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Maximize Tax Benefits Before Year-End: Essential Strategies

As the year-end approaches, so do many opportunities to optimize your tax situation before filing your 2025 return. Before the holiday festivities fully capture your attention, consider implementing strategic tax moves that could significantly benefit your financial position. Here’s a comprehensive look at various last-minute tax planning considerations:

Tailoring Your Income - If you don't need to file a 2025 tax return due to your income and tax circumstances, explore ways to earn additional tax-free income. For instance, selling appreciated stock without incurring taxes or making tax-free IRA distributions can be advantageous if you meet certain conditions. Image 3

Low Income Year? Convert to Roth IRA - If your income has dipped significantly, consider converting your traditional IRA to a Roth IRA at a lower tax rate. This strategy can be particularly effective if your investments have depreciated.

College Expenses? - If you are eligible for education credits, evaluate your tuition payments for 2025. Prepaying tuition for the first part of 2026 can boost your credits for 2025. Particularly useful for families with freshmen attending college part-time this year.

Sold Your Home? - Tax laws may allow for significant tax-free gains from the sale of a primary residence under certain conditions. Even with a partial exclusion, you can still benefit if you've sold your home due to employment needs or health. We can help evaluate the gain and its impact on your tax obligations.

Flexible Spending Account Adjustments - Maximize your contributions to an employer health flexible spending account (FSA) for next year, considering unused funds from 2025 that can be carried over, maximizing up to $3,300 annually.

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Maximize Retirement Contributions - Before year-end, boost your retirement savings, especially if your employer offers a match on contributions. Capitalize on tax-deductible options like traditional IRAs to reduce taxable income while securing your future nest egg. Image 1

Married and One Spouse Doesn't Work? - Don't overlook the opportunity for a spousal IRA contribution based on your working spouse's income. This can be a valuable tax planning tool when one spouse retires.

Age 60-64? Leverage Catch-up Contributions - From 2025, eligible individuals can make increased catch-up contributions to retirement plans, enhancing saving power as retirement nears.

Bonuses and Tax Timing - Expecting a year-end bonus? Strategically deferring it to next year might help manage your taxable income if the next year’s income is anticipated to be lower.

Stocks: Capitalize on Losses and Gains - Assess your portfolio for underperformers to offset gains and utilize the favorable zero long-term capital gains rate if your income falls below certain thresholds.

Charitable Giving - Consider front-loading your 2026 charitable contributions into 2025 to maximize deductions. Also, making qualified charitable distributions directly from an IRA can also present tax advantages if age and contribution criteria are met.

Medical Expenses - Evaluate outstanding medical or dental bills for potential deductions exceeding 7.5% of adjusted gross income by year-end.

Incorporating these strategies not only aligns with optimal tax practices but also contributes to a more stable financial outlook into the New Year. For personalized guidance, feel free to reach out to our office.

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