Year End Tax Tips - Moves to Consider Before the End of the Year
With the end of the year fast approaching, it is time to review your year-end items and take advantage of any tax savings that may be available to you.
· IRA Distributions and Roth Conversions
Any distributions from an IRA, or conversions from Traditional to Roth IRAs, must be completed by the end of the year to be claimed in tax year 2025. If you are wanting to fill a lower tax bracket by making these moves, now is the time to be crunching the numbers. These items do increase your income, so they can have unforeseen impacts on the taxable amount of your social security benefits as well as qualification for various tax credits. Also note that the temporary senior deduction for tax years 2025-2028 could create more room to take IRA distributions in a lower tax bracket than what was previously available. We offer tax planning services to help you optimize your distributions while steering clear of these pitfalls.
· Charitable Contributions
You must make any charitable contributions no later than December 31 to claim them in the 2025 tax year. If you are taking IRA distributions and are over age 70 1/2, you can work with your financial advisor to make QCDs directly from your IRA to the charity of your choice. QCDs are excluded from income (up to certain limits), so you can take advantage of this exclusion even if you claim the standard deduction. If you are required to take RMDs, QCDs do qualify as your RMD. Minnesota offers a partial deduction on charitable contributions over $500 (aggregate for the year) for taxpayers who claim the standard deduction. Keep in mind that political contributions, personal memorials, and personal donations (such as Go Fund Me campaigns) are not deductible.
· Estimated Tax Payments
Estimated payments for the 4th quarter are due by January 15, 2025. If you are late with the payments, make sure to pay them as soon as possible to keep any penalties to a minimum. The later the payment, the larger the penalty and interest.
· Residential Energy Credits
All residential energy credits will be phased out after December 31, 2025. In order to take advantage of these credits, the qualifying property must be placed in service by December 31, 2025. All eligible property placed in service in tax year 2025 will have an IRS PIN attached to it, which will be required when filing your 2025 return. This PIN serves as the manufacturer’s certification that the property meets the energy efficient standards required to claim the credits.
The following plan contributions can be made up to the filing deadline of April 15, 2026 and be claimed on your 2025 return. This allows you to start your return and get the preliminary results before making a final decision on any contributions.
· HSA Contributions
If you are enrolled in a qualifying High Deductible Health Plan (HDHP), your contribution limits for 2025 (combined employer + employee contributions) are $4,300 for self-only coverage, and $8,850 for family coverage. Taxpayers aged 55 and older can add a catch-up contribution of $1,000 to their limit. HSAs are one of the most tax-advantaged accounts available. Contributions are deductible, and distributions are tax-free as long as they are used for qualified medical expenses. Money held in HSAs can be invested and will also grow tax-free, making HSAs a powerful tool for retirement planning.
· IRA Contributions
The contribution limits for IRAs (traditional and Roth combined) for 2025 are the lesser of $7,000 ($8,000 for taxpayers aged 50 and over) or your taxable compensation for 2025. Income limitations apply to your ability to make tax-deferred traditional IRA contributions, as well as Roth IRA contributions.
This content is informational only and does not constitute tax, legal or professional advice. While best efforts are made to ensure all information is accurate at the time of posting, tax laws and guidance from regulatory agencies are subject to change. For personal tax advice, please contact our office to schedule a tax planning appointment.
