Year-End Tax Planning: Top Strategies for 2025

Reviewed by: Chad Seegers, CRPC®
January 7, 2025

As the year comes to a close, it’s the perfect time to evaluate your financial picture and take advantage of opportunities to optimize your tax situation. Year-end tax planning is not just about reducing this year’s tax bill—it’s about laying a foundation for long-term financial success. By making informed decisions now, you can maximize savings, minimize liabilities, and enter the upcoming tax year with confidence and clarity. Whether it’s fine-tuning deductions, capitalizing on credits, or strategizing retirement contributions, a proactive approach can make all the difference.

Why is Year-End Tax Planning Important?

Year-end tax planning is a proactive step that offers significant financial benefits. By taking time to review your financial situation before December 31, you can identify opportunities to reduce your taxable income, claim available credits, and maximize deductions. This not only minimizes your tax liabilities but also positions you to potentially receive a larger refund.

Proactive planning allows you to align your financial decisions with tax-saving strategies. For instance, it gives you time to adjust retirement contributions, manage investment gains or losses, and take advantage of charitable giving opportunities. It also ensures you avoid common pitfalls, such as missing critical deadlines or overlooking tax-saving strategies that could lower your overall tax burden. In short, year-end tax planning helps you keep more of your hard-earned money while preparing for a strong financial start to the new year.

Will Tax Refunds Be Bigger in 2025?

The size of tax refunds in 2025 will largely depend on changes in tax laws, individual financial circumstances, and proactive planning. Recent legislative updates or adjustments to tax brackets, deductions, and credits could significantly influence how much taxpayers receive as a refund—or owe—when filing.

To optimize your refund, it’s important to understand and leverage the rules to your advantage. For example, maximizing contributions to retirement accounts like 401(k)s or IRAs not only lowers your taxable income but also enhances long-term savings. Additionally, reviewing available tax credits, such as those for energy-efficient home improvements or education expenses, can help boost your refund.

Staying informed about any adjustments to tax laws, especially those affecting itemized deductions or standard deductions, is also important. Partnering with a financial advisor or tax professional can provide the guidance needed to navigate these changes, ensuring you make strategic moves to get the best possible outcome when filing in 2025.

Top Strategies for Year-End Tax Planning

1. Defer Your Income

Deferring income to the next tax year can help you lower your current taxable income, potentially keeping you in a lower tax bracket. This strategy is particularly useful if you expect your income to be lower in the upcoming year.

For example, you could delay receiving a year-end bonus until January or defer invoicing clients until the next year. For business owners, postponing the receipt of payments or accelerating deductible expenses can also help manage taxable income.

2. Maximize Retirement Contributions

Contributing to retirement accounts is one of the most effective ways to reduce taxable income while building your financial future. For 2025, the contribution limits are $23,500 for 401(k) plans, with an additional $7,500 catch-up contribution for those aged 50 and older¹. For IRAs, the limit is $7,000, with a $1,000 catch-up for older contributors¹.

By maximizing these contributions, you lower your adjusted gross income (AGI), which can reduce your overall tax liability. If your employer offers matching contributions, taking full advantage of them is an added benefit that boosts your retirement savings.

3. Utilize Tax-Loss Harvesting

Tax-loss harvesting involves selling underperforming investments to offset gains from profitable ones, thereby reducing your taxable income. This strategy can be particularly valuable in volatile markets.

4. Make Charitable Contributions

Donating to qualified charities not only supports causes you care about but also offers significant tax benefits. Contributions to 501(c)(3) organizations are deductible if you itemize your taxes.

To maximize deductions, ensure your contributions are documented with receipts or acknowledgment letters from the organization. For non-cash donations, such as household items or securities, make sure to obtain a fair market value appraisal. Consider strategies like donating appreciated securities, which can provide a double benefit: avoiding capital gains taxes while receiving a charitable deduction for the full market value.

5. Review Required Minimum Distributions (RMDs)

If you are 73 or older, the IRS requires you to take RMDs from certain retirement accounts, such as traditional IRAs and 401(k)s. Failing to withdraw the required amount can result in a hefty penalty of 50% of the missed distribution amount.

To manage RMDs effectively, calculate your required amount early in the year and schedule the withdrawal well before the deadline. If you don’t need the RMD for personal expenses, consider a Qualified Charitable Distribution (QCD), which allows you to donate up to $105,000 directly to a qualified charity, reducing your taxable income².

6. Use Flexible Spending Account (FSA) Funds

FSAs are a valuable tool for covering eligible medical and dependent care expenses using pre-tax dollars. However, these funds often come with a “use-it-or-lose-it” policy, meaning any remaining balance at the end of the plan year may be forfeited.

To avoid losing your hard-earned savings, review your FSA balance and identify eligible expenses before the deadline. These could include prescription medications, medical equipment, vision care, and even some over-the-counter products. Some plans offer a grace period or allow you to roll over a limited amount into the next year, so be sure to check your plan’s rules.

What are Two Tax Planning Strategies to Minimize Your Future Income Taxes?

Proactive tax planning isn’t just about addressing the current tax year—it’s also about minimizing future income taxes. Here are two key strategies to help you reduce your long-term tax liabilities:

Contribute to Tax-Deferred Accounts

Tax-deferred accounts, such as traditional IRAs, 401(k)s, and Health Savings Accounts (HSAs), allow you to postpone paying taxes on contributions and investment growth until you withdraw the funds. This strategy can lower your current taxable income while helping your savings grow over time.

For example, contributing the maximum allowable amount to your 401(k) not only reduces your taxable income for 2025 but also ensures your investments grow tax-deferred. Additionally, HSAs provide a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.

Utilize Tax Credits

Tax credits directly reduce your tax liability, making them even more valuable than deductions. Common credits include the Child Tax Credit, the Earned Income Tax Credit, and energy-related credits for installing solar panels or making energy-efficient home upgrades.

To maximize these benefits, identify which credits apply to your situation and ensure you meet the eligibility requirements. For example, if you’re planning energy-efficient home improvements, keep documentation and receipts to claim credits like the Residential Clean Energy Credit. These credits not only reduce your tax bill but also incentivize actions that align with broader financial or environmental goals.

By leveraging these strategies, you can build a stronger financial future while keeping more of your earnings. For personalized guidance on tax-efficient planning, visit our Houston financial planning or San Ramon financial advisors pages to learn how we can help you achieve your goals.

Insight Wealth Strategies – Your Partner in Year-End Tax Planning

At Insight Wealth Strategies, we understand that effective year-end tax planning is a cornerstone of comprehensive financial success. Our team of experienced advisors works closely with you to develop tailored strategies that not only optimize your tax situation but also align with your broader financial goals.

Whether you’re looking to reduce your tax liability, maximize deductions, or plan for the long term, our personalized approach ensures your unique needs are met. From retirement contributions and investment strategies to charitable giving and beyond, we provide the guidance and expertise you need to make informed decisions.

With over two decades of experience, we offer wealth management in Houston and San Ramon wealth management to help clients navigate complex financial landscapes. Our fiduciary commitment ensures that your best interests are always our priority.

Let Insight Wealth Strategies help you maximize your savings and minimize your tax burden with customized financial planning solutions. Reach out today and take the first step toward a financially confident future.

Reviewed by,

Chad Seegers, CRPC®

Chad began his career with Sagemark Consulting in 2005 and then became a Select member of Sagemark’s Private Wealth Services which operated as a national resource for financial planners focusing on Advanced Strategies in the High Net Worth marketplace. Chad then began his partnership with Insight Wealth Strategies in 2013 focused on retirement planning primarily with Oil and Gas employees and executives. His primary areas of expertise are retirement, estate, and investment strategies as he serves as Investment Strategist for the financial planning team.

Sources:

Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.

Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.