As the end of the calendar year approaches, many taxpayers are once again turning their attention to year-end planning—both to minimize taxes and to avoid penalties.
While the 2025 election season has added some uncertainty around future tax policy, several planning strategies remain consistently valuable regardless of political outcomes. Below we highlight key areas to review before December 31, along with deadlines and rules that could affect your 2025 filing.
Reviewing Withholding and Estimated Taxes
The IRS underpayment penalty remains elevated in 2025, creating potential issues for those who don’t make sufficient payments throughout the year.
- Penalty Rates: The IRS quarterly underpayment penalty rate has hovered in the 7–8% range in 2024 and 2025—well above the 3% rate taxpayers faced just a few years ago.
- Safe Harbor Rule: To avoid penalties, taxpayers generally need to pay at least 90% of the current year’s tax liability or 100% of the prior year’s liability (110% for higher-income households).
- Deadlines:
- Employees and others subject to withholding: December 31, 2025
- Quarterly estimated tax filers: January 15, 2026
For those receiving bonuses, capital gains, or other irregular income, reviewing paycheck withholding or quarterly payments before year-end may help avoid unnecessary penalties. The IRS Tax Withholding Estimator remains a useful tool.
Understanding Deductions and Deferrals
With inflation adjustments, the 2025 standard deduction is $30,050 for married couples filing jointly and $15,025 for single filers. This means fewer taxpayers may benefit from itemizing, but strategic timing can still help:
- Accelerating Deductions: Paying property taxes or making charitable contributions before year-end can increase deductible expenses for those on the cusp of itemizing.
- Deferring Income: Some employers allow deferral of year-end bonuses into 2026, which can help keep taxable income lower in 2025.
Required Minimum Distributions (RMDs)
RMDs remain one of the most important year-end considerations, especially with updated IRS enforcement:
- For Retirees: Individuals age 73 or older in 2025 must take their RMDs by December 31. Missing the deadline triggers a penalty of 25% of the amount not withdrawn (reduced to 10% if corrected in a timely manner).
- For Inherited IRAs: Under the SECURE Act rules, most non-spouse heirs must fully withdraw inherited accounts within 10 years if the original account holder passed away in 2020 or later. Starting in 2025, beneficiaries are now required to take annual RMDs if the original owner was already taking them—avoiding large taxable withdrawals in the 10th year.
Qualified Charitable Distributions (QCDs)
For charitably inclined retirees, QCDs remain a powerful planning tool in 2025:
- Individuals age 70½ or older can donate up to $105,000 per year directly from an IRA to a qualified charity.
- These distributions count toward RMDs but are excluded from taxable income—potentially lowering Medicare premiums and taxable Social Security benefits.
- Married couples can each make QCDs from their own IRAs, effectively doubling the available exclusion.
Maximizing Energy and Efficiency Credits
The Residential Clean Energy Credit continues in 2025, covering up to 30% of qualified expenditures for improvements such as solar panels, geothermal systems, and battery storage.
Other notable credits include:
- Energy Efficient Home Improvement Credit: For upgrades like windows, doors, and insulation (annual limits apply).
- EV and EV Charger Credits: Federal credits remain available for certain electric vehicles and charging equipment, subject to income and manufacturer limits.
Other Key Deadlines and Strategies
- Gifting: The annual gift tax exclusion rises to $18,000 per recipient in 2025 ($36,000 for married couples splitting gifts). Making gifts before year-end can help reduce the size of a taxable estate.
- Retirement Contributions: While IRA and Roth IRA contributions for 2025 can be made up until April 15, 2026, 401(k) contributions must be made by December 31 to count for this tax year.
- Tax-Loss Harvesting: Selling underperforming investments to offset capital gains remains a classic year-end strategy, especially with market volatility.
Conclusion
Year-end tax planning is about more than compliance—it’s about proactively shaping your financial picture for 2026 and beyond. With elevated penalty rates, new enforcement on inherited IRA distributions, and expanded opportunities through QCDs and energy credits, taking action before December 31, 2025, can make a meaningful difference in your financial outcomes.
Learn how these strategies fit into your broader financial plan. Visit our Private Wealth Management page to explore more.
Sources:
- IRS Tax Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator
- IRS Required Minimum Distributions: https://www.irs.gov/retirement-plans/required-minimum-distributions-rmds
- IRS Qualified Charitable Distributions: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals
- IRS Inflation Adjustments for Tax Year 2025 (Nov. 2024 release)
- IRS Clean Energy and Efficiency Credits: https://www.irs.gov/credits-deductions