Taxes in your practice: Year-end tax planning for 2025

Scott E. Vincent is the founding member of Vincent Law, LLC in Kansas City.

As the end of 2025 approaches, it is time for lawyers to work on year-end planning. Individual taxpayers will want to consider applicable tax rates, the standard deduction, limits on itemized deductions, and multiple other issues. Businesses should consider corporate tax rates, limits on business deductions, increased expensing, and first-year depreciation for some assets. 

All taxpayers will need to consider key 2025 legislative developments, including the recent One Big Beautiful Bill Act. This article outlines several individual and business planning issues to consider before year-end. The items noted will not apply in every situation and are not a comprehensive list — taxpayers should adjust planning for their circumstances.

Year-end planning for individuals 

Look at adjusted tax brackets and top rates 

Consider the adjusted marginal tax brackets under the OBBBA and modified top rates for certain filers. Applicable bracket thresholds and marginal rates may impact income and deduction planning. 

Review expanded standard deduction and limits on itemized deductions 

For 2025, the basic standard deduction is $31,500 for joint filers, $23,625 for heads of household, and $15,750 for singles and married taxpayers filing separately. For taxpayers either 65 or older or blind, there are additional standard deductions. Itemized deductions remain either reduced or eliminated, so many taxpayers may find the increased standard deduction provides more tax benefit. For taxpayers with timing flexibility, there may be an incentive to “bunch” allowable itemized deductions into one year and use the standard deduction in other years. 

Consider modified deduction limits 

The OBBBA increased the maximum state and local tax deduction limit from $10,000 to $40,000 for 2025, subject to adjusted gross income phaseout. Individuals could make estimated payments of state and local taxes before year-end or have their employer increase their withholdings of state and local taxes for deduction of those taxes this year. This can be beneficial if a taxpayer expects to itemize deductions and doing so will not cause state and local tax deductions to exceed applicable limits. 

Plan for the 3.8% net investment income tax 

The 3.8% net investment income tax now applies to active income sources for certain higher-income taxpayers. This surtax is 3.8% of net investment income (NII) that exceeds modified adjusted gross income (MAGI) thresholds. Year-end planning for the 3.8% surtax depends on estimated MAGI and NII. Some taxpayers may want to defer additional NII until next year, some may want to reduce MAGI other than NII, and some may be able to minimize both NII and other MAGI. 

Expedite income 

Accelerate income into this year in cases where a taxpayer’s marginal tax rate is expected to be lower this year than it will be next year due to economic conditions or expected changes in filing status or applicable rates. Postponing income can produce savings for taxpayers who expect to be in a lower tax bracket next year. 

Consider lower long-term capital gain rates on sales of assets held for more than one year 

Depending on taxable income levels, taxpayers may want to utilize lower rates for capital gain sales and avoid selling capital assets with offsetting losses that reduce the benefits of the lower rates. The reduced rates apply to adjusted net capital gain to the extent that this amount, when added to regular taxable income, does not exceed certain thresholds based on filing status. Analysis of taxable income, potential capital gains, and other applicable taxes is required to determine the best combination. 

Consider retirement plan contributions and distributions 

Maximize retirement plan contributions, including catch-up contributions of additional amounts for taxpayers 50 and older. 

Remember that retirement plan distributions may be subject to a 10% early withdrawal tax penalty for taxpayers who are not at least 59 and a half years old. There are certain exceptions to this penalty, including a limited qualified birth or adoption distribution. 

Look at retirement account minimum distributions 

Review required minimum distributions (RMDs) from retirement accounts under new life expectancy tables and consider greater flexibility for working taxpayers in employer plans under the OBBBA. RMDs are the minimum amounts that must be withdrawn from qualified retirement plan accounts beginning at age 73. Participants who are still working and making contributions to an employer-sponsored retirement account may be able to further delay RMDs on that account. Taxpayers who fail to take RMDs can be subject to a substantial excise tax on the required amounts that are not withdrawn.

Consider making qualified charitable donations from traditional individual retirement accounts 

Qualified charitable distributions are made directly to charities, and for the 2025 tax year, $108,000 per taxpayer who is at least 70 and a half years old is excluded from gross income and itemized deduction calculations and limits. In addition, the qualified charitable distribution may reduce RMDs. Taxpayers can plan for this benefit by maximizing contributions to traditional IRAs with amounts that may later be qualified charitable distributions. 

Consider a Roth IRA conversion 

Taxpayers can convert traditional IRA investments into a Roth IRA if eligible. A conversion will increase adjusted gross income (AGI), so taxpayers should consider the impact on other tax calculations and their marginal tax rate. 

Consider health savings account contributions 

Consider HSA contributions before the end of the year based on increased contribution limits, including a new “catch-up” provision for taxpayers 55 and older. HSA contributions may be deductible from AGI, so the benefits could be available even if a taxpayer does not itemize deductions.

Increase flexible spending account amount 

Increase the amount set aside for next year in an FSA if the taxpayer did not set aside enough for this year. Earnings set aside in an FSA allow payment of medical and dental bills with pre-tax earnings. 

Wrap up gifts that apply for gift tax exclusion 

Complete gifts that qualify for annual gift tax exclusion before the end of the year to save gift and estate taxes. For 2025, taxpayers can give $19,000 each to an unlimited number of individuals but cannot carry over unused annual exclusions from one year to the next. These transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to tax at their parents’ rates under the “kiddie tax.” 

Consider education deductions and other credits 

Tax-free distributions from § 529 qualified tuition programs are expanded under the OBBBA for higher education expenses beyond tuition to now include a variety of eligible expenses. Distributions were previously expanded to include up to $10,000 per beneficiary per year for elementary or secondary public, private, and religious schools, as well as expenses for participation in certain apprenticeship programs and qualified education loan repayments. For taxpayers under certain income thresholds, there are also several credits and deductions available, and student loan interest may be deductible. 

Consider home-related tax provisions 

Mortgage interest is limited to the level of acquisition indebtedness depending on when the home was acquired ($750,000 for homes acquired on or after Dec. 16, 2017, $1 million for indebtedness incurred before that date). Mortgage interest allocable to the portion of a home used to operate a business is not subject to this limitation. Interest on home equity indebtedness may be deductible to the extent the debt was used to buy, build, or substantially improve the home. 

Gain of up to $500,000 for married taxpayers ($250,000 for other taxpayers) on the sale of a qualified home is excluded from income, but the portion of the home used for business or rented reduces this exclusion from gain. Discharges of qualified principal residence indebtedness may be excluded from gross income if discharged before Jan. 1, 2026. 

Consider new OBBBA deductions 

These include up to $10,000 for interest on car loans incurred after 2024 for new personal use vehicles assembled in the United States; up to $25,000 for tips received by an individual in an occupation customarily and regularly receiving tips; up to $12,500 ($25,000 joint returns) for certain overtime pay required by federal law; and $6,000 per person who reached 65 years old before the end of the tax year. Several of these deductions are subject to phaseouts based on adjusted gross income. 

Claim expiring clean energy credits 

The OBBBA eliminates residential clean energy credits and energy efficient home improvement credits, so taxpayers should make sure to claim any qualifying expenditures for 2025. 

Year-end planning for business owners 

Consider qualified business income deductions 

The OBBBA extends the qualified business income deduction for non-corporate taxpayers of up to 20% of qualified business income from a domestic business operated as a sole proprietorship, partnership, limited liability company taxed as a partnership, or S corporation. For 2025, the deduction may be limited (with a phase-in for the limitation) if taxable income is over $394,600 for married couples filing jointly or $197,300 for other filers. These deduction limitations may apply depending on whether the taxpayer has a service-type trade or a business such as law, accounting, health, or consulting, or whether the trade or business meets W-2 wage and qualified property (like machinery and equipment) requirements. 

Because there are taxable income thresholds and phaseouts for certain taxpayers, there may also be significant tax savings from deferring income or accelerating deductions into a particular year, depending on the taxpayer’s circumstances. Similarly, a taxpayer may be able to increase the deduction available by increasing W-2 wages or qualified property before year-end.

Consider § 179 business property expensing 

For tax years beginning in 2025, the expensing limit significantly increased to $2.5 million for property placed in service during the year, reduced dollar for dollar for property placed in service over $4 million. This expensing is available for most depreciable property and qualified improvement property, which generally includes interior building improvements and roofs, HVAC, fire protection, and alarm and security systems. Importantly, property acquired and placed in service before year-end is eligible for full expensing for the year. Passenger automobiles may also be eligible for partial § 179 expensing, depending on the gross vehicle weight rating and whether they are subject to “luxury car” depreciation limits. 

Consider first-year bonus depreciation for new and some used machinery and equipment purchased and placed in service 

Like expensing, bonus depreciation is available for the full year even if the asset was placed in service late in the year, so year-end purchases may receive a full first-year bonus write off. Notably, bonus depreciation was being phased out under prior law, but the OBBBA permanently increased it to 100% for qualified property acquired after Jan. 19, 2025. 

Consider 100% first-year deductions under the OBBBA for “qualified production property” 

This new category is for nonresidential real property used for manufacturing, production, or refining of tangible personal property with construction beginning after Jan. 19, 2025, and placed in service before Jan. 1, 2031.

Expense domestic software development and research 

The OBBBA restored full expensing for domestic software development and research or experimental expenditures. Businesses that previously capitalized these expenses under prior law can write off the unamortized expenses over one or two tax years beginning in 2025. The OBBBA also allows businesses with $31 million or less in annual gross receipts to apply these rules retroactively to tax years beginning after Dec. 31, 2021, by filing amended returns. 

Consider changing to the cash method of accounting, rather than the accrual method 

“Small businesses” with less than $31 million (for 2025) of average annual gross receipts over a three-year period may be eligible for the cash method if they meet other requirements. Depending on the business, the cash method of accounting may allow more flexibility in timing income and deductions. 

Review timing 

Review timing for any debt-cancellation events, including whether lower effective tax rates are expected this year or next year. 

Consider timing for disposition of a passive activity to allow a deduction for suspended losses to reduce current year taxable income. 

Review partnership and S corporation information 

Review partnership and S corporation basis to make sure it is sufficient to deduct losses in current and future years. 

Review S corporation salaries to ensure that shareholders receive reasonable wages and that distributions are based on ownership percentages of shareholders. The IRS often audits S corporations that pay all profits as distributions without accounting for reasonable wages to shareholders for their work in the business. 

Consider utilizing retirement plans and health insurance plans 

These plans can provide key benefits for retention of employees and for owners of a business. 

Consider business credits 

A variety of credits may apply for a particular business, including credits related to retirement plans and employees, as well as research and development, clean energy, and vehicles credits. 

Conclusion 

Year-end planning is an important opportunity for lawyers to review their individual and business tax circumstances and take into account recent legislative changes. There are a variety of key issues for 2025 planning relating to the OBBBA in addition to normal planning considerations.