4 Year-End Steps to Lower Your 2025 Taxes

As the year draws to a close, many of us start looking for ways to lower our federal income tax bill. This year, the process is a bit more complex due to the new One Big Beautiful Bill Act (OBBBA), which brings significant changes to our tax laws.

Navigating these updates can feel like a puzzle, but with the right strategy, you can make them work in your favor. This post will walk you through four key planning steps you can take right now to potentially reduce your 2025 taxes. We'll break down the new rules and offer practical tips to help you make informed financial decisions before the December 31 deadline.

Reevaluate the Standard Deduction

Each year, you have a choice: itemize your deductions or take the standard deduction. You want to choose whichever option saves you more money. The standard deduction was significantly increased by the Tax Cuts and Jobs Act (TCJA), and the new OBBBA raises it even further for 2025:

• $15,750 for single filers and married individuals filing separately.
• $23,625 for heads of households.
• $31,500 for married couples filing jointly.

Taxpayers who are 65 or older or blind can claim an additional standard deduction. This is $2,000 for single filers or $1,600 per qualifying spouse for joint filers. If a taxpayer is both over 65 and blind, this additional amount is doubled.

With these higher standard deductions, you might assume itemizing isn't worth it. However, other changes from the OBBBA, like the expanded State and Local Tax (SALT) deduction, could make itemizing a better choice for you this year.

If your total itemized deductions are close to or exceed your standard deduction, you might benefit from accelerating other deductible expenses into 2025. Besides SALT, other potential itemized deductions include:

• Qualified medical and dental expenses (the portion that exceeds 7.5% of your adjusted gross income).
• Home mortgage interest (generally on up to $750,000 of debt).
• Casualty losses from a federally declared disaster.
• Charitable contributions.

It's also important to note that a new limit on itemized deductions is coming in 2026 for high earners. The OBBBA will cap the value of these deductions for those in the highest tax bracket (37%) at 35 cents per dollar. If this applies to you, accelerating your deductions into 2025 could allow you to get the full 37-cent value.

Maximize Your SALT Deduction

One of the most significant changes from the OBBBA is a temporary increase in the SALT deduction cap. From 2025 through 2029, taxpayers who itemize can deduct up to $40,000 in state and local taxes ($20,000 for separate filers). This is a big jump from the previous $10,000 cap. The limit will also increase by 1% each year, reaching $40,400 in 2026.

Deductible SALT expenses include property taxes and either state income or sales tax. However, this enhanced deduction is subject to phaseouts based on your Modified Adjusted Gross Income (MAGI):

• The deduction begins to decrease once your MAGI exceeds $500,000 ($250,000 for separate filers).
• Once your MAGI reaches $600,000 ($300,000 for separate filers), the deduction reverts to the old $10,000 cap.

If your SALT expenses are over $10,000 but your total itemized deductions are still below the standard deduction, a strategy called "bunching" could be beneficial. For example, if you get your 2026 property tax bill before the end of 2025, you can pay it this year and deduct both years' property taxes on your 2025 return. You could also prepay estimated state or local income taxes to further increase your deduction. This might push your total itemized deductions above the standard deduction for 2025, allowing you to take advantage of the higher SALT cap. In 2026, you would then switch back to taking the standard deduction.

Prepare for Changes to Charitable Giving Rules

Charitable giving is a flexible and powerful tool for year-end tax planning. If you itemize, you can typically claim a deduction for donations to qualified charities. However, the OBBBA introduces a new rule starting in 2026: a 0.5% of Adjusted Gross Income (AGI) "floor" on charitable deductions.

This means you will only be able to deduct the amount of your donations that exceeds 0.5% of your AGI. For instance, with an AGI of $100,000, the first $500 of your charitable contributions would not be deductible. To avoid this new floor, you might consider bunching donations you would normally make in 2026 into 2025.

For an even greater tax benefit, consider donating appreciated stock instead of cash. This allows you to avoid the long-term capital gains tax you would owe if you sold the stock, while still claiming a deduction for the stock's full fair market value.

On the other hand, if you don't itemize, you might want to wait until next year to make your charitable contributions. Starting in 2026, the OBBBA creates a new, permanent deduction for non-itemizers, allowing up to $1,000 for individuals ($2,000 for joint filers) in cash contributions to be deducted.

Manage Your Modified Adjusted Gross Income (MAGI)

Your MAGI is a key number in your tax profile. It determines your eligibility for certain tax breaks and can trigger additional taxes. Several new deductions introduced by the OBBBA, including an enhanced SALT deduction and a temporary "senior" deduction of $6,000 for those over 65, are subject to MAGI phaseouts.

Your MAGI also impacts your liability for the 3.8% net investment income tax. Because of this, taking steps to reduce your MAGI can be a smart move. Strategies include:

• Spreading a Roth IRA conversion over several years.
• Maximizing contributions to traditional retirement accounts like a 401(k) or IRA.
• Contributing the maximum amount to a Health Savings Account (HSA).

If you are 70½ or older, you can make a Qualified Charitable Distribution (QCD) directly from your traditional IRA to a charity. While you can't also claim a charitable deduction for a QCD, the amount is excluded from your MAGI and can satisfy your Required Minimum Distribution (RMD). This can be more beneficial than taking the RMD and then donating, as itemized deductions don't reduce your MAGI.

Start Your Year-End Planning Today

The end of the year offers a valuable window to make strategic moves that can lower your tax bill. With the recent changes from the OBBBA, it’s more important than ever to review your financial situation and plan accordingly. The right strategies will depend on your unique circumstances, from your income level to your philanthropic goals.

Don't leave money on the table. We understand that navigating tax law can be complex, but you don't have to do it alone. Our team is here to help you develop a personalized plan to make the most of both new and existing tax-saving opportunities. Let's work together to end the year on a strong financial note.