Your 2025 Year-End Tax Planning Guide
As we approach the end of 2025, there’s still time to take action and make a meaningful difference in your tax outcome.
With thoughtful planning and a few strategic steps, you can reduce your tax bill, strengthen your retirement savings, and position your finances for a better 2026.
Below are practical, IRS-approved year-end moves to consider before December 31.
1. Strengthen Your Business Deductions Before December 31
Prepay Expenses Under the IRS Safe Harbor
If you use the cash method of accounting, you may prepay qualifying expenses up to 12 months in advance and deduct them this year. Eligible expenses include office rent, equipment leases, and insurance premiums.
Example: If your monthly rent is $3,000, prepaying $36,000 on December 31 to cover 2026 rent gives you a $36,000 deduction in 2025.
To qualify, mail the payment on December 31 so it arrives in January, and keep documentation such as USPS tracking.
Hold Off on Year-End Billing
Cash-basis businesses can delay billing clients until January. Since income is not recognized until payment is received, postponing invoices can shift taxable income into 2026.
Purchase Needed Equipment
Buying office furniture, computers, or machinery before year-end may qualify for full expensing through 100 percent bonus depreciation or Section 179, provided the equipment is placed in service before December 31.
Use Business Credit Cards Wisely
For Schedule C filers, deductions occur on the charge date—not the payment date. Charges made in December are deductible in 2025. Corporations can do the same for employee corporate-card purchases.
Document and Claim Every Legitimate Deduction
Don’t avoid deductions simply because you fear scrutiny. If expenses are legitimate and documented, you are entitled to them. Losses may generate a net operating loss (NOL) that carries forward.
Review Qualified Improvement Property
Interior improvements to business or commercial rental property may qualify for immediate expensing rather than 39-year depreciation, if placed in service by December 31.
2. Take Full Advantage of Retirement Savings Opportunities
Retirement plans remain one of the most powerful tax-saving tools for business owners and self-employed professionals.
Establish or Fund a Retirement Plan Before Year-End
Setting up a retirement plan before December 31 allows both employee and employer contributions for 2025.
A solo 401(k) is often ideal for one-person businesses. Owner-employee contribution limits for 2025 are:
- $23,500 if under age 50
- $31,000 if age 50–59 or over 64
- $34,750 if age 60–63
Employer contributions may reach 25 percent of compensation, with combined limits of $70,000–$81,250 depending on age.
Use Available Tax Credits
- Startup credit up to $15,000 for new plans
- Contribution credit up to $3,500 per employee
- Automatic enrollment credit of $500 per year for three years
These credits reduce taxes owed dollar for dollar.
Consider a Roth Conversion
If income is lower or investments declined in 2025, converting traditional retirement funds to a Roth may be attractive. You pay tax now, but future qualified withdrawals are tax-free, and Roth IRAs have no lifetime RMDs.
3. Use Vehicle Deductions to Your Advantage
The One Big Beautiful Bill Act (OBBBA) expanded vehicle deductions in 2025. Timing and vehicle type matter.
Heavy SUVs, Pickups, and Vans
Vehicles with a GVWR over 6,000 pounds may qualify for:
- 100 percent bonus depreciation
- Section 179 expensing up to $31,300 for SUVs and $2.5 million for trucks and vans
- No luxury depreciation limits
Example: A $50,000 SUV used 90 percent for business yields a $45,000 deduction.
Standard-Weight Vehicles
Cars and lighter SUVs (6,000 pounds or less) face first-year luxury caps of up to $20,200.
Act Before Year-End
You must own and place the vehicle in service by December 31—even one documented business mile counts.
Note: Electric vehicle tax credits ended September 30, 2025.
4. Plan for Crypto Profits and Losses
Harvest Gains or Losses
- Tax-gain harvesting: Sell appreciated crypto now if you expect higher income next year, then repurchase to reset basis.
- Tax-loss harvesting: Sell underperforming assets to offset gains. Up to $3,000 can offset ordinary income.
No Wash-Sale Restrictions
Because crypto is treated as property—not securities—you may sell and repurchase immediately without waiting 30 days.
Donate or Gift Crypto
Donating appreciated crypto to a qualified charity avoids capital gains and provides a fair-market-value deduction.
You may gift up to $19,000 per person in 2025 without reporting. The recipient inherits your basis and holding period.
Invest Through Self-Directed Accounts
Self-directed IRAs and solo 401(k)s allow crypto investments with tax-deferred or tax-free growth.
5. Don’t Overlook Deductions in Your Current Vehicles
- Sell older business vehicles to capture deductible losses
- Review vehicles purchased before 2018 for unclaimed like-kind exchange losses
- Convert personal vehicles to business use to qualify for bonus depreciation
Corporations must reimburse owners for vehicle deductions before year-end.
6. Review Your Stock Portfolio for Tax Efficiency
Offset Gains with Losses
Use long-term losses to offset highly taxed short-term gains.
Avoid Wash-Sale Traps
Repurchasing the same stock within 30 days disallows the loss. Wait until January if you plan to claim it.
Share Wealth Within the Family
Gifting appreciated stock to relatives in lower brackets may allow tax-free or low-tax sales.
Donate Appreciated Stock
Itemizers can deduct fair market value and avoid capital gains.
Sell Losers, Then Give Cash
Sell losing positions first, then donate cash to maximize both deductions.
7. Review Your Health Care Reimbursement Options
Reimburse Section 105 Expenses
Ensure all reimbursements under a Section 105 HRA are completed before year-end.
Consider a QSEHRA or ICHRA
- QSEHRA: Up to $6,350 (individual) or $12,800 (family)
- ICHRA: Available to employers of any size
S Corporation Owners
Your S corporation must pay or reimburse health premiums and include them on your W-2.
Small-Employer Health Insurance Credit
Covering at least 50 percent of employee premiums may qualify you for a tax credit of up to 50 percent for two years.
8. Make Smart, Family-Focused Tax Moves
Put Your Children on Payroll
- Wages are deductible
- No payroll taxes for children under 18
- Up to $15,750 tax-free to the child
- Up to $7,000 contributed to a Roth IRA
Issue a W-2 and keep detailed records.
Consider Marriage or Divorce Timing
Your marital status on December 31 determines your filing status for the year.
Mortgage and Relationship Planning
Unmarried co-owners may each deduct mortgage interest separately, while married couples share limits.
Use the 0 Percent Capital Gains Bracket
Gifting appreciated stock to relatives in lower brackets may allow tax-free sales.
9. Make the Most of the Section 199A Deduction
The 20 percent qualified business income deduction remains valuable for pass-through entities.
Eligibility Thresholds for 2025
- $197,300 for single filers
- $394,600 for joint filers
Three Ways to Boost the Deduction
- Harvest capital losses
- Make charitable contributions
- Buy and place business assets in service
10. Your Year-End Tax Checklist
- Prepay qualifying business expenses
- Delay billing until January
- Purchase and place equipment and vehicles in service
- Fund or establish retirement plans
- Review vehicle and investment losses
- Manage crypto and stock gains
- Complete health reimbursements
- Pay children for legitimate work
- Confirm Section 199A eligibility
Each of these steps can help reduce your 2025 tax liability and strengthen your long-term financial position.