As the year draws to a close, individuals and business owners often find themselves balancing year-end goals, holiday plans, and financial reviews. Amid the activity, it’s essential not to overlook year-end tax planning. Taking time now to review your income, deductions, and investment activity can meaningfully impact your long-term financial position.
At Schultz Financial Group (SFG), we incorporate tax planning throughout the year, with a particular emphasis in the fourth quarter. Each client’s plan is tailored to their circumstances — integrating last year’s results, current-year changes, and projections for the future. By coordinating customized tax strategies with an overall wealth management plan, we help ensure each decision supports your broader financial goals.
What is SFG’s year-end planning process?
Our planning process is driven by data.
- Review prior year’s tax return: Once we receive a tax return, we review it to confirm the strategies we helped implement in the prior year were appropriately reported, and we can refer to this document throughout the year to help make decisions. The prior year’s tax return is the foundation for tax planning in the current year.
- Analyze the current year: We use tax planning software to adjust components of the prior year’s tax return that are known or expected to be different. For example, investment income or capital gains could differ from year to year, depending on the types of investments held in a portfolio. There may be life changes that were planned, such as retirement, or unexpected changes like the loss of a spouse or employment.
- Consider tax law: We stay informed about tax law changes and new IRS guidance that comes out during the year. Earlier this year, H.R.1 (the “One Big Beautiful Bill Act”) was passed. It is imperative to not only understand the new tax law, but to also understand how the changes outlined in H.R.1 may impact individual clients.
- Make recommendations: After analyzing the current year and considering a client’s overall wealth management plan, we prepare recommendations for clients that may minimize a client’s annual or lifetime tax liability. We present these strategies and discuss them with the client and their other advisors before assisting with implementation.
- Good housekeeping: In addition to deriving strategies to manage taxes, we also ensure key annual items are completed each year for our clients, such as Required Minimum Distributions(RMDs), charitable giving, and 529 Plan contributions or reimbursements. We estimate our client’s tax liability for the current year and work with their CPA to determine if any additional withholding or estimated tax payments are needed to avoid any underpayment penalty.
Looking Beyond This Year: Strategic and Long-Term Tax Efficiency
Proactive planning doesn’t stop with this year’s tax bill. We project clients’ future income and tax liabilities to help implement strategies that optimize taxes over time.
Key considerations include:
- Traditional vs. Roth Retirement Plan Contributions: Pre-tax (traditional) retirement contributions reduce taxes today but are taxable upon withdrawal. Roth contributions are made with after-tax dollars, allowing tax-free withdrawals in retirement. Depending on a client’s overall net worth and long-term goals, one or both of these strategies may be appropriate.
- Roth Conversions: When income is lower, it may be advantageous to convert pre-tax retirement assets into Roth accounts, paying tax now at a lower rate for future tax-free growth.
- Bracket Management: When recognizing taxable income in a given year, it is important to be mindful of various income-based thresholds such as marginal tax brackets, Medicare premium adjustment brackets, and phaseout limits for tax advantages like deductions and credits.
- Wealth Transfer Planning: For high-net-worth families, wealth transfer strategies can help manage potential future estate taxes.
What are some key tax planning focus areas for 2025?
With the passage of H.R.1, some of the uncertainty around tax and estate planning has settled. H.R.1 builds on the foundation laid by the 2017 Tax Cuts and Jobs Act (TCJA) as it extends many of the provisions from TCJA while introducing a series of new deductions, credits, and planning opportunities for affluent families and business owners.
Key takeaways affecting our clients:
- TCJA’s tax brackets and rates are now permanent, as is the elevated standard deduction.
- Seniors now get an additional Enhanced Senior Deduction. Seniors aged 65+ receive an additional $6,000 ($12,000 married) deduction in years 2025-2028. This deduction is phased out for seniors with an AGI that exceeds $75,000 (single) or $150,000 (married).
- The SALT deduction cap has been increased to $40,000, increasing by 1% annually, for years 2025-2028. The SALT cap will revert to $10,000 in 2029. Additionally, the increased deduction is reduced by 30% of modified AGI over $500,000 but cannot be reduced below $10,000.
- Changes to Charitable Deductions:
- H.R.1 enacts a new above-the-line deduction for individuals that do not itemize their deductions. This is limited to $1,000 for single filers and $2,000 for MFJ filers. This will be effective for 2026+.
- There will be a 0.5% floor on itemized charitable deductions starting in 2026. This means that charitable donations will only be deductible to the extent that they exceed 0.5% of the taxpayer’s AGI.
- H.R.1 also permanently increases the deductibility of cash contributions to public charities to 60% of AGI.
There are several other changes from H.R.1 worth noting. To learn more, read Understanding the “One Big Beautiful Bill Act”: What It Means for Affluent Families and Business Owners.
Key planning opportunities in 2025:
- Consider forwarding charitable donations into 2025 since the 0.5% charitable deduction floor will not take effect until 2026.
- Charitable clients over age 70½ should consider making a Qualified Charitable Distribution (QCD). A QCD is a cash donation from your IRA to a charity that will satisfy your Required Minimum Distribution, up to $108,000 in 2025, and will not be taxable income to you.
- Roth conversions are still powerful strategies for family wealth building, but we must be mindful of additional income phase-out ranges for the SALT deduction and the enhanced senior deduction.
- Many taxpayers no longer itemize their deductions due to the high standard deduction ($31,500 for joint filers and $15,750 for single filers). By bunching deductions into the current year, a taxpayer may be able to itemize their deductions and lower their overall tax liability. Charitable contributions and discretionary medical expenses are examples of deductions that may be easily bunched into a single tax year.
- With this year’s strong market performance, it may be a prudent time to donate appreciated securities. This strategy can be particularly advantageous for individuals with concentrated positions with large unrealized capital gains. Donating the securities directly to charity eliminates the capital gains tax you would have to pay as a result of selling the security.
- Tax-loss harvesting can help offset capital gains realized this year. Tax-loss harvesting is done by selling a security that has a fair market value below its cost basis in a taxable account. This generates a capital loss. Capital losses are first used to offset capital gains. If the total capital losses for the year exceed capital gains, investors can use up to $3,000 of capital losses to offset ordinary income when they file their tax return. Any unused capital loss is carried forward indefinitely and can be used in future tax years.
- Use the annual gift tax exclusion amount of $19,000. Unused annual gift tax exclusion amounts do not carry over into future years. Gifting up to the annual gift tax exclusion amount annually can be an effective way to transfer assets to other family members.
Tax planning can be complicated and there is no “one size fits all” model. At Schultz Financial Group, we consider your personal circumstances and financial goals in order to make appropriate recommendations. Contact us today so we can discuss your goals and how to help achieve them with year-end tax planning.
Editor’s Note: This article was originally published in November 2024 but has been expanded and updated to reflect key tax planning focus areas for 2025.