Year-End Tax Planning: What to Do Before December 31 to Reduce Your 2025 Bill

The last few months of the year aren’t just for holidays and celebrations—they’re also the final chance to lock in real tax savings. Once December 31 passes, many opportunities disappear until the next filing season, making this the most crucial period for effective planning. With proactive steps now, you can reduce what you’ll owe on your 2025 return and enter the new year with greater financial confidence. Whether you’re filing as an individual or running a small business, strategy matters most at year-end.

Maximize Retirement Contributions

Contributing to retirement accounts remains one of the most effective ways to reduce taxable income. Traditional IRAs and 401(k)s allow individuals to deduct contributions, while business owners can utilize SEP IRAs or Solo 401(k)s, which offer higher contribution limits.

Practical Tip: Even a partial contribution can be helpful. Review your accounts before December 31 and capture any available employer match.

Beyond reducing taxes, retirement contributions build long-term security. If you’re self-employed, meeting with a tax advisor can ensure you maximize contribution limits designed for business owners.

Example: A self-employed graphic designer who contributes $10,000 to a SEP IRA before year-end can potentially reduce taxable income by that amount while building future retirement savings.

Use Charitable Giving to Your Advantage

Donations made by December 31 may qualify as deductions. Eligible contributions include cash gifts, donated stock, or gifts through donor-advised funds. Even if you don’t itemize, qualified charitable distributions (QCDs) from retirement accounts can offer a tax-efficient giving strategy.

Practical Tip: Always keep documentation. The IRS requires receipts for donations, no matter how small.

Donating appreciated stock instead of cash may create a double benefit: avoiding capital gains tax while still claiming the deduction.

Example: A couple donates stock purchased years ago. By gifting directly instead of selling, they avoid capital gains tax and still deduct the stock’s fair market value.

Be Strategic With Income and Expenses

Timing makes a difference. Deferring income—like bonuses—into January can reduce this year’s taxable income. Small businesses can prepay expenses such as rent, supplies, or insurance before December 31 to lower taxable profits.

Practical Tip: Section 179 expensing may allow business owners to deduct the full cost of qualifying equipment in the year purchased.

Freelancers and contractors should also consider accelerating expenses, like software or equipment, into this year. Adjusting cash flow this way can shift your year-end tax position.

Example: A freelance photographer who buys new equipment in December may qualify for an immediate deduction while strengthening their business operations.

Don’t Miss Small Business Write-Offs

Year-end is the best time for small businesses to review deductions:

• Buying equipment or software you’ll use next year

• Recording vehicle and mileage expenses

• Ensuring payroll and contractor payments are up to date

• Making estimated tax payments on time to avoid penalties

Practical Tip: Accurate records now mean fewer errors and less stress when filing.

Employers may also review benefits before year-end. Contributions to retirement plans, year-end bonuses, and wellness programs may qualify as deductible business expenses.

Look at Investment Strategies

Selling underperforming investments before year-end (tax-loss harvesting) can offset capital gains and reduce taxable income.

Practical Tip: Watch out for the wash-sale rule—buying the same or “substantially identical” investment within 30 days cancels the deduction.

If you’ve had a strong investment year, coordinate with your tax professional to balance gains, losses, and charitable giving. Even small December adjustments can yield real savings.

Also consider capital gains brackets: if your income is lower this year, you may qualify for the 0% long-term capital gains rate.

Review Health and Education Accounts

Contributions to Health Savings Accounts (HSAs) and 529 college savings plans also provide tax advantages.

Practical Tip: HSAs offer a rare triple benefit—pre-tax contributions, tax-free qualified withdrawals, and tax-deferred growth.

529 contributions may qualify for state tax deductions while building future education savings.

Example: A parent contributing $5,000 to a 529 plan in December grows their child’s education fund and may reduce state taxes.

Energy Tax Credits for Your Home

Homeowners looking to reduce their energy bills and carbon footprint can take advantage of significant federal tax credits by making energy-efficient home improvements before the end of this year. These credits can substantially lower the cost of upgrades such as new windows, doors, insulation, and high-efficiency heating and cooling systems.

Crucially, for those considering solar power, the Residential Clean Energy Credit requires that solar panel systems be fully installed and operational—or “placed in service”—by the December 31st deadline to qualify for the 30% tax credit. Acting now not only ensures eligibility for these valuable financial incentives but also allows homeowners to begin enjoying the benefits of a more comfortable and less expensive home as soon as possible.

Stay Ahead with Bookkeeping

Clean books are critical for smooth filings. Individuals should review receipts and expenses now. Businesses should reconcile accounts, prepare 1099s for contractors, and confirm payroll accuracy.

Practical Tip: Doing this in fall gives you time to correct missing items instead of rushing in April.

Finish the Year Strong

Smart planning before December 31 can translate into real savings later. For individuals and businesses alike, year-end strategies can change the story of your 2025 tax bill.

TaxMaster helps New Yorkers plan, prepare, and save. With offices in Glendale (Queens) and Melville (Long Island), our experienced team offers personalized tax strategies for individuals, families, and businesses.

• Glendale Office: 718-326-0500

• Melville Office: 631-673-0617

• Contact TaxMaster Online

Frequently Asked Questions

What are the easiest ways to lower taxes before year-end?

Retirement contributions, charitable donations, HSA contributions, and adjusting the timing of income or expenses are among the most effective moves.

Can small businesses reduce taxes with year-end purchases?

Yes. Prepaying expenses or buying equipment before December 31 can lower taxable income. Employer contributions to retirement plans may also be deductible.

When is the best time to meet with a tax advisor for planning?

By October or November. That gives enough time to implement strategies that still impact this year’s return.