By: Joseph Goldy, CFP®, CDFA®
As we approach the end of 2025, now is the perfect time to review your financial situation and implement strategies that could significantly reduce your tax burden. At HIGHLAND Financial Advisors, comprehensive tax planning is a year-round endeavor; however, here are several powerful moves you can make before December 31 to improve your tax position. Here are the most impactful last-minute tax-saving opportunities to consider.
Maximize Your Retirement Contributions
One of the most effective ways to reduce your taxable income is by maximizing contributions to tax-deferred retirement accounts. For 2025, you can contribute up to $23,500 to your 401(k) or 403(b) plan, with an additional $7,500 catch-up contribution if you're 50 or older.
Also new this year, participants in 401(k), 403(b), and governmental 457(b) plans who are ages 60, 61, 62, and 63 can make a "super" catch-up contribution. The limit is the greater of $10,000 (indexed for inflation) or 150% of the regular catch-up contribution amount. For 2025, this amount is $11,250 (in addition to the standard age 50+ catch-up limit of $7,500).
Traditional IRA contributions also offer tax deductions, though you have until April 15, 2026, to make 2025 contributions. However, if you're looking to reduce this year's tax bill, consider front-loading these contributions now. For those who are self-employed, SEP-IRA and Solo 401(k) plans offer even higher contribution limits and remain powerful tax-planning tools.
Don't Forget Your Required Minimum Distributions
If you're 73 or older, failing to take your Required Minimum Distribution (RMD) from traditional IRAs and 401(k) accounts by December 31 can trigger a steep 25% penalty on the amount not withdrawn. At HIGHLAND Financial Advisors, we carefully track RMDs to ensure they are distributed before year-end. One strategic approach we often recommend is directing your RMD to a Qualified Charitable Distribution (QCD), which we'll discuss next.
Leverage Qualified Charitable Distributions
For those age 70½ or older, Qualified Charitable Distributions allow you to donate up to $105,000 directly from your IRA to qualified charities in 2025. This powerful strategy satisfies your RMD requirement while excluding the distribution from your taxable income entirely. Unlike standard charitable deductions, QCDs reduce your adjusted gross income, which can help you avoid higher Medicare premiums and reduce taxes on Social Security benefits.
Accelerate Charitable Giving
Beyond QCDs, traditional charitable donations remain an excellent year-end tax strategy. If you itemize deductions, donations to qualified charities are deductible in the year they're made. Consider "bunching" multiple years of charitable giving into 2025 if you're close to the threshold for itemizing. Donor-advised funds provide an excellent vehicle for this strategy, allowing you to take an immediate tax deduction while distributing funds to charities over time.
Don't overlook appreciated securities as donation vehicles. Gifting stocks or mutual funds held for more than a year allows you to avoid capital gains taxes while deducting the full fair market value.
Harvest Tax Losses
Review your investment portfolio for positions with unrealized losses. Tax-loss harvesting involves selling these investments to lock in losses and offset capital gains dollar for dollar. Beyond offsetting investment gains, you can also deduct up to $3,000 of ordinary income annually. Any excess losses can be carried forward to future years. Just be mindful of the wash-sale rule, which prohibits buying substantially identical securities within 30 days before or after the sale. As part of our portfolio monitoring at HIGHLAND Financial Advisors, we have a process in place to systematically harvest losses while avoiding the wash-sale rule.
Fund Health Savings Accounts
If you have a high-deductible health plan, contributing to a Health Savings Account (HSA) offers triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. For 2025, contribution limits are $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution for those 55 and older.
Take Action Now
The key to effective year-end tax planning is acting promptly. Some strategies, such as RMDs and most retirement contributions, must be completed by December 31—no extensions are applicable. Others require careful coordination with custodians or charities, which can take time during the busy holiday season.
At HIGHLAND Financial Advisors, we understand that every financial situation is unique. These strategies may interact differently with your specific circumstances, and what works for one person may not be optimal for another. We encourage you to consult with your advisor and tax professional to develop a personalized approach that aligns with your overall financial goals.
Joseph Goldy, CFP®, CDFA ®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.
The foregoing content reflects the opinions of Highland Financial Advisors, LLC, and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past.
The above article was written with the assistance of artificial intelligence (AI).