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Year-End Tax and Financial Planning Tips from CPAs

As we approach the end of 2025, it’s time for taxpayers to take proactive steps regarding their tax and financial planning. The American Institute of CPAs (AICPA) emphasizes the importance of making informed decisions that can significantly boost financial health in 2026. With critical changes to tax laws on the horizon, ensuring you are prepared for the upcoming year is essential.

Important Tax Strategies

1. Utilize Higher Standard Deduction

For 2026, the standard deduction has been permanently raised and adjusted for inflation. Taxpayers are encouraged to consider grouping their itemized deductions to optimize their tax situation.

2. Plan Charitable Contributions Wisely

Charitable giving is set to be affected by new tax law changes in 2026. Taxpayers should think about timing their donations and keep meticulous records of all contributions, including receipts and bank statements, to ensure they capture available tax benefits.

3. Review Your W-4 Withholdings

Maintaining accurate withholding is crucial. It helps you ensure you’re paying enough tax through payroll, reducing the likelihood of facing a hefty amount owed at tax filing time.

4. Benefit from Senior Bonus Deductions

Taxpayers aged 65 and older with adjusted gross income (AGI) under specified limits can claim a $6,000 deduction from 2025 to 2028, offering a chance to lower taxable income this year.

5. Understand New Deductions for Overtime and Tips

Available for the tax year 2025, a new federal deduction allows taxpayers to deduct qualifying overtime and tips, with specific income phaseouts and reporting requirements.

6. Deduction for American Cars

For those who purchase American-made vehicles in 2025, a new deduction allows taxpayers to write off interest paid on auto loans for these vehicles—up to $10,000, subject to income phaseouts.

Personal Financial Planning Tips

1. Update Beneficiaries

Review and update beneficiary designations for life insurance and retirement plans to prevent costly mistakes. Remember that beneficiary forms take precedence over wills and trust directives in estate settlements.

2. Consider Roth IRA Conversions

Given expectations for higher tax rates in the future, converting traditional IRAs to Roth IRAs may be beneficial. Doing so allows tax-free distributions later and enables tax-free inheritance to heirs.

3. Plan Education Contributions

Recent legislative changes to 529 plans could provide benefits for state tax deductions if contributions are made by year's end. Take action now to maximize these opportunities.

4. Harvest Investment Losses and Gains

Match your investment harvesting strategy with current and projected income to capitalize on tax thresholds. Selling underperforming investments can offset capital gains, while those in lower tax brackets might benefit from securing profits on appreciated assets.

5. Use Flexible Savings Accounts (FSAs)

End-of-year deadlines loom for Flexible Savings Accounts. Assess your remaining balance, and utilize it to ensure you don’t lose funds. Some FSAs may allow a carryover, so check the specifics of your plan.

6. Fulfill Required Minimum Distributions (RMDs)

It's crucial to take all required minimum distributions to avoid significant penalties—up to 25% can apply to any missed RMD obligations.

7. Maximize 401(k) Contributions

For individuals over 50, the contribution limit to your 401(k) increases to $31,000 in 2025, with additional provisions for those aged 60 to 63, allowing for a total contribution of $34,750. Make sure you’re on track to optimize contributions for the upcoming year.

8. Leverage Medicare Open Enrollment

The Medicare Open Enrollment period finishes on December 7, 2025. Assess your current plan and make necessary adjustments based on your health needs and prescription drug lists. New regulations set a $2,100 out-of-pocket maximum for Part D prescription drugs, making it essential to take full advantage of this limit.

In summary, taxpayers are encouraged to consult with their CPAs or CPA Personal Financial Specialists (CPA/PFS) promptly. These professionals possess invaluable insights into tax and financial planning that can lay the groundwork for a prosperous financial future. By actively communicating your needs and circumstances, you can position yourself for success as we transition into 2026.

About AICPA

The American Institute of CPAs (AICPA) is the leading member association for CPAs in the world, with a rich history and a commitment to serving the public since 1887. With 397,000 members, AICPA plays a crucial role in defining ethical standards, auditing practices, and offering continued education in the accounting profession.