As 2025 draws to a close, increasing contributions to retirement accounts can deliver immediate tax savings.

Traditional 401(k), 403(b), and IRA contributions reduce taxable income for the year, and the IRS has raised contribution limits—up to $23,500 for 401(k)s, with additional catch-up allowances for those over 50 and expanded options for ages 60-63 under the Secure 2.0 Act.

Health Savings Accounts (HSAs) also offer triple tax benefits, making them a powerful tool for both current and future medical expenses.

Leverage Tax-Loss Harvesting and Capital Gains Timing

Selling investments at a loss to offset gains, known as tax-loss harvesting can reduce capital gains taxes owed for the year. This strategy is especially valuable in volatile markets, and can be paired with strategic timing of asset sales to take advantage of lower tax brackets or anticipated rate changes. For those holding appreciated assets, evaluating whether to realize gains in 2025 or defer to 2026 should be based on projected income and potential changes to capital gains rates.

Optimize Charitable Giving and Gifting Strategies

Charitable donations remain a powerful year-end tax tool. Bunching multiple years' worth of donations into a single tax year may allow for itemizing and maximizing deductions, particularly if the standard deduction is higher than in previous years. Gifting to family members within annual exclusion limits can also reduce taxable estates and shift assets to lower-tax-bracket recipients, supporting both family and philanthropic goals.

Review Timing of Income and Bonuses

High-income earners often have flexibility in when to recognize income, especially through deferred compensation plans or bonus arrangements. Shifting bonuses or commissions into the following year may lower current-year taxable income, especially if a lower tax bracket is expected in 2026 due to changes in employment or tax law. Non-qualified deferred compensation plans allow for larger deferrals, which can be strategically timed to optimize tax outcomes.

Rebalance and Allocate Investments Tax-Efficiently

Year-end is an ideal time to review portfolio allocations for tax efficiency. Placing income-generating assets in tax-advantaged accounts and growth-oriented investments in taxable accounts can reduce overall tax liability. Rebalancing also helps maintain risk targets and can trigger tax-loss harvesting opportunities.

Consider Estate and Legacy Planning Updates

Changes in tax law and personal circumstances can affect estate plans. Reviewing beneficiary designations, updating wills and trusts, and considering gifting strategies before year-end can help minimize estate taxes and ensure assets are distributed according to current wishes.

Prepare for Potential Tax Law Changes in 2026

With major provisions of the Tax Cuts and Jobs Act set to expire at the end of 2025, significant shifts in tax brackets, deductions, and credits are likely. Proactive planning now such as accelerating income or deductions into 2025 or deferring them to 2026, depending on projected changes can help minimize future liabilities. Staying informed and working closely with a tax advisor is essential as policymakers debate new legislation.

Year-end is a strategic moment to take stock of your tax picture. Small adjustments now, whether it's maximizing contributions, harvesting losses, or timing income can mean thousands in savings next year.

Financial expert Michael Kitces notes that 'tax planning is evolving for financial advisors' and emphasizes the shift toward proactive tax strategies that deliver immediate value to clients.

Effective year-end tax planning requires a blend of foresight, flexibility, and attention to detail. By maximizing contributions, leveraging losses, optimizing charitable giving, and preparing for legislative changes, individuals can position themselves for a stronger financial future in 2026 and beyond.