2025 Year-End Planning: Control The Things You Can

As we head for the year’s home stretch, there is a host of planning items you should consider as well as some general information you should be aware of for the coming year.

PLANNING ITEMS

One Big Beautiful Bill Act (“OBBBA”)

Congress passed the “One Big Beautiful Bill Act,” which includes several key tax updates effective beginning in 2025.

• Tax Rates – The Act codifies the current Tax Cuts and Jobs Act (TCJA) rates that were previously scheduled to expire at the end of 2025.
  SALT Deduction Cap – The limit on state and local tax (SALT) deductions increases from $10,000 to $40,000 for the years 2025 through 2029.
  Wages and Payroll
• Depending on the benefits that are offered through your employer, you may have access to an FSA, HSA, or both. Below are items to be aware of with each, be sure to check your benefits or consult your employer or your benefits handbook to determine what you have available.

Flexible Spending Account (“FSA”)

Look to use up your FSA funds before year-end. Depending on the plan, employers allow a carryover from 2025 to 2026 of up to $660. Some plans also include a 2½-month grace period that extends the balance of your FSA into 2026. Employers are not required to offer these extensions—please check with your employer to determine if your FSA includes either of these benefits.

Goal – To use and not lose the money you contributed to your “FSA.”

Health Savings Account (“HSA”)

Maximize your pre-tax “HSA” contributions. $8,550 is the maximum you can contribute to your “HSA” in 2025 for family coverage. $4,300 is the maximum amount you can contribute for self-only coverage.

Goal – To maximize pre-tax savings and save for future healthcare needs. You have until 4/15/2026 to make these contributions effective for the 2025 tax year if you are self-funding. If your HSA is funded via your employer, funding is typically limited to the calendar year. The statutory deadline for contributing to your HSA is through the un-extended deadline for filing your income tax return. Normally, that’s April 15th after the close of the tax year.

There is also a $1,000 catch-up contribution for individuals aged 55 or older.

401(k) Contributions

Maximize contributions to 401(k) plans of $23,500 and $31,000 if age 50 and older.

Goal – To maximize pre-tax savings and save for retirement.

Also, the IRS just announced the 2026 contribution limits for qualified retirement plans. The employee contribution limit rises from $23,500 to $24,500. The catch-up contribution for individuals 50 or older increases from $7,500 to $8,000. Individuals who are between ages 60-63 can make a catch-up contribution of $11,250.

The defined contribution limit, which is the combined total between employee and employer contributions climbs to $72,000 which is an increase of $2,000. The employee compensation limit which restricts the amount of compensation eligible for calculating contributions is going up by $10,000 to $360,000.

Year-End Tax Payments

If, while doing year-end planning, it is determined that you have underpaid tax throughout the year, you can change your withholding for your last pay period or two.

Goal – To avoid underpayment penalties. Withholding is deemed to be paid evenly throughout the year, so by withholding a larger amount at year-end, you might be able to reduce or eliminate the underpayment penalty.

INCOME AND PORTFOLIO PLANNING

Roth Conversions

If you/your household is in a lower tax bracket for 2025 (due to business loss or other known changes) and you have an IRA(s), you may want to consider converting a portion or all of the IRA to a Roth IRA. Individuals should consult their tax advisor regarding their specific situation.

Goal – To pay less tax on the amount converted today vs. what you might have to pay someday in the future when you take it out. Roth accounts grow tax-free.

Tax Loss Harvesting

If you have securities/stocks in a loss position close to year-end, consider selling them to realize the capital loss.

Goal – To use the capital losses to offset capital gains and if they are not fully used, carry forward indefinitely.

Note – To avoid complicated tax rules (“wash sales”), it may be recommended that you reinvest the proceeds in something similar to the security/stock you sold, but not the same one.

Trust Distributions

Trusts reach their highest tax bracket of 37% at $15,650 of taxable income. Distributions from a tax-paying Trust shift income from the Trust to the Beneficiary. If you are in a lower tax bracket, you could reduce your overall taxes paid between you and the Trust.

Goal – Pay fewer tax dollars between you and a trust for your benefit. Distributions through March 6, 2026, can be counted for 2025 if elected.

SCHEDULE A – MAXIMIZING ITEMIZED DEDUCTIONS

Bunch Medical Expenses

If you and your family have incurred a large number (10% or more of your AGI) of medical expenses this year, make sure the majority, if not all, are paid before year-end.

Goal – If itemizing, this would maximize the amount you could deduct on your return.

January’s Mortgage Payment

Make January’s mortgage payment at the end of December.

Goal – If itemizing, this would move more deductible mortgage interest to the current year.

Investment Interest Expense

At year-end, if you are looking to pay down a line of credit or loan, make sure you are first paying off any accrued deductible interest. For example, accrued interest on credit lines or margin loans used for business or investment purposes. Any additional paydowns should be applied to the line of credit that has been used for personal purposes. Your CPA or financial advisor should be able to help you with that determination.

Goal – To maximize the tax deduction for interest paid.

Charitable Giving and Standard Deduction Planning

If you donate to charities but notice on your tax returns you are not itemizing, you might want to consider “Charitable Stacking.”

Goal – Optimize your giving while utilizing the increased standard deduction.

Cash Charitable Contributions

Contributions made to public charities are deductible up to 50% of AGI. This limit is increased to 60% of AGI for cash gifts and 30% of AGI for appreciated non-cash assets held more than one year. Contributions more than these deduction limits may be carried over up to five subsequent tax years.

Goal – To eliminate income tax liability in 2025 through cash gifts to charities.

Upcoming Change for Charitable Deductions

Beginning in 2026, the One Big Beautiful Bill Act introduces a 0.5% of adjusted gross income (AGI) floor for deductibility of charitable contributions. This means only amounts above that threshold will be deductible. If you typically itemize and plan significant charitable gifts, you may want to consider making larger contributions in 2025 to maximize your deduction before this change takes effect.

Goal – To take advantage of current rules and optimize your charitable giving strategy before the new limitation applies.

Consider a Donor-Advised Fund (“DAF”)

A “DAF” is a charitable investment account. From this account, you can direct the funds to go to the majority of public charities. If you donate cash to the donor-advised fund, you get a deduction of up to 60% of adjusted gross income. If you donate appreciated securities to the donor-advised fund, you can deduct up to 30% of adjusted gross income.

Goal – Help the charity(s) of your choice, lower income taxes in a high-income year, and excess contributions carry forward five years.

Note – Talk to your adviser about possibly giving other appreciated assets like real estate, partnership interests, or private stock.

Non-Cash Property – Need an Appraisal?

If you have made a contribution of non-cash property worth $5,000 or more, you will need a qualified appraisal (Does not apply to stock/securities that are valued on an ongoing basis).

Goal – Properly document large non-cash gifts so they will be deductible on your tax return.

OTHER ITEMS

Fund 529 Plans Before Year-End

If considering a 529 plan contribution in the coming months, make it before year-end. There are a number of states which allow a deduction or credit for contributions. Growth in these funds is also tax-free.

Goal – Save for educational expenses and get a state tax benefit.

Have questions or want help with your year-end planning? Connect with a TFO adviser using the link below—we’d be happy to talk.