As the year draws to a close, now is the time to explore strategies that could reduce your 2025 tax bill. While these approaches have the potential to generate substantial savings, they require action before December 31st—and should be implemented only after consultation with your tax professional to ensure they're appropriate for your specific situation.
Recent tax law changes have made this year especially important for planning. If you're 70½ or older, charitable giving strategies deserve your attention. New rules taking effect in 2026 may reduce your future tax benefits from donations, making 2025 the year to maximize those deductions. Additionally, contribution limits for retirement accounts are changing, and opportunities exist for tax-loss harvesting and Roth conversions. We will explore five strategies to consider before year-end.
In this blog, we will discuss the following:
- Qualified Charitable Distribution (QCD)
- Donor-Advised Fund
- Tax-Loss Harvesting
- Roth Conversions
- Adjust Your Retirement Plan Contributions
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1. Qualified Charitable Distribution (QCD)
Who it's for: Anyone 70½ or older with an IRA.
This is a smart way to support your favorite charities while reducing your tax burden: direct your IRA funds straight to a qualified charitable organization. The distribution bypasses your income entirely, which means:
- You avoid paying taxes on the distribution
- Your Adjusted Gross Income stays lower (important for other tax deductions)
- If you're 73+, it counts toward your Required Minimum Distribution (RMD)
Key requirements:
- Usually, a minimum distribution of $1,000 because these are manual distributions
- Must go to an IRS-recognized 501(c)3 charity
- Must be completed by December 31
Learn more about QCDs from our previous blog on this topic.
2. Donor-Advised Fund (DAF)
The opportunity: Maximize deductions in 2025 before new rules take effect.
The One Big Beautiful Bill (OBBB) changed the tax rules for charitable deductions starting in 2026:
For non-itemizers: You'll get a new above-the-line deduction of up to $1,000 (single) or $2,000 (married filing jointly).
For itemizers: Only donations exceeding 0.5% of your AGI will be deductible. For example, with an $100,000 AGI, your first $500 in donations won't count. If you donated $5,000, then only $4,500 will be deductible.
The solution: A Donor-Advised Fund (DAF) lets you bundle several years of planned charitable donations into one 2025 contribution. You claim the full tax deduction this year under the current favorable rules, then distribute funds to your chosen charities over multiple years. This strategy allows you to capture a larger tax benefit in 2025 and could save you substantial tax dollars - before the new restrictions take effect in 2026.
To understand DAF, read our previous blog on this topic.
3. Tax-Loss Harvesting
The opportunity: Turn market volatility into tax savings.
Remember the market downturn in March and April? If you have non-retirement accounts showing year-to-date losses, there may be an opportunity to sell other investments at a profit to offset the year-to-date total loss in the account.
Tax-loss harvesting is the process of selling investments at a loss to realize the loss for tax purposes. And selling other investments at a gain to offset losses and reduce capital gains taxes.
If your year-to-date gain/loss is negative in a non-retirement account, you may be able to:
- Realize gains on appreciated investments
- Offset those gains with existing losses
- Potentially reduce or eliminate capital gains taxes for the year
For Financial Journey Partners clients: We handle this automatically as part of our service. If you've sold assets at a loss outside your accounts with us, please notify your Wealth Manager so we can factor that into your strategy.
For others: Review your non-retirement accounts for year-to-date net losses. If you find them, consider selling appreciated investments to offset those losses before year-end.
4. Roth Conversions
The strategy: Pay taxes now at lower rates to save more later.
If you have a substantial traditional IRA, your required minimum distributions starting at age 73 could push you into higher tax brackets in retirement. A Roth conversion allows you to move money from your traditional IRA to a Roth IRA during lower-income years, potentially saving thousands over your lifetime.
The calculation: While you'll pay taxes on the conversion this year, in some cases, you could pay far less than you would on larger distributions in the future. The goal is to reduce your total lifetime tax burden.
For Financial Journey Partners clients: We have advanced planning software to analyze whether a Roth conversion makes sense for your specific situation, both short-term and long-term. Contact your Wealth Manager to explore this opportunity.
5. Adjust Your Retirement Plan Contributions
The opportunity: Take advantage of increased limits and catch-up provisions.
Ages 60-63: The OBBB provides for larger catch-up contributions through employer retirement plans (401(k)s, 403(b)s, 457 plans) that continue into 2026. If you're eligible, consider maximizing these contributions.
All workers: Contribution limits for Traditional IRAs, Roth IRAs, 401(k)s, 403(b)s, and 457 plans are increasing in 2026. Review the new limits now so you can adjust your contributions starting in January.
Conclusion
These five strategies represent significant opportunities to reduce your tax burden, but most require action before year-end. Consult your tax professional to determine which strategies are right for you. The clock is ticking.
Financial Journey Partners clients: Contact your Wealth Manager to discuss which strategies make sense for your situation.
Not yet a client? We'd be happy to help you navigate these opportunities. Call us or schedule a free, complimentary consultation to learn how our Wealth Managers can help optimize your tax strategy.
Financial Journey Partners - Partners in Your Financial Journey®
Our Financial Journey Partners office is based in San Jose, California. We have clients that live in many states across the country. If you have questions about your investments or financial situation, call us to schedule time to talk about your specific situation.
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