The last thing anyone wants to think about at year-end is taxes, but it’s the first thing you should think about, advisers say.
President Donald Trump’s signature tax and spending package introduced significant tax breaks, with many retroactive to Jan. 1. Americans should take advantage of those, in addition to regular strategies to defer income and increase deductions, advisers say.
Moves now can help lower your 2025 tax bill and set you up for an even more prosperous 2026, they say.
“Tax planning is always important,” said Richard Pon, a certified public accountant in San Francisco. “Due to the new tax law, 2025 is a particularly important year for tax planning.”
Four new deductions to take for 2025
These new deductions are for everyone who qualifies, regardless of whether they itemize or not:
◾$6,000 bonus deduction for seniors: Anyone age 65 or older, earning less than $75,000, can claim an additional $6,000 deduction.
◾Auto loan interest deduction: If you bought a qualifying car, up to $10,000 of auto loan interest is deductible. The tax break phases out as income reaches $100,000 for single filers or $200,000 for joint filers.
◾No tax on tips and overtime: Workers can deduct up to $25,000 in qualified tips and up to $12,500 in overtime for single filers or $25,000 for joint filers. Both deductions phase out for single filers with modified adjusted gross income, or MAGI, over $150,000 or $300,000 for joint filers. Employees must track what’s deductible for 2025.
More SALT
For itemizers, the increase to $40,000 from $10,000 in the state and local tax deduction, known as SALT, starting this year is the most lucrative break, Pon said. The deduction starts phasing out for taxpayers with modfied adjusted gross income above $500,000.
This “will change the math on itemizing versus taking the standard deduction for many taxpayers,” he said.
Taxpayers should track potential deductions such as mortgage interest, property taxes, medical expenses, and charitable contributions to see if they can top the standard deduction, Pon said. Renters in high-tax states may be eligible to itemize simply because of the amount of their state income tax.
A tax break only available for two days
If you’re under 59-1/2 years old, you can take up to $2,500 from a retirement plan to pay qualified long-term care insurance premiums without a 10% early withdrawal penalty.
The distribution, however, will still be taxed as income and must be made after Dec. 29. That leaves only two days to do it – Dec. 30 and 31 – before the new year begins, Pon said.
Last call for these tax breaks
The residential clean energy credit and energy-efficient home improvement credit are only available through Dec. 31.
◾Residential clean energy credit: Equal to 30% of the cost of installation of certain energy items like solar cells, small wind turbines, or battery storage if done before year-end.
◾Energy efficient home improvement credit: Homeowners can take credit for 30% of the costs of qualifying energy-efficient improvements, including windows, doors, insulation and HVAC systems if in service by Dec. 31.
When to give depends on what kind of taxpayer you are
Non-itemizers should wait to give until after the new year, when they can claim a deduction for cash donations of up to $1,000 for single filers and $2,000 for couples filing jointly. Anything doled out in 2025 gets no deduction.
In contrast, itemizers should give generously by Dec. 31 to maximize their gifts. Next year, only charitable contributions that exceed 0.5% of a taxpayer’s adjusted gross income are deductible. So, say your AGI is $200,000, the first $1,000 in donations isn’t tax-deductible.
Those in the top 37% tax bracket next year will only receive a 35% tax benefit from all itemized deductions, not just charitable contributions. This means a $10,000 donation will receive a tax benefit of $3,500, instead of $3,700 this year.
Change the tax mindset
Americans should think about taxes every day, not just at year-end and around tax season, said Kevin Knull, chief executive of TaxStatus, which provides IRS data to financial advisers.
“Filing taxes is backward-looking,” Knull said. “Accountants and CPAs are historians. Few look ahead to pay less taxes next year.”
Taxes are everyday events that show up as sales tax on purchases, withholdings in weekly paychecks, excise or use taxes on monthly bills, such as for phones or electricity. Those forgotten taxes can make people overspend and under-save, Knull said.
Shoppers, for example, get excited when the price of an item is 30% off $100 so it costs $70. “But on top of that is sales tax, so it’s actually more,” Knull said. “No one remembers the final number of what they paid, but it can be a lot more. Sales tax varies by state, but sometimes, it can be 5%-10% depending on the state.”
People also forget about taxes related to paychecks, whether it’s a bonus or a salary, he said.
The $10,000 bonus for air traffic controllers who had perfect attendance during the government shutdown isn’t really a $10,000 bonus, for instance. The IRS taxes bonuses at a 22% flat rate, plus a 6.2% Social Security tax and 1.45% Medicare tax. Those reduce the bonus to just over $7,000, and you may still have to have state income tax taken out. “That’s all immediately deducted and goes to Uncle Sam,” Knull said.
Remembering taxes helps when negotiating a new salary, too, he said. Calculate the net pay, or what you take home after taxes and other deductions, and compare it to what you need to live on each month. “If it’s not enough, keep looking,” he said. “Always know what you’re starting with. This is the nucleus of personal finance.”
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.