3 STRATEGIES THAT COULD REDUCE YOUR 2025 TAX BILL FOR AN EXTRA MERRY YEAR-END SEASON
‘Tis the season to give—and maybe even receive a gift from an unlikely source: the IRS.
Whether it’s making donations to charity or caring for elderly relatives, you can reduce your tax burden before the end of 2025—and make 2026 look a lot brighter—with a few key strategic actions.
FIRST UP, MAKING DONATIONS TO CHARITY
Making a charitable donation by December 31, 2025, not only supports the causes you care about, but it could also lower your tax bill if you itemize deductions.
Let’s review the tax-law landscape for 2025 and how it will look in 2026. The rules for giving to charity involve significant changes in the tax law, primarily starting in 2026 due to the “One Big Beautiful Bill Act.”
Here’s what’s staying for 2025 tax year.
Itemized Deductions: You can deduct qualifying charitable contributions if you itemize your deductions.
AGI Limit: Cash contributions to public charities are generally deductible up to 60% of your adjusted gross income (AGI).
What’s adjusted gross income, anyway?
Your adjusted gross income, or AGI, represents your total gross wages minus specific “above-the-line” deductions, also known as adjustments to income. Your AGI is used to determine your tax liability and eligibility for various tax credits and deductions.
Where can I find it on my tax forms? Trick question. There isn’t an AGI line on your W2 forms. Your accountant calculates it by subtracting specific, eligible adjustments (the above-the-line deductions) from your total gross income.
Non-Itemizers: Tax filers who take the standard deduction (which is $15,750 for single filers and $31,500 for married joint filers in 2025) cannot claim a federal tax deduction for charitable contributions.
Qualified Charitable Distributions (QCDs): Individuals age 70½ and older can make tax-free donations of up to $108,000 in 2025 directly from an IRA to a qualified charity.
Appreciated Assets: Donating appreciated stock or other noncash assets held for more than a year allows you to avoid capital gains tax and potentially deduct the full fair-market value.
Here’s what’s changing for the 2026 tax year.
New Deduction for Non-Itemizers: A major change allows individuals who take the standard deduction to claim an above-the-line deduction for cash contributions (not gifts to DAFs or private foundations).
Limit: Up to $1,000 for single filers and $2,000 for married couples filing jointly.
New AGI Floor for Itemizers: For those who itemize, charitable contributions will only be deductible to the extent they exceed 0.5% of their AGI. For example, if your AGI is $200,000, the first $1,000 in donations is not deductible.
Deduction Cap for High-Income Earners: For taxpayers in the highest marginal tax bracket (37%), the tax benefit from itemized deductions (including charitable gifts) will be capped at a 35% tax rate.
60% AGI Limit Made Permanent: The limit on cash gifts to public charities remaining at 60% of AGI is made permanent and will not revert to 50%.
Here are some gifts to consider making to charity to lower your tax bill if you itemize deductions.
A donor advised fund, provides an immediate tax deduction, allows you to contribute appreciated stock to avoid capital gains tax, and offers long-term flexibility in deciding when and how to distribute the funds to charities.
By donating appreciated stock held for more than one year to a qualified public charity, you can claim a deduction for the fair market value and avoid paying capital gains tax on the appreciation.
If you’re age 70 ½ or older, you can donate up to $108,000 from an IRA directly to a charity to help make your required minimum distribution more tax efficient.
Feel like you’re in the weeds with these laws? That’s OK. We can help.
We will work through your current tax return and other related documents to assess any life changes that might impact your overall financial plans. We’ll even work with your CPA and/or attorney to ensure you receive the most well-rounded advice.
SECOND, DEDUCTING EXPENSES RELATED TO CARING FOR AN ELDERLY PARENT
If your parent qualifies as your dependent, you may be eligible for these tax benefits:
Credit for Other Dependents
the Child and Dependent Care Credit
an itemized medical expense deduction
NOTE: To qualify, you must be able to document that you provided more than half of your parent’s total financial support during the tax year. This includes food, lodging (fair rental value of a room in your home), utilities, medical care and transportation.
Three other important points:
Your parent can be biological, step or an in-law.
Your parent’s gross income for the year must be less than $5,200 (for tax year 2025).
Your parent does not have to live with you to qualify as a dependent.
This is a partial list, so please contact us for more information or consult a tax professional.
THIRD, MAXIMIZING YOUR ENERGY-SAVING DEDUCTIONS
Have you delayed installing upgraded exterior doors, a new water heater or a more energy efficient AC unit because of the upfront cost? Consider the benefits on the back end with energy savings (and possibly lower monthly utility bills) as well as a possible tax credit.
The Energy Efficient Home Improvement Credit covers the cost of certain energy efficient improvements and equipment installed in your primary residence. The annual credit is up to $3,200 (30% of the cost). Eligible improvements must be made through December 31, 2025.
Thinking bigger? The Residential Clean Energy Credit, which targets major renewable energy installations, like solar electric panels, is set to expire at the end of this year. But it still may be worth your time to try to get those bigger projects in for the tax credit.
Qualifying equipment includes solar electric panels, solar-powered water heaters and geothermal heat pumps, among other energy-saving installations.
For a well-rounded read on smart year-end tax planning, we encourage you to read (or re-read!) our November blog, Create a Year-End Tax Plan—and Save Yourself From an April 15 Surprise—With These Five Tips.
Contact us if you have any questions about the new tax laws or your end-of-year planning. We’d be happy to help you navigate the new year and beyond.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.
Disclosure: Content in this material is for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. All investments involves risk including loss of principal. No strategy assures success or protects against loss.
The content provided herein is based on our interpretation of the One Big Beautiful Bill Act and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the One Big Beautiful Bill Act.
