With summer in full swing, you might be thinking about relaxing and enjoying the warm weather. While you should certainly take full advantage of the summer months, you should also consider mid-year tax planning.
Most tax planning strategies need to be implemented before year-end to be effective, which makes now the perfect time to review your income and taxes paid for the year. Waiting until the fourth quarter could limit your planning abilities, leading to an unexpected jump in your tax liability.
In this article, we’ll explore six mid-year tax planning strategies for practice owners. However, if there are drastic changes in your finances from the prior year, please reach out to your PBM consultant for personalized advice.
Consider Roth Conversions
Roth IRAs are a great avenue for tax-free growth and withdrawals during retirement. However, the IRS places income restrictions that preclude many practice owners from investing the traditional way. For 2025, single taxpayers who make more than $165,000 ($246,000 for married taxpayers) are precluded from making a Roth IRA contribution.
There is a workaround to this limit, known as a Roth conversion. A Roth conversion takes funds originally contributed to a Traditional IRA account and moves them to a Roth IRA account, bypassing the income limit. This can give you an added $7,000 contribution ($8,000 if over the age of 50) toward your retirement. Talk to a PBM consultant to see if this strategy makes sense for your situation.
Watch for Tax Law Changes
With a new presidency comes new tax law changes. The Trump Administration is trying to extend many of the provisions of the 2017 Tax Cuts and Jobs Act. For one, the 20% Qualified Business Income Deduction is set to phase out at the end of 2025. If not extended, this could cause your taxable income to increase by 20% starting in 2026.
Other provisions found in The One, Big, Beautiful Bill include the extension of the modified tax rate. The top tax bracket is set to revert from 37.0% to 39.6% in 2026 if not extended. Other provisions that might impact your tax situation include child tax credit changes, overtime exclusions, and the deductibility of car loan interest. While many of these provisions will not take effect until 2026, some will go into effect in 2025. Please note that our advice on proposed legislation is not to take any action until a bill is signed into law, so stay tuned!
Leverage Tax Loss Harvesting
Tax loss harvesting is the process of using capital losses to offset capital gains. If you have a high number of capital gains for the year, you may want to consider selling underperforming investments. Tax loss harvesting typically happens towards the end of the year, but it can be a good idea to consult with your investment advisor during the summer months.
Know Your Required Minimum Distribution (RMD) Amount
Required Minimum Distributions (RMDs) must be taken from Traditional IRAs, SEP IRAs, SIMPLE IRAs, and retirement plan accounts once you reach age 73. The Inflation Reduction Act of 2022 extended the age requirement from 72 to 73, beginning in 2023. This Act also eliminated the need to take RMDs from Roth IRA accounts. If you turned age 73 in 2024, your first RMD was due by April 1, 2025, and your second RMD will be due by December 31, 2025. If you’ve reached the age requirement and haven’t taken an RMD, now is the time!
Start a Donor Advised Fund
A Donor-Advised Fund (DAF) is a charitable giving account that allows you to make contributions and receive an immediate deduction, even if the funds haven’t been issued to recipients yet. A DAF is a great way to start funding your legacy and receive a tax deduction. While charitable contributions are subject to limitations on Schedule A, any excess deductions can be carried forward to future years. A DAF can take some time to set up, making the summer months a great time to get started on the process.
Maximize Employer Benefits
Most medical and dental practices have some form of employer benefits in place. This makes it important to ensure your contributions are maxed out for the current year. For 2025, the 401(k) contribution limit is $23,500 ($31,000 if you are over the age of 50). However, a new provision goes into effect in 2025. If you are aged 60 to 63, your catch-up contribution is increased from $7,500 to $11,250.
Another employer benefit to consider is a Health Savings Account (HSA). HSAs are one of the few accounts that have triple tax advantages. Contributions are made pre-tax, grow tax-free, and can be withdrawn tax-free if used for qualifying medical expenses. Treating this account like another retirement savings plan can be a great way to supplement your retirement when your health expenses are likely higher.
Other employer benefits to consider are FSA accounts and dependent care benefits. Unlike an HSA, these accounts generally need to be used by the end of the year. Ensuring you are using these accounts is crucial to maximize your tax savings.
Summary
Have you thought about any of these mid-year tax planning strategies? Now is the perfect time to revisit your upcoming tax liability and implement planning strategies. If you have questions about mid-year tax planning, please contact us.