Tax planning doesn’t have to be stressful, especially if you start early. As 2025 wraps up, now is the perfect time to take advantage of legal strategies that can lower your taxable income and help you save money. In this article, we break down a simple and practical year-end tax planning checklist anyone can follow, whether you’re a student, employee, small business owner, or investor.
Many of these actions must be completed before December 31, 2025 to count for this tax year. Don’t wait until it’s too late.
1. Max Out Your 401(k) and IRA Contributions
Why it matters: Contributions to tax-deferred retirement accounts reduce your taxable income now and grow tax-free.
- For 2025, you can contribute up to:
- 23,000 dollars to a 401(k) (plus 7,500 dollars if age 50+)
- 7,000 dollars to a traditional IRA (plus 1,000 dollars if age 50+)
- Contributions to a 401(k) must be made by December 31.
- You have until April 15, 2026, for IRA contributions — but doing it early helps compounding.
Ask your employer if you can make an extra one-time deferral from your December paycheck.
2. Harvest Investment Losses
What is it? Selling investments that are down to offset gains elsewhere. This is called tax-loss harvesting.
- You can deduct up to $3,000 in capital losses from your regular income ($1,500 if married filing separately).
- You can also use losses to offset any capital gains from profitable stock sales.
Watch the “wash-sale rule” — you can’t buy the same or a similar stock within 30 days before or after the sale.
3. Time Your Bonus or Self-Employment Income
Strategy: If you expect a big bonus or freelance income, delaying receipt until January 2026 can push it into next year’s taxes (if you use cash accounting).
- If you expect to be in a lower tax bracket next year, deferring income might reduce your total tax.
- Alternatively, pull forward income if next year’s rate is likely to go up.
Ask your HR department or client if timing is flexible — even a few days can impact your tax year.
4. Bunch Deductions If You Itemize
If your itemized deductions (like mortgage interest, medical bills, charitable gifts) are close to the standard deduction, “bunching” may help:
- Standard Deduction for 2025:
- Single: $14,600
- Married Filing Jointly: $29,200
- Try grouping expenses in one year to exceed the threshold. Example:
- Pay January mortgage or medical bills in December
- Make two years’ worth of donations in 2025
Alternate itemizing every other year to make the most of deductions.
5. Make Charitable Donations (and Keep Records)
Donating to a qualified charity can lower your taxable income if you itemize.
- Gifts must be made before December 31
- Use cash, check, or credit card to qualify
- Ask for written receipts or letters for donations over $250
You may also donate stocks or mutual funds directly to charity — this avoids capital gains tax and counts as a deduction.
6. Spend Remaining FSA Funds
Do you have a flexible spending account (FSA) from your employer?
- Many FSAs are “use it or lose it”
- Spend on eligible items like:
- Glasses or contact lenses
- Prescription refills
- Dental work
- Doctor co-pays
Some plans offer a grace period into March or let you carry over up to $640 — check with HR.
7. Review Your Withholding & Estimated Payments
If you owed taxes last year or had a big income change, you might need to adjust:
- Use the IRS Withholding Estimator
- Make an estimated payment by January 15, 2026, if needed
- Avoid an underpayment penalty (especially if self-employed)
Students with part-time income should also review their W-4 withholding to avoid unexpected bills in April.
8. Organize Your Records for Filing Season
Start prepping early:
- Collect pay stubs, 1099s, and investment statements
- Record donation receipts, business expenses, and student loan interest
- Use tools like Excel or personal finance apps to categorize deductions
Bonus Tip: Create a digital “Tax 2025” folder and save everything in one place — it saves hours later.
9. Consider Roth IRA Conversions
Want to shift money from a traditional IRA to a Roth IRA?
- You’ll pay tax on the converted amount now
- But all future withdrawals will be tax-free
If your 2025 income is unusually low, it might be a good year to convert part of your IRA and lock in low tax rates.
Speak with a tax advisor for personalized advice on this strategy.
Final Thoughts: Act Now, Save Later
Year-end tax planning doesn’t require complex strategies — just a few smart moves before December 31 can cut your tax bill and grow your savings. Whether you’re a student, professional, or investor, use this checklist to take control before the year closes.
Pro tip: Set a calendar reminder for December 15 every year to run this same checklist again.
