Three Year-End Strategies That Can Cut Your 2025 Tax Bill

Even though the window for action is short, financial professionals say it isn’t too late to make some strategic moves that will save you money on your 2025 taxes. You can save hundreds, if not thousands, of dollars by acting now—or, in some cases, before your tax return is due next year.

“You really want to look at how you’re going to offset some of that income and keep as much as possible,” says Mari Adam, a certified financial planner in Boca Raton, Fla. “If you don’t, it’s going to go to the IRS.”

Here are three strategies financial pros recommend.

1. Max out your retirement plans

Whether you use an individual retirement account, an employer-sponsored 401(k), a solo 401(k) or any other qualified plan to save for retirement, contributing the maximum amount allowable—if you’re able to—can reduce your taxable income now while your portfolio grows tax-deferred.

If you haven’t reached the max in your 401(k), consider increasing your contributions before the end of the year by having your human-resources department make an adjustment to your paychecks for the balance of the year. For 2025, employees can stash away $23,500 in a 401(k), plus those age 50 or over can make an additional “catch-up” contribution of $7,500, for a total deductible contribution of $31,000. Those who turned 60 to 63 in 2025 can make a catch-up contribution of $11,250 for a total deduction of $34,750.

For traditional IRAs, the maximum contribution is $7,000, plus there is a $1,000 catch-up contribution for those 50 or older. Contributions to an IRA for 2025 can be made through April 15, 2026, but may be limited if you are covered by a retirement plan at work, depending on income.

For business owners with no employees, or for businesses run by spouses with no other employees, Adam suggests creating a solo 401(k) if you don’t already have one—or fully funding an existing plan. Also known as a one-participant 401(k), it allows for a much larger tax deduction than other plans because business owners wear two hats—employer and employee—and make contributions for both.

For 2025, the total contribution to a solo 401(k) can be up to $70,000 per person, not including any catch-up contributions that may be applicable. Employee contributions must be made by year-end, while the employer contribution can be made at the business’s tax filing deadline in 2026, including extensions.

Adam prefers the solo 401(k) to a Simplified Employee Pension, or SEP, because the contribution limit is higher due to catch-up provisions and SEPs are subject to antidiscrimination rules that require employers to make contributions for all eligible employees at the same percentage of pay any time they make a contribution for themselves.

“One of the biggest mistakes I see is people not looking into a solo 401(k),” Adam says. “Even if you’re a salaried employee, if you have gig income on the side, you can still set something up and potentially deduct a lot.”

2. Be charitable

If you haven’t yet made a charitable donation to a qualified 501(c)(3) organization in 2025, you have plenty of company. According to Vanguard’s charitable arm, 30% of annual giving takes place in December—with 10% occurring in the last three days of the year.

And this year, financial pros say there is extra reason for those who itemize to consider a donation, or moving planned 2026 donations to this year: New rules kick in next year that create a floor on charitable deductions for those who itemize and limit the deduction to the amount above 0.5% of adjusted gross income. For a taxpayer making $100,000, that means that he or she won’t be able to deduct the first $500 of donations next year.

However, taxpayers who don’t itemize may want to delay charitable contributions until next year. That’s because new rules set to begin next year have created an extra deduction of $1,000 for single taxpayers or $2,000 for married taxpayers who file jointly on contributions to qualified charities.

Another way to benefit from charitable largess: If you’re at least 70½ years old, consider making a qualified charitable distribution, or QCD, from your traditional IRA. Individuals can donate up to $108,000 this way in 2025, with the deduction sent directly from your IRA to a qualified charity.

For taxpayers who’ve reached the age where required minimum distributions, or RMDs, are a factor, a QCD counts toward the RMD and has the effect of preventing the donor from possibly being pushed into a higher tax bracket.

“Rather than taking an RMD and paying taxes on that money, donate it to a charity,” said Jessica Majeski, a certified financial planner with Northwestern Mutual in Clearwater, Fla. “You won’t get a charitable deduction for it, but you’ll avoid paying taxes on the RMD you’d otherwise have to pay.”

3. Harvest tax losses

The stock market has made many winners this year, and if you are among the taxpayers who owe taxes due to capital gains on stocks or other investments, consider selling any losing holdings to offset those capital gains and reduce the taxes you owe.

If your capital losses exceed your capital gains, you can apply $3,000 of losses to offset ordinary income, or $1,500 if you are married filing separately. Any excess can be carried over to future years. If losses don’t exceed gains, you can only reduce your gain to the extent of your losses.

“There’s not a lot of downside to this,” Adam says. “You may have some fear of missing out and think about what would happen if the investment goes up, but to not offset gains and to pay taxes when you have losses is kind of foolish.”

Just be careful to avoid triggering the wash-sale rules, which are meant to prevent taxpayers from claiming a deduction for a security sold at a loss and then repurchasing it or a similar investment soon after. To avoid triggering the rule and invalidating your tax loss, you can’t purchase the same or a similar security within 30 calendar days before or after the sale.

Source: WSJ