Even during
the last two months of the year, you can take steps to reduce your 2025 tax liability.
Here are five practical strategies to consider.
1. Use
bunching to maximize deductions
If your
itemized deductions are close to the standard deduction, consider a “bunching”
strategy. This means timing certain payments (such as mortgage interest, state
and local taxes, charitable gifts and medical expenses), so that they push you
above the standard deduction in one year. The following year, you can take the
standard deduction and, to the extent possible, defer paying deductible
expenses to the following year. This alternating approach helps you capture deductions
that might otherwise be lost.
2.
Balance gains and losses
If you
have investments in taxable accounts, keep an eye on both realized and
unrealized gains and losses. Selling appreciated securities held for more than
a year ensures they're taxed at your lower long-term capital gains rate
(typically 15% or 20%, plus the 3.8% net investment income tax at higher income
levels) rather than your higher, ordinary-income rate (which may be as much as
37%). But selling investments at a loss can offset gains. If losses exceed
gains, up to $3,000 can offset ordinary income, with the remainder carried
forward. This flexibility can reduce taxes this year and in future years.
3. Gift appreciated
assets to loved ones
If you
want to support family members while cutting your tax bill, consider giving
appreciated investments to adult children or other relatives in lower tax
brackets. They can sell the assets at a lower capital gains rate — possibly
even 0%. Just be cautious about the “kiddie tax,” which generally applies to
children under age 19 (24 if they’re a full-time student), and potential gift
tax implications.
4. Give wisely
to charities
Instead
of donating cash, consider giving highly appreciated stock or mutual fund
shares. You avoid paying capital gains tax and can deduct the full fair market
value if you itemize. Alternatively, selling investments at a loss and donating
the proceeds allows you to claim both the capital loss and the charitable
deduction. With some tax rules set to tighten in 2026, making larger gifts
before year-end could be especially advantageous. (But if you don’t itemize,
you can look forward to the limited charitable deduction that will be available
to nonitemizers beginning in 2026.)
5. Use your
IRA for donations
For those
age 70½ or older, making charitable donations directly from an IRA — called
qualified charitable distributions (QCDs) — offers unique advantages. You can
donate up to $108,000 in 2025 directly to qualified charities, keeping those
amounts out of your taxable income. This strategy reduces adjusted gross
income, which may help preserve eligibility for other tax breaks.
Final thought
The best
tax strategies depend on your personal situation. Timing, income level, and
future expectations all matter. Before taking action, consult your tax advisor
to tailor these approaches to your needs.