Smart Year End Strategies to Reduce Your 2025 Tax Bill

Summary: If you’re looking to minimize your 2025 tax liability, certain moves can be especially impactful in the final weeks of the year: maximizing retirement contributions, harvesting losses, evaluating Roth conversions, front‑loading charitable gifts, optimizing State and Local Tax (SALT) timing, and deciding whether to itemize or take the standard deduction. This article walks through each strategy and highlights common mistakes to avoid.

Maximize Retirement Contributions

Employer‑sponsored plans like 401(k)s and 403(b)s remain among the most reliable tools to reduce taxable wages. For 2025, contribution limits have adjusted, and catch‑up provisions for those age 50+ can further expand your tax‑deferred space.^[1]

In addition:

• Age‑based catch‑ups: Ensure you’re using all available catch‑up room.
• Income‑based Roth catch‑ups: If you’re over certain income thresholds for 2025 and making catch‑up contributions, you may be required to make those catch‑ups as Roth contributions. This keeps your savings plan intact but does not reduce taxable income for the year. Plan accordingly to avoid a mismatch between expectations and withholding.

Action tip: Confirm payroll deduction rates now, rather than waiting for the last paycheck. If you’re behind pace, request a temporary increase in deferrals to hit the limit by year‑end.

Tax‑Loss Harvesting: A December Essential

Tax‑loss harvesting allows you to realize losses in taxable accounts to offset realized gains. Done correctly, it can reduce your current‑year tax burden and position your portfolio for a cleaner slate next year.

Key practices:

• Identify candidates: Look for positions trading below cost basis that are not core or where a similar exposure can replace the sale.
• Avoid wash‑sales: You cannot repurchase a “substantially identical” security within 30 days before or after the sale if you want the loss to count. Use exchange-traded funds (ETFs) or alternative holdings to maintain exposure without violating rules.
• Integrate with rebalancing: Year‑end is a natural time to align your portfolio weights with your target allocation.

Carryforwards: If harvested losses exceed realized gains this year, unused losses can carry forward indefinitely and offset future gains, with up to $3,000 (joint filers) against ordinary income each year if there are excess losses.

Evaluate Roth Conversions

Converting a portion of traditional IRA or 401(k) assets (after separation/rollover eligibility) to a Roth can secure tax‑free growth in the future. But conversions increase taxable income in the year of conversion, so bracket management is critical.

Guidelines:

• Bracket boundaries: Model how much you can convert while staying within your target bracket.
• Income-Related Monthly Adjustment Amount (IRMAA) awareness: For Medicare‑enrolled households, consider IRMAA thresholds when sizing conversions.
• Long‑term mix: Balance pre‑tax and Roth assets to create flexibility in retirement income planning.
  

When it makes sense: Years with lower income, larger deductions, or realized losses may provide an opportune time to convert. Conversely, years with large bonuses or capital gains may call for a smaller or deferred conversion.

Front Load Charitable Gifts

With charitable deduction rules becoming more restrictive in 2026, 2025 can be a prime year to accelerate planned giving—especially for households in the 37% bracket.^[2]

Approaches:

• Donor‑Advised Fund (DAF): Make the 2025 contribution to secure the deduction now, then recommend grants to charities over future years.
• Appreciated securities: Donating appreciated stock can eliminate capital gains on those shares while securing a deduction for fair market value, subject to AGI limits.
• Qualified Charitable Distributions (QCDs): If eligible, use QCDs to satisfy RMDs and reduce taxable income.

Documentation: Ensure you receive acknowledgment letters and that custodians complete transfers before year‑end.

Optimize SALT Timing

If your household’s Modified Adjusted Gross Income (MAGI) is below phaseout thresholds, the increased SALT cap in 2025 can materially improve itemized deductions. Consider timing property taxes or state estimated payments into 2025 to reach the cap. If your income is likely to exceed phaseout levels, weigh whether prepaying offers meaningful benefit or whether deferring makes more sense given the deduction reduction.

Itemize or Take the Standard Deduction?

Run the numbers. If your SALT plus other Schedule A deductions (charitable, mortgage interest, medical exceeding the threshold, etc.) exceed the standard deduction (for example, $31,500 for married filing jointly in 2025), itemizing may produce a lower tax bill. If not, consider whether bunching strategies—such as making two years of charitable contributions in one year—could tip the scales in favor of itemizing this year and taking the standard deduction next year.^[3]

Common Mistakes and Overlooked Opportunities

• Not adjusting contributions annually. Contribution limits and age‑based additions change; if you don’t revisit payroll settings, you may miss tax‑deferred space.
• Missing Required Minimum Deductions (RMDs). Failing to take an RMD can trigger a significant penalty. Put it on your December checklist.
• Inherited IRA confusion. Non‑spouse beneficiaries often must take annual RMDs in years 1–9 and empty the account by year 10 if the original owner was taking RMDs. Clarify your requirements now.^[4]
• Documentation gaps. Missing substantiation for charitable gifts is a frequent reason deductions are disallowed.
• Portfolio whiplash. Don’t let tax moves undermine investment discipline. Replace harvested positions thoughtfully to maintain diversification and risk targets.

A Step‑by‑Step Year‑End Plan

1. Run a projection: Estimate 2025 taxable income, deductions, realized gains/losses, and withholdings.
2. Finalize RMDs and QCDs: Confirm amounts and initiate transfers with time to spare.
3. Execute charitable strategy: Decide on DAF contributions, stock gifts, and cash donations; collect all acknowledgments.
4. Harvest losses and rebalance: Identify candidates, execute trades, and maintain exposure.
5. Check retirement contributions: Adjust payroll to hit the 2025 limit and applicable catch‑ups.
6. Consider a Roth conversion: Size it within your bracket and IRMAA boundaries.
7. Evaluate SALT timing: Pay property taxes or state estimates if beneficial under the 2025 cap.
8. Choose itemize vs. standard: Use updated figures to select the better path.
9. Top off estimated payments: Avoid underpayment penalties by right‑sizing Q4 estimates.
10. Review beneficiaries and titling: Keep accounts aligned with your estate and financial plan.

The Takeaway

Reducing your 2025 tax bill is achievable with deliberate, coordinated steps. Maximize retirement contributions, harvest losses judiciously, time generous giving, and make smart choices about SALT and itemizing. With a cohesive plan and proper documentation, you’ll enter 2026 with greater confidence, fewer surprises, and a tax profile that supports your long‑term goals.

Ready to implement a tailored year‑end playbook? OnePoint BFG advisors can help.