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As the year ends, it is a good time to check your taxes and your overall financial plan. A few rules are changing in 2025 and 2026, so small steps now can help you keep more of what you earn and make things easier for your family. This article explains the key ideas in plain language and focuses on actions you can still take before December 31.
1. Think About Charitable Giving
First, think about your charitable giving. In 2025, the rules for writing off donations are a bit more favorable than they may be in 2026. If you plan to give to charity, you might “bunch” more of those gifts into 2025. One simple way to do this is by funding a donor-advised fund now and deciding which charities to support later. If you are age 70½ or older, you can send money directly from your IRA to a qualified charity. This is called a qualified charitable distribution (QCD). It can count toward your required minimum distribution, and it keeps the gift out of your taxable income, which can also help with Medicare premium brackets. Donating stocks or mutual funds that have gone up in value is another smart move, because you can avoid paying capital gains tax on those profits while still getting a deduction if you itemize.
2. Review Your Investments
Next, review your investments for gains and losses. If you sold investments for a profit this year, selling other investments at a loss can reduce the tax on those gains. This is called tax-loss harvesting. Be careful not to buy back the same or a “substantially identical” investment within 30 days, or the loss will not count. If you expect your income to be higher next year, you might choose to realize some gains in 2025 at today’s rates. If you have a large gain this year, you can also look at putting that gain into a Qualified Opportunity Fund within 180 days to delay paying the tax until the end of 2026 and possibly avoid tax on the new growth if you hold long enough.
3. Attempt to Max Out Your Tax-Advantage Accounts
Make sure you are using tax-advantaged accounts. Try to max out your 401(k) or 403(b) contributions before year-end if you can. These accounts let you save for retirement while lowering your taxable income today (for traditional contributions) or allow tax-free growth for the future (for Roth contributions). IRA contributions can usually be made up to the tax filing deadline next spring. If you have a Health Savings Account (HSA) with a high-deductible health plan, adding it is also powerful because you get a deduction now, tax-free growth, and tax-free withdrawals for qualified medical costs.
4. Understand Your Required Distributions
If you are required to take money out of retirement accounts because of your age, do not miss your required minimum distribution for 2025. Missing it can trigger a penalty. If you inherited an IRA and you are not an “eligible” beneficiary (such as a spouse, minor child, or disabled person), current rules generally require you to empty the account within 10 years, and in many cases to take yearly withdrawals during that period. Spreading those withdrawals over several years can help you avoid a large tax bill in any single year. Some people also choose to convert part of a traditional IRA to a Roth IRA before year-end. This adds to your taxable income now, but it can reduce future taxes and can be helpful if you expect to be in a higher tax bracket later.
5. Make Your Annual Gifts
Families who want to help children or grandchildren can make annual gifts. In 2025, you can give up to a $19,00.00 to as many people as you like without filing a gift tax return. Using this “annual exclusion” is a simple way to move money out of your estate over time. People with larger estates also have high lifetime gifts and estate tax exemptions available in 2025 and 2026, which means there is room to make larger transfers if that fits your plan. Gifts can be combined with 529 education accounts to help with college savings.
6. Keep Receipt of Medical and Long-Term Care Costs
Health and long-term care costs deserve attention too. If you expect high medical bills this year, keep receipts and check whether you can deduct some of those expenses on your tax return. Premiums for some long-term care insurance policies can be deductible up to certain limits based on your age. If you or a loved one may need nursing home care in the future, be careful about giving away assets without a plan, because gifts can affect eligibility for Medicaid and for VA Aid and Attendance benefits, which both have “look-back” periods for transfers.
7. Understand the Benefits of Timing Income
Business owners and employees with stock or bonuses should check the timing of income. If you can choose when to receive a bonus or exercise stock options, compare your expected tax bracket in 2025 and 2026. Sometimes it helps to spread income over two years. If you run a business, look at your equipment purchases and whether placing items in service before year-end helps with deductions. Also review whether your state allows a pass-through entity tax election that can work around the federal cap on state and local tax deductions.
8. Review Your Tax Payments
Finally, avoid penalties by checking your tax payments. If you did not have enough tax withheld from your paycheck, you can increase your withholding before December to catch up. Many people use the safe-harbor rule, which means paying in at least as much as last year’s tax (or a little more if your income is higher) to avoid underpayment penalties. As a practical checklist, aim to finish your charitable gifts and QCDs, complete any loss harvesting, top off retirement and HSA contributions, make any annual exclusion gifts, confirm beneficiary designations on your accounts, and review your will, powers of attorney, and health care documents. Small, timely actions now can make tax season easier and keep your long-term plan on track for 2026 and beyond.
