2025 Year-End Individual Tax Planning Guide

With 2025 soon ending, there is still time to take advantage of tax-saving ideas to lower your tax bill. Please note that The One Big Beautiful Bill Act (OBBBA) significantly changed many individual tax provisions by eliminating some tax-saving opportunities, adding new ones, and expanding others. Many of these changes are addressed below.

Key Considerations

Estimated Taxes/Adjusting Withholding

Did you owe money to the IRS or a state in 2024, or did you receive a big refund? If you had a balance due on your 2024 return, consider adjusting paycheck withholding (Form W-4) or nonwage income withholding (Form W-4P, Form W-4R) for the remainder of 2025, and/or making estimated tax payments, to avoid a 2025 balance due and a possible estimated tax penalty. You may avoid the penalty by paying at least 90% of the tax shown on your 2025 return or 100% of the tax shown on your 2024 return, whichever is less. The percentage increases to 110% of 2025 tax if adjusted gross income (AGI) on your 2024 return exceeds $150,000 ($75,000 if you are married filing a separate return).

Also factor in the 3.8% net investment income tax (NIIT), the receipt of unemployment benefits, distributions from IRAs and §401(k) plans (and any additional tax for early withdraw), sales of investment property, etc., when adjusting withholding or making estimated payments. In addition, factor in any IRA required minimum distribution (RMD) that you will receive in 2025.

Significant OBBBA Changes

The OBBBA terminated several energy-related credits: two as of September 30, 2025 (the Clean Vehicle Credit and the Previously-Owned Clean Vehicle Credit), and two as of December 31, 2025 (the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit).

At the same time, the OBBBA increased the state and local tax deduction limit (SALT cap) from $10,000 to $40,000, created or expanded credits and deductions for family expenses, education, and retirement, and also created new tip and overtime income deductions.

Basic Numbers You Need to Know

Adjusted Gross Income (AGI)

Because AGI affects many tax benefits, including IRA deductions and some tax credits, a key tax-planning consideration is to estimate both 2025 and 2026 AGI. When considering whether to accelerate or defer income or deductions (discussed further below), be aware of the impact this may have on AGI and the ability to maximize itemized deductions tied to AGI, like medical expenses. Your 2024 tax return, 2025 pay data, and other income- and deduction-related documents are good resources for estimating your AGI.

Tax Rates (Tax Brackets)

Another important consideration is your tax bracket: the tax rate for your last dollar of income. Although tax bracket income thresholds are indexed for inflation, if income increases faster than the inflation adjustment, you may be pushed into a higher bracket with a higher marginal tax rate. If so, the potential benefit from any tax-saving opportunity is increased (as is the cost of overlooking the opportunity).

Alternative Minimum Tax (AMT)

AMT can be triggered by certain items. The goal should be to avoid this tax whenever possible. For 2025, AMT exemption amounts are $137,000 for joint returns and qualifying surviving spouses; $88,100 for unmarried individuals (other than surviving spouses); and $68,650 for married individuals filing separate returns. The alternative minimum taxable income (AMTI) exemption phase-out for 2025 begins at $1,252,700 for joint returns and surviving spouses and $626,350 for unmarried individuals and married individuals filing separate returns. The exemption is phased out completely at $1,800,700 for joint returns and surviving spouses; $978,750 for unmarried individuals (other than surviving spouses); and $900,350 for married individuals filing separate returns. Also, for 2025, non-refundable personal credits can offset an individual’s regular tax and AMT liability, and capital gains will be taxed at lower favorable rates for AMT purposes.

For 2025, the amount of excess taxable income above which the 28% rate applies is $239,100 for married individuals filing joint returns and unmarried individuals (other than surviving spouses) and $119,550 for married individuals filing separate returns.

If you hold stock due to the exercise of an incentive stock option during 2025 that is now below the value at the exercise date (i.e., “underwater”), consider selling the shares before the end of the year to avoid the AMT due on the original exercise of the option.

Standard Deduction

Another key number is the standard deduction. The standard deduction is important for planning the timing of your itemized deductions because itemized deductions must exceed the standard deduction for their tax value to be maximized. For 2025, the standard deduction is:

$31,500 for married filing jointly and surviving spouses;
$23,625 for heads of households; and
$15,750 for all other taxpayers.

For 2025, the additional standard deduction for older taxpayers and the blind is $2,000 and $4,000 for older taxpayers who are also blind if unmarried and not a surviving spouse. For married filing separately or jointly, the amounts are $1,600 and $3,200 per qualifying person.

Basic Numbers You Need to Know

Deferring Receipt of Income Until 2026

If you expect your AGI to be lower in 2026 than in 2025 or anticipate being in the same or a lower tax bracket in 2026, you may benefit by deferring the receipt of income until 2026. Deferring income is advantageous so long as the deferral does not bump you into a higher tax bracket in the succeeding year(s). Deferring income may be disadvantageous, however, if the deferred income is deferred compensation under a nonqualified deferred compensation plan subject to a special provision that makes the income includible in gross income and subject to additional tax.

If you are self-employed and file Schedule C (e.g., as a sole proprietor or single-member LLC) and operate on a calendar-year, cash-basis accounting method, consider delaying 2025 year-end billings to clients so that payments will not be received until 2026.

If you inherited an IRA and are subject to the 10-year rule, consider not taking a taxable distribution in 2025 if doing so will put you in a higher tax bracket or your income will be less in 2026.

Accelerating Receipt of Income into 2025

In limited circumstances, you may benefit by accelerating income into 2025. If you anticipate being in a higher tax bracket in 2026 than in 2025 or need additional income in 2025 to take advantage of an offsetting deduction or credit that will not be available in future tax years, then it may make sense to accelerate the receipt of income. However, accelerating income into 2025 may be disadvantageous if you expect to be in the same or lower tax bracket for 2026.

If you are self-employed, for example, it may be disadvantageous to accelerate income into 2025, even if you will be in a higher bracket in 2026, if the acceleration causes you to cross a threshold that would result in an offsetting reduction in the qualified business income (QBI) deduction. The QBI deduction phase-out thresholds for 2025 begin at $394,600 for married filing jointly, and $197,300 for all other returns.

Some ways to accelerate income into 2025 include:

Year-End Bonuses: If your employer generally pays year-end bonuses early in 2026, see if you can have your bonus paid before the end of 2025.

Retirement Plan/IRA Distributions: If you are 59 ½ or older and participate in an employer retirement plan or have an IRA, consider taking any taxable withdrawals before 2026. You may also want to consider making a Roth IRA rollover distribution (discussed further below). If you inherited an IRA and are subject to the 10-year rule, consider taking a distribution before the end of 2025.

New Deductions for Tip Income and Overtime Income

If you earned tip income or overtime pay in 2025, you may be eligible for new deductions that can reduce your taxable income.

OBBBA created a tip income deduction capped at $25,000 annually for qualified tips paid to individuals in “traditionally and customarily tipped industries.” Thus, if you work in food service, at a beauty or barber shop, or in another establishment where workers customarily receive tips, you may be eligible. The deduction phases out for joint filers with AGI over $300,000 ($150,000 for single). You can take this deduction even if you don’t itemize.

OBBBA also created an overtime deduction for qualified overtime compensation (excluding qualified tips). Employees other than “highly compensated employees” may deduct up to $12,500 of qualified overtime compensation ($25,000 on joint returns). You also can take this deduction even if you don’t itemize.

Itemized Deduction Planning

Deduction timing is an important element of year-end tax planning. However, deduction planning can be complex due to AGI levels, AMT thresholds, filing status, and the standard deduction. In addition, an expense is deductible only in the year in which it is actually paid. Therefore, if you know your tax rate is going to increase in 2025, it may be a good strategy to accelerate spending into 2025 to take the corresponding expense deduction. Also, consider dating your checks and mailing them before the end of 2025.

If your itemized deductions are relatively constant and are close to the standard deduction amount, you will gain little or no benefit from itemizing deductions each year. However, simply taking the standard deduction each year means the potential loss of the benefit of itemized deductions that exceed the standard deduction.

To maximize the benefits of the standard deduction and itemized deductions, consider adjusting the timing of deductible expenses (bunching) so that they are higher in one year and lower the following year (or vice versa). You can accomplish this by paying deductible expenses in 2025 that might otherwise be paid in 2026, such as mortgage interest due in January 2026 or doubling up on charitable contributions every other year. For 2025, medical expenses, including amounts paid as health insurance premiums, long-term care insurance premiums, and dental insurance premiums are deductible only to the extent your total medical and dental expenses exceed 7.5% of AGI. “Bunching” medical and dental expenses in one calendar year also can help maximize the allowable deduction. If you anticipate a state income tax liability for 2025 and plan to make an estimated payment typically due in January 2026, consider making the payment before the end of 2025.

Consider making charitable contributions by the end of 2025 using a credit card if the bill will not have to be paid until 2026. A pledge to donate is not deductible unless actually paid by the end of 2025.

2025 Year-End Individual Tax Planning Guide