As we approach year-end, we would like to present you with some year-end tax planning recommendations. The window of opportunity for many tax-saving moves closes on December 31, so it is important to evaluate your tax situation now while there is still time to affect your bottom line for the 2025 tax year.

Most of us do not have the ability to make large transactions that will save us millions of dollars in taxes. However, taking maximum advantage of a number of seemingly small moves can still save a significant amount in federal and state income taxes.

Maximize All Retirement Plan Contributions. For 2025, the maximum contribution to 401(k) and similar plans is $23,500. If you are 50 or over, you can contribute an additional $7,500 for a total of $31,000. If you are between age 60 and 63, you can contribute an additional $3,750 for a total of $34,750. Since these contributions are done through payroll, you will need to adjust your withholdings if you wish to increase your contribution.

If you work for a smaller employer your retirement plan may be a Simple IRA. The contribution limits are lower than for a 401(k) plan: $16,500 if you are under 50 and $20,000 if 50 or older. If you are between age 60 and 63, you can contribute an additional $1,750. Employer contributions are either a 3% match or a 2% across-the-board contribution to all employees. Under certain circumstances the employer contributions can be reduced.

If you are self-employed you may want to consider a SEP-IRA. You can contribute up to 25% of your self-employment income up to a maximum contribution of $70,000. However, any full-time employees also need to covered by the plan. The contribution deadline is the tax return filing date, including extensions.

If you cannot afford to contribute the maximum amount, at least contribute enough to maximize your employer’s matching contribution. If your employer matches your contribution up to 3% of your salary, make sure you are contributing at least 3% of your salary. Your employer match is “free money” and you should always attempt to garner that benefit.

If you earn less than $79,000 if you are filing single or $126,000 married filing jointly, you are eligible for a $7,000 deductible IRA ($8,000 if 50 or over), regardless of whether you are covered by a retirement plan at work. For income greater than these thresholds, the deductibility of your contribution will be partially or wholly phased-out.

Consider Making a Roth IRA Contribution. Roth IRA contributions are made with after-tax dollars and future withdrawals can be made tax-free. There are income limits to be considered. If you are single and earn less than $150,000, you can make a full Roth contribution. If you earn more than $165,000, you cannot make a Roth contribution. In between those two amounts, you can make a partial contribution. For married filing jointly taxpayers, those limits are $236,000 and $246,000.

If your income was lower in 2025 due to a job loss or other income reduction, it may be beneficial to do a Roth conversion. Converting an existing IRA to a Roth is a taxable event. Because of your lower income you may be in a lower tax bracket and it might make sense to “fill up” that lower bracket now to provide tax-free income in the future.

Maximize Contributions to College Savings Plans. Contributions to the Maryland 529 Plan are deductible up to $2,500 per beneficiary per year by an individual and up to $5,000 per beneficiary per year by married taxpayers filing jointly on your Maryland state income tax return. Excess contributions can be carried forward for ten years and used in future years. All gain withdrawn from 529 plans are tax-free if used for qualifying education expenses. Up to $10,000 per year can be used for elementary and secondary private school costs.

Virginia and the District of Columbia offer state tax deductions of $4,000 per account per year and $8,000 total, respectively, if their state-sponsored plans area utilized for residents of Virginia and the District.

Maximize Contributions to Health Savings Accounts. High-deductible health insurance plans coupled with Health Savings Accounts can generate significant savings, especially for those not covered by employer-provided health insurance or those who are self-employed. Individuals can contribute up to $4,300 in 2025 and families can contribute up to $8,550. If you are 55 or older anytime in 2025, you can contribute an additional $1,000. These contributions are tax-deductible and withdrawals from HSA accounts are tax-free if used for qualified medical expenses. Unlike flexible savings accounts, HSAs are not a “use it or lose it” proposition; unused amounts can be carried over to future years.

In addition, health insurance premiums are tax-deductible for self-employed individuals as long as neither spouse is covered by an employer-provided health insurance program.

Maximize Charitable Contributions. The fourth quarter is a time when many people review their charitable contributions for the year. Contributions can be cash or non-cash so if you haven’t worn that plaid sports coat or polka dot dress in two years, you may want to consider giving it away. Most major charities such as Salvation Army or Goodwill Industries have guidelines as to the charitable value of various household items and clothing. Non-cash contributions in excess of $500 per year must be reported to the IRS on Form 8283, Noncash Charitable Contributions. With fewer taxpayers itemizing deductions because of the higher standard deduction, it may pay off to bunch charitable contributions into one year in order to itemize and then take the standard deduction the next year.

Review all non-qualified investment for potential tax losses. All gains and losses in retirement accounts (IRAs, 401(k)s, etc.) are non-taxable events until the monies are distributed from the account. However, non-qualified accounts (individual and joint accounts) are taxed differently. Mutual fund capital gains are distributed to the investor and must be reported on their income tax return.

Even though stock and bond markets increased in 2025, some taxpayers may have investments that have lost value since they were purchased. Selling investments with a loss is a simple means of offsetting some or all of the capital gains distributed or realized through security sales. In addition, individuals can deduct up to $3,000 of additional losses against all other income. Any net losses in excess of $3,000 can be carried forward to future years.

Be aware of the wash sale rules, which state that taxpayers cannot sell a holding at a loss and purchase the same holding within 30 days before or after the sale. Losses in violation of wash sale rules are not deductible.

 

If we manage your investments, we will review your account in early December and take losses as appropriate. These transactions will be reflected on your year-end investment statements.

Tax Credits. Some popular tax credits can significantly increase tax refunds or reduce amounts owed. These include:

• Child Tax Credit: The Child Tax Credit is for parents with children under the age of 17 at year’s end. For the 2025 tax year, the credit is $2,200 for each qualifying child if you earn up to $200,000 as an individual filer or $400,000 for joint filers. The benefit phases out with higher incomes.
  
  
• Child and Dependent Care Credit: This tax credit is offered to taxpayers who pay out-of-pocket expenses for child care for an individual 12 or younger as of year’s end. It can also be applied if you need care for a disabled spouse, or a qualified dependent. The credit equals a percentage of work-related expenses you paid someone to care for your child or another qualifying person.
  
  
• Energy-Efficient Home Improvements: The Residential Clean Energy Credit offers 30% of the costs of new, qualified clean energy technology installed in your home anytime from 2022 through 2025. Following the passage of the One Big Beautiful Bill in July, these credits will expire after December 31, 2025.

We will discuss more changes from the One Big Beautiful Bill in our November newsletter. If you have any questions or would like to discuss these issues in more detail, please contact me.

James J. Denora, CPA, CFP ^®