2025 Year End Tax Moves To Consider

 

To our clients:

As we approach the close of 2025, there may be some moves you can make to help minimize the impact of taxes.  Indeed, with the passage of the One Big Beautiful Bill Act (OBBA), there may be some moves you can make that will save you taxes for years to come.

Let’s start with the OBBA.  What we are discussing here is not comprehensive but rather portions of the bill that affect most of our clients.  For a more comprehensive discussion, talk to your consultant or make an appointment to discuss with Christopher Spoerl.  Here are some changes made by the OBBA and some moves to consider as a result:

The OBBA

• Starting in 2026, there will be a floor on itemized, charitable donations of .5%. That means if your adjusted gross income (AGI) is $100,000, the first $500 of donations won’t be deducted that year.  The disallowed portion is carried forward to future years only from years in which the floor is exceeded.     Move to Consider: Bunch your donations into 2025.  One way is to start a donor advised fund in 2025 and fund it with what you plan to donate in 2025, 2026 and perhaps beyond.  You’ll get the deduction in 2025, but the disbursements to your charities occur when you say – even years later.
• Starting in 2026, if you’re in the 37% tax bracket, your itemized deductions will be reduced by the lesser of 2/37 (5.405%) of the amount your taxable income exceeds the start of the 37% tax bracket ($768,701 married filing joint in 2026), or 2/37 (5.405%) of the amount of your itemized deductions. Move to consider: If you believe your income will put you in the 37% tax bracket, bunch your itemized deductions into 2025 where it makes sense.  Charitable donations above is one area.  Medical expenses may be another if you can pay bills before year end, for example.
• 100% bonus depreciation permanently reinstated. This applies to purchases after 1/19/2025.  For most of our clients, Section 179 expensing covers this need.  However, it may be helpful in purchasing vehicles with a gross vehicle weight over 6,000 lbs. and your business use is more than 50%.  Move to consider: Purchase a qualifying vehicle such as a large SUV before year end.  Be careful to consider the financial impacts as they may outweigh the tax benefits.
• The credit for EV chargers expires on June 30, 2026. This is the Alternative Fuel Vehicle Refueling Property Credit, and is 30% of the cost.  Move to consider: Purchase your EV charger before the expiration date.
• The Energy Efficient Home Improvement Credit expires on December 31, 2025. This credit equals 30% of the cost of energy efficient heat pumps, central air conditioners, water heaters, furnaces, windows and doors.  Move to consider: Purchase and install these improvements before year end.  Note that certain energy efficient thresholds must be met.  The contractor should provide appropriate certifications of qualification.
• The Residential Clean Energy Credit expires on December 31, 2025. This credit equals 30% of the cost of solar electric and other energy efficient property.  Move to consider: Purchase and install these improvements before year end.  Note that certain energy efficient thresholds must be met.  The contractor should provide appropriate certifications of qualification.

Individuals: Tried and True Methods to Save on Taxes

• Reach out to your financial advisor to review your investments and harvest capital losses to net against your capital gains. If you still like your losing investments, remember you have to wait 31 days to repurchase them or the “wash sale” rules will undo the strategy.
• If you have earned income and no traditional IRA, do a “back door Roth” contribution.
• If you are in a low tax bracket, consider a conversion from your traditional IRA to a Roth IRA.
• If you have HSA qualifying health insurance, maximize your HSA contribution.
• If you are at least 70 ½ in 2025, consider making your donations directly from your IRA. If you have required minimum distribution (RMD) requirements, those count against your RMD.
• Funding a 529 College Savings Plan may save state taxes if it’s the state’s 529 Plan. For Illinois that would be the Illinois Bright Start Plan, or the Illinois Bright Directions Plan.

Business Owners: Tried and True Methods to Save on Taxes

• Consider prepaying some 2026 expenses if possible.
• Review capital expenditures, decide whether to place equipment in service before year end to take advantage of Section 179 expensing or 100% bonus depreciation.
• Make the Pass-Through-Entity-Tax election. Despite the increased ability to deduct state and local taxes for some, this usually provides additional tax savings.
• Start a retirement plan if you don’t have one. There are tax credits to cover some of the costs.
• Fund your retirement plan as much as financially feasible. Maximize your 401k contribution.

Some Reminders

• Please review your investments and let us know if there are unusual results. We may be able to help you plan for a better outcome.
• Max out your 401K’s. If you are 60 – 63 as of 12/31/25, you get an extra $3,750 extra catch-up contribution; the total maximum 401K contribution for 2025 is $34,750.
• Don’t forget to take your RMD’s if you are at least 73 in 2025.
• If you make annual gifts, the gift tax annual exclusion amount for 2025 is $19,000.

Thank you again for your trust and for choosing PBM to assist you. Let us know if you have any questions.