2025 Year-End Tax Planning for Individuals

With ongoing economic uncertainty, inflation pressures, and shifting market dynamics, proactive tax planning remains a central strategy for individuals and families seeking to manage cash flow and minimize overall tax liability. As we approach year-end, now is the critical time to review your 2025 tax position and identify opportunities to reduce, defer, or accelerate taxes due in both the current and upcoming tax years.

This letter addresses key federal tax planning issues for U.S. individuals and families as of November 2025. Results may vary based on state or foreign tax law. Before making tax or financial decisions regarding any of the topics below, we recommend consulting with your trusted advisor.

Individual Tax Highlights

2025 Federal Income Tax Rate Brackets

Table 1: 2025 Federal Income Tax Brackets

Timing of Income and Deductions

Consider whether shifting income or deductions between 2025 and 2026 will reduce your overall tax bill. Income should generally be recognized in years with lower tax rates, and deductible expenses paid in years with higher rates.

Actions to consider:

• Delay closing capital gain transactions until after year-end or structure 2025 transactions as installment sales to defer gain.
• Realize capital losses before December 31, 2025 to offset current year gains.
• Accelerate deductible expenses, such as mortgage interest and charitable donations, subject to AGI limitations.
• Evaluate worthlessness of non-business bad debts before year-end for potential short-term capital loss treatment.
• Consider shifting investments to municipal bonds or assets that do not pay taxable dividends.

Long-Term Capital Gains

Long-term capital gains (LTCG) and qualified dividends are subject to preferential rates, which depend on taxable income:

Table 2: 2025 Long-Term Capital Gains Rate Brackets

Investor planning points:

• Hold assets for more than one year to qualify for LTCG rates.
• Consider opportunity zone investments for deferral strategies.
• Donate appreciated assets to charity for dual benefits (charitable deduction and LTCG avoidance).

Net Investment Income Tax

An additional 3.8% tax applies to net investment income above certain thresholds ($200,000 for single, $250,000 for joint filers). Deferral and deduction strategies may help reduce exposure.

Social Security and Medicare Taxes

• The Social Security wage base for FICA tax is $176,100 for 2025.
• FICA (OASDI) rate: 6.2% for employees (up to wage base), matched by employer.
• Medicare (HI): 1.45% each, no cap.
• Additional 0.9% Medicare tax applies to earned income above $200,000 (single), $250,000 (joint), $125,000 (married sep.).

Long-Term Care Insurance

Premiums for qualified policies are deductible according to age:

Table 3: 2025 Long-Term Care Premium Deduction Limits

Retirement Plan Contributions

• 401(k)/403(b) elective contribution limit: $23,500 ($31,000 for age 50+ with catch-up) in 2025.
• IRA contributions allowed after age 70\textonehalf.
• Required Minimum Distribution (RMD) age: 73. If turning 72 in 2025, first RMD due by April 1, 2027.
• Qualified charitable donation (QCD) direct from IRA limit: $108,000 in 2025 (age 70\textonehalf+).
• Maximum SEP contribution: $70,000 or 25% of eligible compensation.

Foreign Earned Income Exclusion

2025 Exclusion: $130,000.

Alternative Minimum Tax

Table 4: 2025 Alternative Minimum Tax Exemptions

Kiddie Tax

Unearned income of a child is taxed at parents' rates if higher than child's rates.

State and Local Tax (SALT) Limitation

Maximum deduction for state/local taxes: $10,000 ($5,000 married filing separately). Limitation applies through 2025 tax year.

Charitable Contributions

• Cash contributions to qualified charities: up to 60% of AGI.
• Non-operating private foundations: 30% AGI limitation.
• Consider donor-advised funds, private foundations, or charitable remainder trusts for more advanced giving.

Estate and Gift Taxes

• 2025 annual gift exclusion: $19,000 per recipient.
• 2025 unified estate/gift/generation-skipping transfer tax exemption: $13,990,000 per person.
• Outright gifts to a U.S. citizen spouse are tax-free; gifts to a non-citizen spouse: $190,000 exclusion in 2025.
• Consider annual exclusion gifts, gifts in trust, or advanced techniques (SLATs, IDGTs, GRATs) for family wealth planning.

Net Operating Losses & Excess Business Losses

• NOLs generated in 2025 limited to 80% of taxable income, carryforward only.
• Excess business loss limitation: $313,000 ($626,000 joint) for 2025. Amounts disallowed become NOLs for future use.

Year-End Action Items

1. Review realized and unrealized capital gains/losses for potential tax savings.
2. Consider timing of income and deductible expenses to optimize marginal rates.
3. Maximize retirement plan contributions before year-end.
4. Evaluate opportunities for charitable giving and gifting strategies.
5. Consult with your tax advisor about opportunities and compliance, especially regarding state tax rules and recent IRS guidance.

Contact Information

For tailored advice regarding your year-end planning, please contact our office to arrange a consultation.