The end of the year is the traditional time for tax planning for individuals.
Basic strategy: Go whole hog this year. Due to changes in the One Big Beautiful Bill Act (OBBBA), astute taxpayers can create additional tax savings and avoid potential tax pitfalls. Significantly, the OBBBA extends or modifies numerous Tax Cuts and Jobs Act (TCJA) provisions that were set to expire after 2025. With that in mind, here are 10 top year-end tax moves to consider.
1 Turn up the heat at home. Before the OBBBA, the tax law provided two types of home energy credits for qualified expenditures. Strategy: Both residential energy credits are permanently eliminated after 2025. It’s now or never to get in on the ground floor. The two credits are as follows: • Energy Efficient Home Improvement Credit: For 2025, this credit is equal to 30% of the cost of energysaving improvements like skylights, central air conditioning, water heaters, etc., up to a limit of $1,200. Other special limits may apply. • Residential Clean Energy Credit: This credit is equal to 30% of installation costs for solar, wind or geothermal power equipment, like solar panels for your roof. There are no dollar limits. 2 Wrap up charitable gifts. Generally, the tax law allows donors to deduct the full amount of their charitable donations made during the year, within generous limits. Strategy: “Bunch” your charitable donations in a year in which you expect to itemize. If you claim the standard deduction instead, you get zero tax benefit for your charitable gifts. The OBBBA preserves the limit on cash gifts of 60% of adjusted gross income (AGI). Any remainder can be carried over for five years. Key change: For the first time, you must clear a “floor” of 0.5% of adjusted gross income (AGI) before taking any charitable deduction, beginning in 2026. Factor this into your 2025 year-end planning decisions. Tip: On a positive note, the OBBBA also allows non-itemizers to deduct up to $1,000 of their charitable donations ($2,000 on a joint return) in 2026 and thereafter.
3 Gear up for car loans. While mortgage interest is generally deductible, personal interest paid on credit card debt and other common debts is usually nondeductible. Strategy: Take out an auto loan when needed. The OBBBA creates a new deduction for qualified car buyers, beginning in 2025. If certain requirements are met, you can deduct up to $10,000 of interest on a personal loan for a new vehicle. This allows many car buyers to write off the full amount of interest paid this year, retroactive to Jan. 1. However, the deduction phases out for single filers with modified adjusted gross income (MAGI) above $100,000 and for joint filers with MAGI above $200,000. Tip: This new deduction expires after 2028.
4 Harvest ripe security losses. Typically, investors realize capital losses from securities sales at the end of the year to offset capital gains from earlier in the year. Strategy: Carefully review your portfolio. Then pick out the “losers” you don’t mind giving up. If your losses exceed your capital gains, you can use up to $3,000 to offset ordinary income like wages. Any remainder is then carried over to future years until it is exhausted. Losses that offset short-term gains are especially valuable. Otherwise, those gains are taxed at ordinary income rates reaching up to 37%. Tip: The federal income tax rate for long-term gains is 15% for most taxpayers or 20% for highincome taxpayers.
5 Keep it in the family. The OBBBA enhances several tax breaks for families with children. Strategy: Maximize the tax benefits for your situation. Here are a few highlights. • For 2025, the Child Tax Credit (CTC) is $2,200 per qualifying child but is phased out beginning at $200,000 of MAGI for single filers and $400,000 for joint filers. • Starting in 2026, the OBBBA increases the Child and Dependent Care credit, the maximum credit for qualified child-care costs incurred by most parents for kids under age 13. But for 2025, the maximum credit for most taxpayers is still $600 for one child and $1,200 for two or more children. • The TCJA expanded the definition of qualified tax-free Section 529 plan withdrawals to cover up to $10,000 of tuition per year at a public, private or religious elementary or secondary school. The OBBBA doubles the limit to $20,000, beginning in 2026. Tip: The OBBBA also increases the contribution limit for dependent care flexible spending accounts (FSAs) from $5,000 to $7,500, beginning in 2026.
6. Do the AMT shuffle. Despite favorable changes in the TCJA, some taxpayers still must pay the alternative minimum tax (AMT) instead of their regular tax liability. The complex AMT calculation involves certain “tax preference” items, tax adjustments and an exemption amount subject to a phase-out. Strategy: Assess your current AMT exposure. When appropriate, make year-end moves to reduce your AMT liability for 2025. At high levels of alternative minimum taxable income (AMTI), your AMT exemption is phased out, which increases the odds that you’ll owe the AMT. The TCJA dramatically increased the phase-out thresholds to levels where most taxpayers are unaffected by the phase-out rule. For 2025, the exemption begins to be phased out when AMTI exceeds $626,350, or $1,252,700 for a married joint-filing couple. For 2025, the applicable exemption is reduced by 25% of the excess of your AMTI over the applicable phase-out threshold. For 2026, the OBBBA resets the thresholds for the phase-out of AMT exemptions to $500,000 for single filers and $1 million for joint filers. And the exemptions will be phased out twice as fast as under the TCJA, starting in 2026. Tip: The top AMT rate is 28%. If your regular tax rate is higher, you might accelerate taxable income into 2025.
7. Sidestep RMD penalties. If you have a qualified retirement plan account or IRA, you must receive annual required minimum distributions (RMDs) after reaching age 73. The amount of the RMD is based on life-expectancy tables and your account balance at the end of the prior year. Strategy: Arrange to receive your RMDs for 2025 before year-end. Failing to make required withdrawals on time can result in a tax penalty equal to 25% of the shortfall. However, if you promptly correct an RMD shortfall, the penalty is reduced to 10%. The penalty is added to the regular income tax due on the RMD. Tip: Non-spouse beneficiaries of qualified plans and IRAs generally must take RMDs over ten years.
8 Find the tax RX. Itemizers can only deduct unreimbursed medical and dental expenses above 7.5% of their AGI. For instance, if you have $8,000 in unreimbursed expenses in 2025 with an AGI of $100,000, your deduction is limited to $500. This often makes it difficult to qualify for a deduction. If you have a chance at a deduction this year and expect to itemize, schedule elective procedures, such as dental cleanings and physicals, in December. On the other hand, if you won’t qualify for a deduction in 2025, you should postpone those types of medical expenses to next year. Tip: You can count qualified expenses paid for a dependent toward your deduction threshold.
9 Nail down home improvements. Prior to the TCJA, itemizers could deduct mortgage interest paid on the first $1 million of acquisition debt, plus the first $100,000 of home equity debt. But the TCJA lowered the limit to $750,000 for new acquisition debt and suspended the write-off for home equity debt for 2018 through 2025. The OBBBA made those changes permanent for 2026 and beyond. Strategy: Use a home equity loan to substantially improve your principal residence. This may qualify as deductible home acquisition debt. For example, you might take out a new loan to install an in-ground pool and deduct the interest, within applicable limits. Tip: This tax break is also available for one other home, such as a vacation home.
10 Learn the tax ropes. For 2025, educators can deduct unreimbursed classroom expenses, up to an annual maximum of $300, or $600 on a joint return if both spouses are eligible educators. The deduction is available whether you itemize or not. Strategy: Hold off on year-end expenditures. Under the OBBBA, you may be entitled to a bigger deduction next year. Thanks to the OBBBA, beginning in 2026, eligible educators can deduct the full amount of their qualified expenses—without any dollar cap—if they itemize. However, if you claim the standard deduction, you get no tax benefit from this new break. Conversely, if you don’t expect to itemize in 2026, go ahead and purchase goods for your students this year and claim the $300/$600 deduction.