As the year comes to a close, there are some helpful tax strategies you can implement that will set you up for success during the 2026 tax season. Planning ahead allows you to better minimize your 2025 tax bill, maximize your deductions, and lower your taxable income.
Let’s walk through each strategy so you’re prepped for next year’s tax season.
How should people approach year-end tax planning to help minimize their 2025 tax bill?
This is the ideal time to finalize any of the tax strategies that might help you minimize your tax bill for 2025.
Tax planning is something that should happen all year, but we often see a flurry of activity at the end of the year as people gain a more concrete understanding of what their income and expenses look like. The broad areas you want to evaluate are:
1. Lowering taxable income
2. Maximizing the credits and deductions you take
3. Reviewing planning like filing status and longer-term tax planning
Because all of these pieces work together and impact each other, we typically suggest that people start with last year's tax return as a baseline. Tax software like TurboTax will have a summary page that will show you your income and any deductions and credits you took both last year and the year before.
Make note of any big changes this year – income changes from a raise or job change, big house projects like new windows, or family changes like new babies or dependents you have helped throughout the year. There are some great year-end tax planning checklists online that can help spark some ideas and considerations.
What are some strategies that people should consider to lower their taxable income or maximize their deductions?
A common strategy for lowering taxable income is through HSA contributions and Traditional IRA contributions. A more advanced tax strategy, for example, is tax-loss harvesting. Through tax-loss harvesting you sell investments at a loss and offset any gains you made earlier in the year. Then you reinvest the money to grow in a similar but not identical type of investment.
Reducing taxable income can be confusing, so using the right terminology is key.
It’s important to understand the definition of gross income; this is the total amount of income that you brought in from sources like your job, but it also includes dividend and interest income. Your tax code allows you to remove or deduct some of your income so you don’t pay taxes on it, and that’s where deductions, credits, etc. come in. Gross income and taxable income are two categories that the IRS treats differently.
To lower your taxable income, you can reallocate money into buckets where the IRS won’t tax it. So, it’s money that’s still in your name, you’ve just moved it to a place that reduces your overall tax burden. This is unique to each tax filer and can change year by year, but it is a powerful exercise to help you take more control over the taxes you pay.
How should people think about tax strategy over the long-term?
Longer-term tax strategy can impact short-term strategy and vice versa.
For example, your income might be rising and you may become ineligible for traditional IRA or Roth IRA contributions over the next couple of years. It’s important that you consider this for overall planning and how it might impact your retirement or your tax burden.
As another example, if you are charitably inclined and get a really large bonus at work or you sell a business, then bunching several years of charitable deductions into a single year can help offset taxes in the unusually high tax years. It also helps you maximize your charitable intent and allows you to be more efficient and save taxes over multiple years.
There are many different considerations when it comes to end-of-year tax strategy based on your individual circumstances. But these strategies can have a meaningful impact on your tax situation and your overall financial health. It’s important to consider these advantages and the opportunities that might be available.
Set up a call with a Wealthquest financial advisor if you’re looking for more guidance on tax strategy for 2026.
Happy New Year!
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