Here’s Your Year-End Tax Planning Checklist for 2025

The OBBBA raised this cap temporarily to $40,000 for households with modified adjusted gross income of $500,000 or less, creating a meaningful opportunity to itemize deductions — at least until the cap reverts to $10,000 in 2030.

A client in a high-tax state, for example, could easily pay $10,000 in state income taxes on top of a $15,000 property tax bill. Mortgage interest, charitable contributions or major medical expenses (deductible in excess of 7.5% of the client’s AGI) could make itemizing deductions practical for that client, where it might not have been so in recent years.

Bunching Deductions

Clients who might not have enough deductions to itemize every year might want to bunch them into a single year. It could make sense to move deductible expenses into 2025 that the client might otherwise have incurred in subsequent years, particularly if they expect to have more income this year than usual.

Charitable contributions and medical expenses related to non-critical procedures are common deductions that can be accelerated if appropriate.

Senior Deduction

The OBBBA included a new $6,000-per-person deduction for seniors age 65 and older. The deduction is reduced by 6% of MAGI above $75,000 for single taxpayers and $150,000 for married couples and is fully phased out at $175,000 and $250,000 respectively.

If a client qualifies for the senior deduction and can also take advantage of the increased SALT cap to be able to itemize beyond the standard deduction, the combination can result in serious tax savings.

Charitable Contributions (Beyond Cash)

While charitable contributions can make for a valuable itemized deduction in any year, there may be an added advantage for this year given the strength we have seen in the markets.

We’ve seen nice gains in international stocks — the Vanguard Total International Stock ETF (VXUS) is up 25.5% year to date through Sept. 30. The S&P 500 is up a healthy 14% after two previous years of gains above 25%.

As you work with your clients to rebalance their portfolios, this can be a good year to consider donating appreciated shares of individual stocks, mutual funds and ETFs in asset classes that need to be reduced in order to bring their portfolios back to their desired allocations.

Donating appreciated shares not only offers the potential for a deduction of the market value of the shares on the date donated but also avoids any capital gains that would be realized if the shares were sold as part of the rebalancing process.

Medical Expenses

Clients who itemize can deduct unreimbursed medical expenses that exceed 7.5% of their AGI. This can be a high threshold, but this can be a case where bunching expenses into a single year is beneficial.

If your client has a medical procedure or other large medical expense — including out-of-pocket costs for purchasing a medical device like a wheelchair or CPAP machine — that can be accelerated into 2025, this might help them meet the threshold and be able to take advantage of the deduction. Likewise, it may make sense to hold off and push the cost into 2026 if they anticipate other major medical outlays next year.

Qualified Business Income Deduction

OBBBA has made this deduction permanent for qualifying taxpayers with pass-through business income. This deduction applies to owners of entities including:

• Sole proprietorships
• Partnerships
• S-corporations
• Limited liability companies (LLCs)
  

The deduction allows eligible business owners to exclude up to 20% of their qualified business income. There are a number of rules and restrictions here, as well as income limitations, but it pays to look into this for clients where it may apply.

RMDs and QCDs

Clients who are at least age 70 ½ might consider taking advantage of the rules on qualified charitable distributions from a traditional IRA. A QCD is a direct transfer of money from an IRA to a qualified charity. The transfer is tax-free.

For clients who have reached RMD age, a QCD can cover some or all of the RMD amount as long as the client has not satisfied their RMD requirement earlier in the year. This allows that portion of the RMD to be taken without federal taxes. Any QCDs taken prior to the client’s RMD commencement date, or in excess of their RMD amount, are still beneficial. The QCD limit in 2025 is $108,000 per person.

For eligible clients, a QCD can be the most tax-efficient way to make charitable contributions, especially if the client isn’t able to itemize deductions. At the very least, QCDs can help reduce the amount of future RMDs.

401(k) Contributions

Working with clients to maximize their contributions to a 401(k) or similar retirement plan account should be part of every year-end conversation. This year, it is especially important for clients age 60 to 63.

Starting in 2025, these clients are eligible to make “super” catch-up contributions of $11,250, if their plan allows, versus the normal catch-up amount of $7,500 for other clients 50 and older. This extra $3,750, especially if it is contributed to a traditional 401(k) or other retirement plan account, can add some additional tax savings for your client. This is in addition to their regular contributions.

Whether your client is eligible for the “super” catch-up contributions or just the regular catch-up amount, it's important for them to contribute as much as possible to their plan this year and every year.

Note that in 2026, clients who earn $145,000 or more will be required to make catch-up contributions to a Roth account, reducing the overall amount that can potentially be contributed on a pretax basis.

Tax-Loss Harvesting

Tax-loss harvesting can be an important strategy in the rebalancing process for your clients. If they need to sell shares in appreciated securities in a taxable account, using tax-loss harvesting to offset some or all of these gains can help reduce their tax hit. Even if all tax losses cannot be used this year, they can generally be carried over to offset gains realized in future years.

Conclusion

As with other years, there are any number of year-end tax planning issues for advisors to discuss with their clients, depending upon each client’s unique situation. The issues listed above are common but certainly will not apply to all clients. Be sure to consult with your client’s tax advisor or CPA if applicable.

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