time remaining until the end of the year to compensate. If you fail to pay your taxes, you will face a quarterly underpayment penalty. The good news is that, even if you underpaid for any or all of the first three quarters of the year and will owe taxes when you file your 2025 return, you may make up the difference by increasing your year-end withholding, because federal withholding is regarded paid ratably throughout the year. In addition, enhanced withholding and the possibility of paying estimated taxes can help to lower the fourth quarter underpayment penalty.
Did You Suffer a Disaster Loss this Year? Significant disasters in 2025 have included wildfires, severe storms, and flooding in the United States. Any unreimbursed property losses incurred as a result of a federally declared disaster can be claimed on the current year's tax return or, at the taxpayer's option, on the previous year's return (2024 for 2025 catastrophes), allowing for quicker access to a tax refund. However, care must be taken to ensure that a disaster loss is claimed on the return of the year with the greatest gain. Furthermore, after accounting for insurance reimbursement, the outcome may differ from what was predicted, and this should be verified before deciding which year to claim the loss.
Have You Been Scammed This Year? In general, casualty losses are only permitted when tied to a proclaimed disaster. However, there is an exception for fraud or scam losses that are tied to a profit-making transaction, such as investments or retirement savings.
Divorced or separated this year? A divorce or separation can significantly affect a couple's tax filings. Filing combined or separate forms, who claims the children, the tax laws governing whether to take the standard deduction or itemize, how income and tax prepayments are split, and other concerns must be addressed. It's best to figure everything out ahead of time.
Energy and environmental tax credits? OBBBA has discontinued the electric car credit for sales made after September 30, 2025. Despite the limited time frame, the credit for energy-efficient home improvements and the residential solar credit remain accessible until the end of 2025.
Credit For Energy-Efficient Home Modifications This tax credit for energy-saving modifications to taxpayers' existing residences has been available in various forms since 2006. The most current credit rate was 30%, with an annual maximum of $1,200. Individuals can take advantage of the credit by making up to $4,000 in creditable home energy upgrades each year. Certain types of upgrades have annual limits; for example, there is a $600 credit limit for home energy property expenditures, windows, and skylights, as well as $250 for exterior doors. In addition to the $1,200 yearly cap, you can claim up to $150 for an energy audit completed on your primary dwelling by a qualified home energy auditor.
This credit is non-refundable (it can only be used to offset current tax liabilities) and has no carryover.Solar Credit - A 30% nonrefundable federal tax credit is available for putting solar on your first and second residences (you do not need to own the home). Unused credit can be carried forward to the following year. Expenses for battery storage technology with a capacity of at least 3 kilowatt hours qualify toward the credit. Upgrades to batteries and equipment will be eligible for reimbursement even after the first installation.
However, to qualify for these two credits, the installations must be completed and paid for by December 31, 2025.
Have questions about any of the above? Give this office a call.