Year-End Planning 2025
For some, Halloween ushers in the holiday season. For personal finance nerds like me, it means that it’s time for year-end tax and financial planning. Because there are so many features of the Trump tax bill that take effect both this year and next, you may need a little extra time to develop a smart game plan. Before we start, here are the notable thresholds for 2025 and 2026:
Standard Deduction 2025:
Single $15,750
Married Filing Jointly: $31,500
Head of Household: $23,625
Standard Deduction 2026:
Single $16,100
Married Filing Jointly: $32,200
Head of Household: $24,150
Changes for 2025-2028: The following deductions begin this tax year (2025) and conclude in 2028. Most are phased out based on your income, so if you are close to the levels where you might qualify, try to reduce income to get below some of the Adjusted Gross Income (AGI) thresholds.
The most efficient way to do so is to increase your pre-tax employer-sponsored retirement plan contributions to the 2025 limit ($23,500 for those under 50, $31,000 for those over 50, $35,000 for those aged 60 through 63). The same goes for those using Health Savings Accounts. If you are self-employed, you may want to hold off on billing until after January 1 or consider making a big purchase this year, rather than next.
If you itemize your deductions, you can consider making charitable gifts to qualify for many of these benefits. If you are not an itemizer, then you can “bunch” deductions, meaning you could consider super-sizing a few years’ worth of charitable giving into one year in order to get you above the standard deduction threshold. This calculator from DAFGiving360 can help you see whether bunching might work for you.
Tip Income Deduction: This deduction applies to qualified tip income up to $25,000, regardless of itemizing status. It phases out for individuals with income greater than $150,000 ($300,000 for married taxpayers filing jointly (MFJ)).
Overtime Income Deduction: This deduction is capped at $12,500 for individuals ($25,000 MFJ), and phases out for individuals with income greater than $150,000 ($300,000 MFJ), and ends after 2028),
State and Local Tax Deduction (SALT): Increases to $40,000, for taxpayers earning less than $500,000, before reverting to the previous cap of $10,000 permanently.)
Auto Loan Interest Deduction: For NEW loans for cars, minivans, vans, SUVs, pickup trucks, or motorcycles, weighing less than 14,000 pounds, and whose final assembly is in the U.S., the deduction is limited $10,000 per year, and phases out individuals earning more than $100,000 or couples making over $200,000.
Senior Bonus Deduction: Those 65 and older may qualify for an extra deduction of $6,000 per individual. It phases out at a rate of 6 percent of AGI over $150,000 for MFJ, or $75,000 for all other filers.
Evergreen Year-End Reminders
Take Your Required Minimum Distribution (RMD): If you are over age 73 and have a pre-tax retirement account, you must take a distribution and pay the tax due on that amount, or else face a whopping 25 percent (10% if the RMD is corrected within two years) excise tax on the amount not distributed as required. The IRS has a handy chart, which outlines the dates and rules for IRA and defined contribution plan RMDs.
If you are fortunate enough not to need the distribution for living expenses, consider a Qualified Charitable Distribution (QCD), which allows you to gift up to $108,000 (or $216,000 if you're married and both qualify) directly from your IRA for 2025 to a public charity (not to a private foundation, a charitable supporting organization or a donor advised fund), without having to include the distribution in your taxable income.
A couple of notes: you need to be over 70 ½, if you use the QCD, you can’t deduct the amount as a charitable contribution, and a QCD may also satisfy your Required Minimum Distribution. You can make a QCD election in any year, without having to continue doing so in the future.
Get a Jump on Your Taxes NOW: Use the IRS’s withholding estimator to see if you have had enough money set aside to pay your tax bill in April. If not, notify your payroll department to increase your withholding through the end of the year. If you are not working or are self-employed, you may want to make an estimated tax payment to reduce or eliminate potential tax penalties.
Consider a Roth Conversion: If your income dipped in 2025 or you think that tax rates are likely to rise in the future, it may make sense to convert to a Roth IRA. When you do so, the amount that you convert will add to your taxable income. Once you convert to a Roth, the money grows tax-free and when you retire and withdraw it, there is no tax due. Because Roth plans are not subject to RMDs, using them can help control future taxation of Social Security benefits and/or increased costs of Medicare, which are income tested.
Your Losers are Winners: If you have a taxable investment account, sell losing positions and use those losses against sales of winning positions. If you have more losses than gains, you can deduct up to $3,000 of losses against ordinary income. If you have more than $3,000, you can carry over that amount to future years. Taking losses is a great way to rebalance your account with Uncle Sam’s help.