By JACKSON KEENAN, CFP®
End-of-Year Tax Planning
For most Americans, the tax filing deadline for 2025 is Wednesday, April 16, 2026. However, for high-net-worth individuals, effective tax planning begins much earlier. Consider December 31, 2025, as your real deadline to implement strategies that can maximize benefits for the current tax year. The following are key opportunities to address before year-end.
Income Deferral: Shifting Income to 2026
If you expect to be in the same or a lower tax bracket next year, consider deferring income into 2026.
- Employees may be able to request a deferral of year-end bonuses.
- Business owners and self-employed professionals can consider delaying December billings so payments are received in 2026.
Important: This strategy is most effective if you anticipate your tax bracket will be similar or lower next year. If deferring income could put you in a higher bracket, your overall tax liability may increase.
Accelerate Tax Deductions for 2025:
Look for opportunities to accelerate deductible expenses before December 31, such as:
- Charitable donations: Use appreciated securities to enhance the tax benefit of your philanthropic gifts.
- Medical expenses: Pay large, deductible medical bills before year-end if possible.
- State/local taxes: Prepay state income or property tax bills due in early 2026.
Caution: Accelerating these payments is not always advisable for those subject to the Alternative Minimum Tax (AMT).
Tax Loss Harvesting:
Realize losses in taxable investment accounts to offset realized capital gains.
- Losses can offset gains dollar-for-dollar.
- Up to $3,000 in net capital losses ($1,500 if married filing separately) can also reduce ordinary income.
- Any additional losses carry forward indefinitely for use in future years.
Max Pre-Tax Retirement accounts:
- For 2025, the 401(k) contribution limit is $23,500 ($31,000 if age 50 or older; $34,750 if age 60–63).
- Business owners may also consider contributing to a SEP IRA, Individual 401(k), or Keogh plan to further boost retirement savings and reduce taxable income.
Complete your Required Minimum Distributions (RMDs)
RMDs apply to most Traditional IRAs and Inherited IRAs.
- Failure to take your RMD by December 31 results in a 25% excise tax on the shortfall (potentially reduced to 10% if corrected promptly).
- Be proactive to avoid penalties and keep your retirement strategy on track.
Review Flexible Spending Account (FSA) Balances
- Healthcare FSAs: Funds are contributed pre-tax and unused amounts are generally forfeited, though up to $660 may be carried over.
- Dependent Care FSAs: While carryovers aren’t allowed, a 3.5-month grace period gives you until mid-March to use remaining funds.
Proactive year-end tax planning is key to minimizing your tax burden. Addressing these strategies now can result in significant savings and added peace of mind as you close out the year.
Citations:
- IRS.gov Credits & Deductions
- IRS.gov Topic no. 409, Capital gains and losses
- IRS.gov Retirement topics – Contributions
- IRS.gov Retirement topics – Required Minimum Distributions (RMDs)
- IRS.gov Publication 969
The information provided is for illustration purposes only. It is not, and should not, be regarded as “investment advice” or as a “recommendation” regarding a course of action to be taken. These analyses have been produced using data provided by third parties and/or public sources. While the information is believed to be reliable, its accuracy cannot be guaranteed. MONTAG employees do not provide legal or tax advice. For specific legal or tax matters, you should consult with your own legal and/or tax advisors. There are risks associated with investing in securities. Investing in stocks, bonds, exchange traded funds, mutual funds, and money market funds involve risk of loss. Loss of principal is possible.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
