Tag Archives: Tax Planning

using tax laws to your advantage to meet your financial goals over time with sound strategies

Year-end tax planning 2025

Posted on by

This post is long and involves many issues, not all of which will apply to you, so use the headings to find the ones that fit your situation. 

Tax planning overview – know the changes and know how to respond

First, impact of the new tax law:  the One Big Beautiful Bill (“OBBB”) made many of the Tax Cut and Jobs Act (“TCJA”) changes permanent while ending energy credits, allowing for deduction of some tips and overtime, and adding new accounts.  See our post on the new law for more on the new law.  Along with the new law, the Administration is banning the Treasury from sending or receiving checks (see below).  If you have not set up an online account with the IRS, please consider doing so. 

Second, be practical:  start with reviewing what items you are able to change – for example, paying real estate taxes in one year may be better than another, but that is very hard to accomplish if you have an escrow with your mortgage payments.  On the other hand, you may be able to incur medical expenses all in one year, so you exceed the limit and are able to deduct a portion. 

You can also bunch some items from two or more years to be deducted all in one year, such as charitable donations.  If you don’t want the charity to have a large amount all at once, give to a donor-advised fund (“DAF”) for the deduction and then dole out from the DAF over time to the charity. 

Third – your two-year goal: the goal is to reduce the total tax for the two years combined.  For example, while many may want to delay income, some may benefit from increasing 2025 income.  One way to increase income that we have discussed before is a Roth conversion – see below.

Review the tax changes

Some changes require no planning or response from you:  OBBB locked in tax rates, increased the standard deduction and child credit, and allowed more for child care.

Others require planning:  The SALT limit went from $10,000 to $40,000.  Seniors get a $6,000 deduction to offset taxes on social security.  A deduction is allowed for tips and overtime for some workers.  Up to $10,000 of interest on new auto, SUV, truck and motorcycle loans can be deducted if you have US final assembly. 

Clean-energy credits for EVs have ended and will end for residences. 

High income itemizes have to address the stealth tax again – the deductions are limited to the 35% rate (rather than allow the full 37%).

Next year:  new for 2026, there is an above-the-line charitable deduction up to $1,000 per person.  However, itemizers can deduct only to the extent the donations exceed .5% of income.  And donations to qualifying scholarship organizations receive a tax credit up to $1,700. 

The employer provided account for dependent care increases from $5,000 to $7,500.

OBBB implementation – with IRS cutbacks and government shutdown, the full implementation of the changes for 2025 filing will delay forms and filing.  For example, providing for the tip and overtime deductions requires revamping form 1040 with new Schedule 1-A. 

Strategic considerations

SALT deductions:  The limit on state and local taxes, or SALT, has increased but so has the standard deduction, making planning for bunching deductions complicated when you review the SALT portion of your itemized deduction strategy.  Bunching real estate tax or estimated payments may help max your SALT deduction.  

Retirement plans:  The age for required minimum distributions (RMDs) is now 73, so taxpayers turning 73 in 2025 have until April 1, 2026 to take their first RMD, calculated on your December 31, 2024, balance.  Tax planning on this is crucial, as taking the RMD before 2026 may result in a lower total tax for 2025 and 2026 as you have the 2026 RMD due in 2026.  If you wait, you have two RMDs in 2026, which could push you into a higher tax bracket.  

Charities:  For charitable giving, see if you can donate appreciated assets directly and avoid the capital gains tax.  Also, if you are considering a qualified charitable distribution (QCD), up to $108,000 in 2025 and expected to be $115,000 in 2026 counts for your RMD (but not to a DAF).  Also, you can make a one-time contribution to $53,000 to a charitable remainder annuity trust, charitable remainder unitrust or a charitable gift annuity. 

Estates:  As noted in a prior post, the annual exclusion for gifting is now $19,000 and it will remain $19,000 next year.  If you have plans to transfer wealth, keep this in mind.  See more on estate planning below.  

Some ways to shift income:

  • Roth Conversion – One way to increase income now, avoiding future income, is to convert part of an IRA to a Roth IRA, converting from taxable to non-taxable distributions in the future.  Decide on the amount to convert by projecting the impact of the conversion on your marginal tax rate.  Converting to a Roth also saves you from required minimum distributions in future years (but non-spouse beneficiaries still face the 10-year clean-out we discussed before as part of the SECURE Act). 
  • Back-Door Roth – Along with converting, the “back-door Roth” is still available, so you can put more retirement funds aside with no tax on future distributions.  That is, for those who cannot contribute to a Roth due to income limits, they may be able to contribute to a non-deductible IRA and then convert that IRA to a Roth IRA. 
  • Move income and deductions – Other ways to shift income include billing more in 2025 or delaying to 2026 for your S Corp., LLC or partnership, exercising stock options, and selling ESPP shares.  Businesses can buy vehicles and other capital assets for bonus depreciation write-offs in 2025.
  • Capital gains – You probably do not want to accelerate capital gains, as they may be taxed lower rates in future years.  You can utilize tax-loss harvesting to shelter gains already realized for 2025 by identifying any losses and realizing them in 2025.  If you want to buy back these securities, watch out for the wash-sale rules.  And be sure not to use assets with a loss for charitable donations or buy new funds just before dividend distributions!

More considerations – check the details:

Declare Crypto – If you had any crypto currency transactions during the year, selling, buying or receiving, be sure to declare on your federal 1040 filing.

Unemployment tax – Remember, unemployment benefits are fully taxable, so be sure you withheld taxes or pay estimates. 

IT PIN – If you are concerned about identity theft, consider obtaining an IT PIN as discussed in our post on IRS scams.

  • Note: the reduction in funding for the IRS is predicted to result in delays in processing refunds and paper returns and is expected to encourage more fraud.   

No more payments or refunds by check – the IRS announced this:

Executive order prohibiting the U.S. Treasury Department (Treasury) from accepting paper checks as tax payments or issuing checks for tax refunds … The E.O. also requires that all payments to the federal government (e.g., taxes, fees, fines, and loan repayments) be processed electronically as soon as practicable.

Flex accounts – Check to see if you have any flex account balances that expire that can still be used.  And consider HSA contributions.

Qualified plans and IRAs – Make sure to max-out on your 401(k) and other plans and make an IRA contribution if you can. 

Before you finish, check withholdings and estimates paid – Especially if you increase income in 2025, review your total paid to the IRS and state via withholdings and estimates to be sure that you meet the safe harbor rules.  If not, you could owe interest for under-withholding.

And remember your estate plan

While you review your taxes, review your estate plan as well.  The federal gift and estate tax credit  rises to $15 million for 2026, and may go up further.  As noted above, the annual gift tax exclusion will remains at $19,000 next year. 

If you have excess wealth, you may want to gift while you can, especially if you want to use certain trusts, like a GRAT or QPRT.  However, if you are well below the credit level, you may want to focus on the step up in basis rather than estate tax avoidance.  See our post on using the step up in basis.  And for more on estate planning updates, see our estate planning checkup post. 

  • If you do review your estate plan documents, also review beneficiary designations and asset ownership to make sure everything is current and flows correctly to trusts, etc.  See our post on asset ownership for more.
  • Step up – for Massachusetts residents, the exemption is now $2 million (as of January 1, 2023).  This may affect your portability planning on income and estate taxes in an estate – see our post on using the step up in basis for planning ideas.
  • Disaster planning – with the impact of climate change, we are experiencing more disasters.  And with cutbacks to weather forecasting and FEMA, more of us may be affected.  We offer some ideas to make sure you are prepared. 
  • Beyond basic planning – a good estate plan goes beyond signed documents and provides the information for survivors so that they know your wishes, where to find everything and who you want to receive it.  Give them clear instructions; you don’t leave them with a mess!  Here is our guide to writing a memorandum that goes well beyond just signing documents; it covers the items your survivors will have to address. 

Summary

As you review your 2025-2026 tax planning, consider the impact of the tax changes, then follow through on the details.  Let us know if you have any questions. 

Good luck and best wishes for happy and healthy holidays!

Steven 

Impact of One Big Beautiful Bill

Posted on by

The One Big Beautiful Bill is now law

After considerable wrangling, Congress passed the One Big Beautiful Bill and President Trump signed it into law.  As we noted before, the new tax law meets President Trump’s campaign promise to make provisions of the 2017 Tax Cut and Jobs Act or “TCJA” permanent; it also adds some new provisions.  We updated our abbreviated summary of the new bill at the bottom of this post. 

What is the Impact of New Tax Law?

This example on how the new tax law did not result in simplification is worth repeating:

Assessing the impact and planning – The increase in the deduction allowed for state and local tax or “SALT” to $40,000 could reduce taxes for many, allowing them to include more state and local taxes when they itemize.  But, the impact is blunted because the standard deduction also increased (you take the larger of the two).  Then the benefit of itemized deductions is capped when you hit the 35% bracket (so there is no increased benefit for the 37% bracket).  The above-the-line charitable deduction also reduces the impact of itemizing.  And increasing the SALT deduction could mean you owe the Alternative Minimum Tax or “AMT.”  In other words, you have to run tax projections to determine the best action. 

Bunching – In previous posts, we have advised bunching of deductions into a single year so you can optimize itemizing.  That planning may be both more important and tougher to do as you now have to watch state and local taxes as well as charitable contributions.  

New or enhanced provisions – There are many new provisions that you need to review to see if they could affect you and determine if you qualify and need to act.  The new Trump account provides an alternative to 529 plans for young families saving for children.  And access to health savings accounts (HSAs) for seniors could provide a new resource for planning. 

Expiring credits – The expiration of electric vehicle credits and energy-efficient home credits means that you need to act this year if you were considering those purchases.  

Conclusion

You may see benefits from the final tax law, but extracting the full amount will require careful planning.  

In the meantime, please contact us if you have any questions and good luck!

Steven  

A Quick Summary:

The new law will keep the same tax rates and AMT exemption. 

It increases the state and local tax or SALT limit to $40,000, but then cuts it back for income over $500,000.  The cap will increase by 1% each year but revert to $10,000 in 2030. 

It extends the standard deduction from TCJA with a temporary increase to $32,000 for married filing joint taxpayers or “MFJ” for 2025 through 2028 and adds a $6,000 bonus standard deduction for taxpayers over 65, but this phases out for income of $150,000 to $250,000 for MFJ and also ends in 2028. 

There is now an above-the-line deduction for up to $25,000 of qualified tip income and $12,500 for qualified overtime, if your income is below the related caps. Note that the income is still subject to FICA and Medicare deductions.  

The new law restores the “above the line” deduction for up to $2,000 to a charity for married couples or $1,000 for all others beginning in 2026. 

The new and used electric vehicle or EV credits end September 30, 2025; the credits for energy efficient homes end December 31, 2025.  

The dependent care credit is increased to $7,500 in 2026.

It temporarily increases the child credit from $2,000 to $2,200 through 2028, adjusted for inflation and subject to the same phaseouts as the current law. 

You can deduct up to $10,000 of car loan interest for new cars with final assembly in the US, but with a phaseout for income over $200,000 for married filers and $100,000 for singles. 

You can contribute up to $5,000 per year into a new Trump account for a child until age 18 beginning in 2026.  The account can then be used for education, business or a new home.  Employers can contribute up to $2,500 which is excluded from the employee’s taxable income.  Qualified distributions are subject to capital gains tax while all other distributions are subject to ordinary rates plus 10%. 

Adoption credits are expanded as are contributions allowed to ABLE accounts.  Roll overs from tuition plans to ABLE accounts are allowed.  Qualifications for tax-free distributions from 529 plans are expanded.

Seniors receiving Medicare can contribute to health savings accounts or HSAs if they have a high-deductible health insurance plans.  This is a great way for tax sheltered growth to cover future bills.  The new law allows taxpayers and spouses to make catchup contributions. 

The bill adds 1% tax on remittances by non-US Citizens for transfers out of the USA.   

The rule for 1099-K reporting finally goes from $600 to $20,000 and 200 transactions while 1099NEC reporting goes from in excess of $600 to $2,000. 

A new credit up to $1,700 is allowed for qualifying contributions to 501(c)(3) organizations that grant scholarships.  

A new tiered structure was added for tax on qualified small business stock gains.

Losses on gambling are limited to 90% of winnings. 

The QBID stays at 20%.        

And estate planning:

The estate and gift tax credit rises to $15 million in 2026.  As we pointed out in a post a while back, fewer people will owe estate taxes so more may want to work on the income taxes due after their deaths, utilizing the step up in basis to shelter gains.

Will it be a Big Beautiful Tax Law?

Posted on by

The bill passed by the House is now before the Senate.  It meets President Trump’s campaign promise to make provisions of the 2017 Tax Cut and Jobs Act or “TCJA” permanent.  That law made substantial changes to tax rates, deductions and credits for individuals, corporations and other entities as well as including the qualified business income deduction or QBID.  We provide an abbreviated summary of the new bill at the bottom. 

However, the impact on the national debt from the reduced revenue due to the cuts has raised concerns with investors and led to downgrading the rating for Treasury bonds.  One estimate has a ten-year cost of $3 trillion, which could explain why the bill raises the debt ceiling by $4 trillion. 

Will this bill suffer the same fate as the Trump bill in 2017 to overturn the Affordable Care Act?  That bill had passed the House only to be thrashed to death in the Senate.  We will post updates when the Senate finishes with its version. 

What is the Impact of New Tax Law?

We have been reviewing the impact of the new law and this is not simplification! 

Here is one example: the increase in the deduction allowed for state and local tax or “SALT” to $40,000 could reduce taxes for many, if they can include more state and local taxes when they itemize.  But, the impact is blunted because the standard deduction also increased (you take the larger of the two).  Then the benefit of itemized deductions is reduced above a certain income level.  The above-the-line charitable deduction also reduces the impact of itemizing.   And increasing the SALT deduction could mean you owe the Alternative Minimum Tax or “AMT.”  In other words, you have to run tax projections to determine the best action. 

In previous posts, we have advised bunching of deductions into a single year so you can optimize itemizing.  That planning may be both more important and tougher to do.

Many new provisions that initially sound good involve complex qualifications that could mean few taxpayers use them.  For example, there are so many savings accounts to which this bill adds the Trump account and expands other provisions.  On the other hand, access to health savings accounts or HSAs for seniors could provide a new resource for planning. 

The expiration of electric vehicle credits and energy-efficient home credits may mean acting sooner on some purchases.  

Conclusion

We have to see what the final law looks like to know how best to respond. If you want us to review the impact on your taxes, please let me know.

In the meantime, please contact us if you have any questions and good luck!

Steven  

A Quick Summary:

The new law will keep tax rates and the AMT exemption the same. 

It increases the state and local tax or SALT limit to $40,000, but then cuts it back for income over $500,000. 

It extends the standard deduction from TCJA with a temporary increase to $32,000 for married filing joint taxpayers or “MFJ” for 2025-2028 and adds a $4,000 bonus standard deduction for taxpayers over 65, but this phases out over $150,000 for MFJ. 

There is no tax on qualified tip income or overtime if your income is below the cap. 

The electric vehicle or EV credit ends for some in 2025 and all the rest at the end of 2026 as does the credits for energy efficient homes by 12-31-2025.

The estate and gift tax credit rises to $15 million in 2026. 

You can deduct up to $10,000 of car loan interest, but with a phaseout for income over $200,000. 

You can contribute up to $5,000 per year into a new Trump account for a child until through age 18 which can then be used for education, business or a new home.  Qualified distributions are subject to capital gains tax while all others pay ordinary rates plus 10%. 

The new law restores the “above the line” deduction for up to $300 to a charity for married couples or $150 for all others. 

It temporarily increases the child credit from $2,000 to $2,500 through 2028, subject to the same phaseouts as the current law. 

There is a new credit not to exceed 10% of gross or $5,000 for contribution to scholarship granting institutions.

Adoption credits are expanded as are ABLE accounts.  Roll overs from tuition plans to ABLE accounts are allowed. 

Qualifications for tax-free distributions from 529 plans are expanded.

The QBID goes from 20 to 23%.      

Seniors receiving Medicare can contribute to health savings accounts or HSAs if they have a high-deductible health insurance plans.  This is a great way for tax sheltered growth to cover future bills.  The new law allows taxpayers and spouses to make catch-up contributions. 

Pass through entity tax deductions or “PTET” are only allowed for entities that are qualified businesses under Section 199A – the QBID provision.

There is an increase on tax on private foundations and college endowments.

Emergency planning – key documents, disaster relief and document recovery

Posted on by

If you have not experienced a disaster, you probably know someone who has.  We have seen numerous posts that suggest steps to take to protect important information as well as ways to rescue or restore information.  The key is planning ahead so you are prepared.   

Therefore, I urge you to review your situation and consider whether you are prepared or need to do more.

You can start by identifying possible hazards and your vulnerability.  If you determine that you are at risk in any way, plan how to respond and recover.  Know your emergency communication options and consider training drills for your family.  The Red Cross has a site with steps for an emergency plan for you and your family.  And there are detailed plans listed by FEMA under planning guides which include risk management.  FEMA even has a preparedness app! 

If you are hit, you may be entitled to disaster relief – check the IRS Disaster Relief page..  The IRS also offers disaster loss workbooks in Publication 584, Casualty, Disaster and Theft Loss Workbook (Personal-Use Property), and Publication 584-B, Business Casualty, Disaster and Theft Loss Workbook. 

Amy Poulton suggests the five key documents to have readily available.  Here is a summary of her post:

1.  Identification Documents – keep these documents in a fireproof, waterproof container (that is her link to Amazon for ideas) or digital copies in a secure cloud storage to ensure they’re safe and easy to access during an emergency. 

2.  Insurance Policies and Emergency Contacts – have access to insurance cards and policies for home, car, health, and life insurance along with emergency contacts.

3.  Medical and Health Information – have current prescriptions, medical history, immunization records and medical directives and powers of attorney. 

4.  Financial Documents – have on hand your bank and credit cards, with access to your tax returns and retirement accounts.  You will also want a current list of key websites with log-in IDs and passwords – you may want to store this “in the cloud.”  

5.  Legal Documents – have copies of  your wills and trusts, deeds and rental agreements, marriage certificates and powers of attorney.  

Organizing and Storing Documents – create a digital folder, back up your documents and share with trusted people.  You can also place digital items on a flash drive to share. 

What if you are hit before preserving your records?  The IRS has a site to visit: Reconstructing Records. 

If you want to make sure you have food and water for a physical disaster, here is one guide to check out to build a kit.  The list includes emergency supplies. 

We all hope to be spared, but it is wise to organize your documents and have a plan in place in case you are not!

Let me know if you have more ideas and good luck!

Steven

Roths and Market Volatility – a chance to convert on dips

Posted on by

We have written before on the advantages of a Roth IRA over the standard IRA and discussed strategies for converting IRAs to Roth IRAs.

One possible good side to market volatility is that with the swings in the value of stocks and mutual funds, you can try to convert an IRA to a Roth IRA at a low point, with the cash invested in a similar way so when the market returns, your portfolio swings back up while the taxable income at the time of conversion is lower. 

If it works, the tax cost of converting will be less. 

When reinvesting, you need to be aware of the wash sale rule, which is designed to prevent creating artificial losses for tax purposes without actually changing your investment position.  That is, it prevents realizing losses if you buy back the same or similar securities within 30 days. 

Why would that apply to IRAs?  If you only sell inside the IRA, it doesn’t. 

However, if you sell in a taxable account, and then buy the same or similar securities within 30 days inside an IRA, the IRS disallows the loss permanently (if it were in a taxable account, the loss would just be delayed). 

Let me know if you have any success with Roth conversions!

Steven