As we approach the end of 2025, it’s time to take a fresh look at your tax picture. The tax landscape changed significantly with the enactment of the One Big Beautiful Bill (OBBB) in July 2025. Many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) were originally scheduled to expire after 2025, but OBBB replaced or modified a number of those rules — creating unique opportunities and nuances for 2025 year-end planning, particularly for state income taxes, charitable giving, deductions and multi-year income timing.
Effective year-end planning aims to minimize your tax liability while keeping your personal, financial and retirement goals on track. Since many OBBB provisions were retroactive and many take effect on Jan. 1, 2026, reviewing both 2025 and 2026 projected income and deductions is more important than ever. In general, it’s advantageous to recognize income in lower tax-rate years and take deductions in higher tax-rate years.
Income timing: Income timing remains one of the most powerful tools. You may want to accelerate income into 2025 if you expect to be in a higher tax bracket in 2026, or if you anticipate unusually high deductions or losses this year. Roth IRA conversions can be particularly beneficial when done in a relatively low-rate year. Likewise, self-employed individuals using the cash method may choose to bill and collect outstanding amounts before Dec. 31.
On the other hand, deferring income into 2026 may be more favorable if your 2026 tax bracket will be lower, if you expect larger itemized deductions next year, or if you anticipate a 2026 Pass-Through Entity Tax (PTET) deduction that could provide a significant federal benefit. Individuals with fluctuating business income, bonuses or capital transactions should pay close attention to multi-year income and deduction variances.
Deduction timing: OBBB reshaped itemized deductions. Charitable deductions are now subject to a new 0.5% floor; state and local tax (SALT) deductions may be higher than prior years, depending on your income level; and an overall benefit cap for higher-income taxpayers applies. Additionally, OBBB reinstated 100% bonus depreciation in 2025, which may change the optimal timing for capital purchases.
Because of these changes, deciding whether to pay deductible expenses in 2025 or wait until 2026 has become more complex. State estimated tax payments, real estate taxes, personal property taxes, rental property expenses and self-employed business expenses all fall into the category of deductions that might be more valuable in one year than another. Medical expenses should also be reviewed — if 2025 will not reach the threshold for deductibility but 2026 may, delaying elective medical procedures or payments until next year could be beneficial. Charitable contribution strategies should also be considered due to the new 0.5% floor and the overall benefit cap, which both begin applying in 2026.
If you might benefit from PTET elections, you should also evaluate whether paying 2025 PTET by year end offers a better federal deduction in 2025, or whether making the election and payment in 2026 would provide larger benefits under the new OBBB cap and limitation structure.
Charitable contributions strategies. OBBB added several new wrinkles to charitable planning, making this a particularly strategic area for year-end decisions.
For individuals age 70½ or older, Qualified Charitable Distributions (QCDs) of up to $108,000 per person may be transferred directly from IRAs to charities. These gifts count toward your Required Minimum Distribution (RMD), are excluded from taxable income, and may help reduce income-related Medicare surcharges.
Donating appreciated securities continues to be an excellent strategy because it avoids recognition of long-term capital gains while generating a charitable deduction (subject to the OBBB rules). Donor Advised Funds (DAFs) remain a powerful tool to “bunch” several years’ worth of charitable giving into one year to maximize the deduction, while still allowing flexibility to fund charities in future years.
Beginning in 2026, in addition to the overall itemized deductions benefit cap for higher-income taxpayers, OBBB imposes a 0.5% adjusted gross income floor on charitable deductions, limiting the tax benefit of charitable gifts. At the same time, starting in 2026, individuals who do not itemize will be allowed to take a deduction of up to $1,000 ($2,000 for married taxpayers filing jointly) for cash contributions to qualified charities — a helpful rule for those who alternate between the standard deduction and itemizing in different years. As always, contemporaneous written acknowledgments are required for any charitable contribution of $250 or more.
Business equipment and depreciation planning. With the reinstatement of 100% bonus depreciation for qualifying property both acquired and placed in service after Jan. 19, 2025, many businesses may want to accelerate equipment purchases before year end to take advantage of full expensing. Section 179 expensing is also available, with a deduction limit of $2,500,000, as long as income limitations and the investment phase-out thresholds are not exceeded. These generous rules provide significant planning opportunities for business owners.
Capital gains planning. Capital gains planning continues to be an important part of year-end considerations. Taxpayers with significant capital gains may want to harvest available capital losses to offset those gains. For married couples with taxable income below $96,700 (or $48,350 for single taxpayers), long-term capital gains may fall into the 0% federal rate as long as total taxable income stays below those thresholds.
Installment sales can help spread income over several years, potentially reducing exposure to the 3.8% net investment income tax (which applies when adjusted gross income exceeds $250,000 for joint filers or $200,000 for single filers). For those who previously deferred gains by investing in Opportunity Zone funds, the deferred gain will be recognized in 2026, as long as the investment is still held at the end of 2025. OBBB expanded Opportunity Zone provisions, which may offer additional opportunities for future planning.
529 college savings plans. Consider maximizing contributions to 529 college savings plans early, so tax deferred growth can begin immediately. Under the rules that became available in 2024, unused 529 funds may be rolled into the beneficiary’s Roth IRA under certain conditions and are subject to annual Roth contribution limits (up to a $35,000 lifetime maximum). Starting 529 plans early also helps start the required 15-year clock sooner. Taxpayers in states offering a 529 deduction may want to make contributions before year end to secure state tax savings. Kansas resident taxpayers can make Section 529 plan contributions up through April 15, 2026, and deduct that amount up to $3,000 per beneficiary per spouse on their 2025 Kansas income tax return.
Alternative Minimum Tax (AMT) considerations. Although AMT is less common than before the 2017 Tax and Jobs Cut, it still affects certain taxpayers, particularly those with large capital gains or those exercising incentive stock options. Additionally, while OBBB expanded the deductibility of state and local taxes for federal purposes, these deductions do not apply when computing AMT. As a result, some taxpayers may experience AMT impacts they have not seen in recent years. Although the higher AMT exemptions allowed under the TCJA are now permanent, starting in 2026, exemptions will phase out twice as fast as before.
Special reminders for 2025. If you turned age 73 in 2025, you must take your first Required Minimum Distribution (RMD) by April 1, 2026. However, delaying the first-year distribution means receiving two RMDs in 2026, which may affect tax brackets and Medicare premium calculations. Additionally, if you inherited an IRA from a non-spouse, you generally must take RMDs in 2025 or risk penalties, now that the IRS’s temporary relief period has ended.
If you would like to see how these ideas apply to your personal situation, we can prepare a personalized analysis and year-end projection. Please contact us at (816) 561-1400 or email us at julie@mwbpc.com.