Year-End Tax Strategies

Dan McLennon is an attorney in Sophisticated Planning Strategies at Northwestern Mutual.

With the end of 2025 around the corner, it’s important to close out your finances for the year on a positive note. In part, that means taking advantage of opportunities to minimize your taxes for 2025 as well as the years ahead. The 2025 tax law commonly known as the One Big Beautiful Bill Act (OBBBA) has significantly changed the planning landscape this year. Many provisions of the Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of this year have been made permanent through OBBBA, giving us more certainty than the past few years.

4 year-end tax strategies

If you are a high-income earner or have substantial wealth, these year-end tax strategies should be top of mind.

Strategy 1: Timing income and deductions

In general, it’s smart to maximize your deductions and minimize your income each year to help defer taxes. The benefits of tax deferral tend to be positive when tax rates stay the same or are going down. However, this strategy can be reversed when you expect to be in a higher income tax bracket in the future.

Here are four income and deduction timing tactics to consider for 2025.

Tax-loss harvesting: You may be able to offset taxable income by harvesting capital losses. Even if the markets end the year on a high note, you may have capital losses somewhere in your portfolio. Consider working with your financial advisor to identify potential losses to help offset current or future capital gains and even ordinary income.

If you had significant losses in prior years, you might have tax-loss carryforwards that can be applied to your 2025 tax bill. Talk to your financial advisor or accountant to better understand if this applies to your situation.

Capital gains harvesting: Depending on your income streams, capital gains harvesting could be an option. If you’re married and filing jointly and your overall 2025 taxable income is below $96,700, or if you are single and your income is below $48,350, you can pay a 0percent tax rate on your capital gains income. This can be a smart strategy if you own a pass-through business entity and expect a net operating loss this year but anticipate a return to profitability in the future.

SALT deduction: The OBBBA raised the state and local tax (SALT) deduction cap to $40,000 for 2025 but with a phaseout based on your modified adjusted gross income (MAGI). So, if you’re single or married filing jointly, and your MAGI is less than $500,000, you’ll get the full $40,000 deduction. But if your MAGI is between $500,000 and $600,000, the cap phases down to $10,000; if your MAGI is more than $600,000, the cap is $10,000.

These changes create an opportunity for strategic tax planning by optimizing your itemized deductions. Depending on local rules, you may be able to pay next year’s property taxes in advance. By bunching property tax payments and fourth-quarter estimated tax payments into alternating years, you can maximize deductions, particularly if your income falls below the phaseout threshold. This can be beneficial if your itemized deductions are just below the standard deduction; bunching tax payments may give your itemized deductions the boost you need to get over the standard deduction threshold. Alternatively, if you have a high MAGI this year and your SALT cap is reduced to $10,000, but you are expecting a lower MAGI next year, you may benefit from deferring your fourth-quarter estimated income tax payments and property tax payments to the following year to maximize your SALT deduction.

Itemized deductions: Starting in 2026, the OBBBA adds a new limit on itemized deductions for Americans in the highest tax bracket. Because this limit does not start until the 2026 tax year, there is still no limit on itemized deductions in 2025. So, if you’re in the highest tax bracket this year and have significant itemized deductions—and you also have control over when some of those deductions can be taken (such as with charitable contributions)—then you may want to prioritize taking those deductions this year before the new limit is applied.

Strategy 2: Charitable giving

Here are three giving tactics that you can leverage in 2025.

Qualified charitable distributions: If you are at least 70½ and an IRA owner, a qualified charitable distribution (QCD) can allow you to send distributions directly from your IRA to a qualified charity without impacting your adjusted gross income (AGI). And QCDs (which can be up to $108,000 this year) count toward your required minimum distribution (RMD). This is a tax-efficient way to make a charitable contribution, especially if you are taking the standard deduction.

Bunching charitable deductions: When filing your taxes, you have the option of taking the standard deduction or itemizing, whichever is more favorable to you each year. Because the doubled standard deduction and limited state and local tax itemized deduction from the 2017 TCJA have been made permanent through OBBBA, most Americans, including many high-income and high-net-worth taxpayers, will continue to take the standard deduction. Bunching allows you to pool or “bunch” multiple years of charitable deductions together in one tax year so you can exceed the standard deduction in that year. Then, in off years, when you are not donating, you can use the standard deduction instead. This will allow you to maximize your deductions over many years. It’s worth noting that this strategy works well when paired with the use of donor-advised funds.

For 2025, this strategy is significantly more important than it has been in prior years because of the new 0.5 percent AGI floor that will be applied starting next year. In 2026, non-corporate taxpayers who itemize their deductions will be able to deduct charitable contributions only to the extent that all their contributions exceed 0.5 percent of their AGI for the year. This effectively reduces the amount an itemizing taxpayer can take as a charitable deduction by 0.5 percent of AGI each year. For example, if you have an AGI of $100,000 and make a $10,000 charitable contribution in 2025 and another $10,000 charitable contribution in 2026, you can add $10,000 to your itemized deductions in 2025. But then in 2026, you could add only $9,500 to your itemized deductions. If you gave $20,000 to charity in 2025, you could add all $20,000 to your itemized deductions.

Donating appreciated publicly traded securities: Depending on how your investments have performed in the market, you may have an opportunity to donate appreciated stocks or other publicly traded securities in kind. This serves two important purposes:

1. It gives you a tax deduction equivalent to the fair market value of the securities, assuming the assets go to a public charity and do not exceed 30 percent of your AGI (or 20 percent of AGI if giving to a private foundation); and
2. You’ll pay no tax on your gains.

Strategy 3: Retirement planning

If you are preparing for retirement or are already retired, consider these three planning options in 2025.

Maximize retirement contributions: If you haven’t already maximized your retirement contributions for 2025, consider bumping up your contribution amounts. If you have a 401(k) or 403(b), you can contribute $23,500 annually. If you are age 50 or older, you can make an additional catch-up contribution of $7,500, but if you turn age 60, 61, 62 or 63 in 2025, the catch-up contribution increases to $11,250 in 2025. With a SIMPLE IRA (Savings Incentive Match Plan for Employees), you can contribute $16,500 annually. If you're age 50 or older, you can make an additional catch-up contribution of $3,500, but if you're age 60, 61, 62 or 63, the catch-up contribution increases to $5,250. Some small businesses may have slightly higher contribution limits. For 401(k)s, 403(b)s and SIMPLE IRAs, your contributions must be made on or before Dec. 31, 2025.

Traditional and Roth IRAs have a contribution maximum of $7,000 plus a $1,000 catch-up contribution if you are age 50 or older. However, you have until April 15, 2026, to make a 2025 contribution to your IRA.

If you or your spouse actively participates in a qualified plan through an employer, there are AGI phaseouts that may limit your ability to contribute or to take a deduction. Before filing your tax return, check with your accountant or advisor to find out if you are eligible and how much you can contribute.

RMDs: If you haven’t already, be sure to take your RMD(s) from your IRA(s) or qualified plan(s) before Dec. 31, 2025. Failing to do so can result in an excise tax of up to 25 percent based on the amount you should have taken. If you turned 73 in 2025, you can delay your first RMD until April 1, 2026, but you’ll have to take two RMDs in 2026.

Speaking of RMDs, if you inherited an IRA and the original IRA owner died in 2019 or earlier, you’ll also have to take an RMD from that account (even if you are not yet retired). If you inherited an IRA and the original owner died in 2020 or later, it gets more complicated, so you’ll definitely want to read our article on inherited IRA distribution rules, which includes updates based on regulations released last year.

Roth conversions: If you believe your income is going to be higher during retirement, converting to a Roth IRA this year can help manage your overall tax burden. However, Roth conversions cannot be undone, so you need to be fully committed to paying any taxes associated with the conversion. You’ll also want to keep in mind that a Roth conversion will increase your MAGI, which can impact your SALT deduction cap.

Strategy 4: Gift and estate planning

Interest rates are higher than they have been for most of the past decade. These elevated rates bring opportunity for some estate planners. If your planning includes loaning funds to your children or your grantor trusts, higher interest rates can erode the effectiveness of these techniques, but increased rates make charitable remainder trust planning more attractive.

Here are four estate planning ideas to consider before year-end 2025.

Annual gift tax exclusion: The federal gift tax exclusion is $19,000 per donor, per donee (i.e., the person receiving the gift from you) for 2025. The gift could be made via a check, a transfer of securities or a transfer of life insurance. Additionally, annual exclusion gifting does not count toward your lifetime estate and gift tax exemption. It is effectively a use-it-or-lose-it option in any given year. Married couples can gift a total of $38,000 to each child, grandchild or anyone else via the annual exclusion.

Education planning: College savings 529 accounts offer gift, estate and income tax benefits. The growth on a 529 account is income tax-deferred, and funds used for qualified higher education expenses are income tax- and penalty-free. Depending on where you live, your state may offer tax deductions or credits for 529 contributions, so be sure to check with your tax professional.

The definition of a “qualified higher education expense” has expanded over time and recently changed again under the OBBBA. It’s important to note that 529 plans can now be used for more than just college tuition, room and board, and supplies. You can now apply some of your 529 funds to elementary or secondary schools, expenses for apprenticeship programs and even student loan payments. Extra 529 funds have some flexibility, too. A 529 account can be rolled over into a 529A ABLE account. There’s even a new rule allowing some unused funds in a 529 to be rolled into the beneficiary’s Roth IRA.

If you are a parent or grandparent, a planning tactic you may want to use is the “super-annual exclusion gift”: You can elect to treat a 529 gift as if it is spread over five years of annual exclusion gifts at one time. This would allow you to make a gift of up to $95,000 (or $190,000 if you are married) into a 529 account in 2025.

Lifetime gifts: The gift, estate and generation-skipping transfer tax exemptions are $13.99 million for 2025. Starting in 2018, TCJA doubled the amount of the exemption from $5 million to $10 million (indexed for inflation). These were set to revert back to their lower amounts after this year, but OBBBA has increased the exemption to $15 million per person starting in 2026, with inflation adjustments beginning after 2026. If you have substantial wealth, you won’t have to worry about making large gifts before the end of the tax year to take advantage of increased exemptions.

Charitable remainder trusts: While not a new planning technique, charitable remainder trusts (CRTs) came back into vogue recently, thanks to the higher interest rate environment. A CRT provides for distributions to a beneficiary during the trust term with the remainder payable to charity. The trust term can be several years or based on the life of an individual. A CRT allows you to make a gift to charity while preserving an income stream personally or for any other non-charitable beneficiary. Additionally, when appreciated assets are transferred to the trust, the CRT can sell the appreciated assets without paying tax on the gains. You can also receive an immediate charitable income tax deduction when you create a CRT. A CRT works well in a high interest rate environment (compared to a lower interest rate one) because it creates a larger upfront charitable tax deduction.

New deductions available in 2025

The OBBBA has created several new deductions that are available this year. It’s important to consider how these new deductions could affect your decision about whether to itemize or take the standard deduction in 2025. This is especially important if you’re considering some of the tax-planning strategies mentioned above.

Deduction for seniors: For 2025 through 2028, if you are age 65 before the end of the tax year, you can claim a new $6,000 deduction. If you’re married filing jointly, and you’re both 65 or older, then you can both claim the $6,000 deduction for a total of $12,000. If just one of you is 65 or older, then you get just the one $6,000 deduction on your joint return. This deduction for seniors is phased out if you’re married filing jointly with a MAGI above $250,000 and if you’re single with a MAGI above $175,000.

Deduction for tips: While tips are still taxable, the OBBBA provides a new (but temporary) deduction equal to your qualified tip income. The deduction is capped at $25,000 whether you are single or married filing jointly. This deduction is available in 2025 but completely phases out if you are married filing jointly with a MAGI above $550,000 and if you are single with a MAGI above $400,000.

Deduction for overtime: Overtime pay is also still taxable, but the OBBBA creates a new temporary deduction equal to the amount a taxpayer receives in overtime pay but limited to $12,500 per year if you’re single and $25,000 per year you’re married filing jointly. This deduction is available in 2025 but completely phases out if you’re married filing jointly with a MAGI above $550,000 and if you’re single with a MAGI above $400,000.

Deduction for auto loan interest: The OBBBA provides a new temporary deduction, available in 2025, of up to $10,000 for qualified passenger vehicle loan interest. This is interest paid on a loan that is (1) incurred to purchase an applicable passenger vehicle and (2) is secured by a first lien on the vehicle. Interest paid on a general personal loan that is secured only by an already owned vehicle does not qualify. An applicable passenger vehicle includes new cars, minivans, vans, sport utility vehicles, pickup trucks and motorcycles with a gross weight rating of less than 14,000 pounds. Final assembly of the vehicle must have occurred in the U.S. The deduction is completely phased out if you’re married filing jointly with a MAGI above $550,000 and if you’re single with a MAGI above $150,000.

Your advisor can help you maximize tax savings

Year-end is a great time to consider how you can reduce your tax bill and revisit your overall circumstances compared to your current plan and objectives. And it’s even more important this year given the many recent changes in the new tax law. Effective planning takes time and requires paying attention to the details. So, connect with your advisor today to get a jump-start on your 2025 year-end planning to help maximize your tax savings.

Tax disclosure:

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.