As the year draws to a close, many taxpayers look for ways to reduce their tax liabilities and maximize savings before the year ends. End-of-year tax planning is an essential practice for individuals and businesses to ensure they take full advantage of available deductions, credits, and tax strategies. Proactively planning your taxes can help you minimize your tax bill and avoid surprises when you file your return in the next year.
This blog outlines several end-of-year tax planning tips that can help lower your tax bill, optimize your financial situation, and set you up for success in the upcoming year. Additionally, we’ll discuss how partnering with a tax consulting firm like PEAK Business Consultancy Services (PEAK BCS) can help you make the most of these strategies and ensure your tax filing is accurate and efficient. Learn more about our services here.
1. Review and Maximize Retirement Contributions
One of the most effective ways to reduce your taxable income is by contributing to retirement accounts. Contributing to tax-deferred retirement accounts like a 401(k), traditional IRA, or SEP IRA can lower your current year’s taxable income and provide long-term financial benefits. These contributions are deducted from your taxable income, reducing your overall tax bill.
Types of Retirement Accounts and Contribution Limits
- 401(k): For 2025, you can contribute up to $20,500 to your 401(k), with an additional $6,500 catch-up contribution if you’re 50 or older.
- Traditional IRA: The contribution limit for a traditional IRA is $6,000, with a $1,000 catch-up contribution for those 50 or older.
- SEP IRA: If you are self-employed or a small business owner, you can contribute up to 25% of your net earnings, with a maximum limit of $61,000 for 2025.
How PEAK BCS Can Help: Our team at PEAK BCS can guide you through retirement contribution strategies to ensure you’re maximizing your allowable deductions. Whether you’re an individual taxpayer or a business owner, we provide tailored advice to help you reduce your tax liability by contributing to retirement accounts before the year-end.
2. Harvest Tax Losses in Your Investment Portfolio
If you have investments in taxable accounts, you may be able to reduce your tax liability through tax-loss harvesting. This strategy involves selling investments that have declined in value to offset capital gains on other investments. By strategically selling underperforming assets, you can offset the taxes you owe on gains, thus reducing your overall taxable income.
How Tax-Loss Harvesting Works: Capital losses can be used to offset capital gains. If your losses exceed your gains, you can use up to $3,000 of the excess loss to offset ordinary income. Any remaining losses can be carried forward to future years.
How PEAK BCS Can Help: PEAK BCS offers guidance on effective tax-loss harvesting strategies for your investment portfolio. Our experts can help you identify the right assets to sell and ensure that you’re complying with IRS regulations while maximizing your savings.
3. Consider Deferring Income to the Next Year
If you’re expecting a higher tax bracket in the coming year, deferring some of your income to the following year can help reduce your current tax liability. For example, if you’re a business owner or freelancer, you may be able to delay sending invoices or receive compensation in the new year to reduce taxable income in the current year.
How Deferring Income Works: By postponing income until the next year, you can delay the taxes owed on that income, potentially lowering your tax bill for the current year. This strategy works best if you anticipate that your income will be significantly higher next year, placing you in a higher tax bracket.
How PEAK BCS Can Help: Our tax experts can help you analyze your current financial situation and determine whether deferring income is a suitable strategy for you. We can also guide you through tax planning for the upcoming year, ensuring that your overall tax burden is minimized.
4. Bunch Deductions for Maximum Benefit
If you itemize deductions on your tax return, consider “bunching” deductions in a single year to exceed the standard deduction and reduce your taxable income. This strategy involves grouping multiple years’ worth of deductible expenses into one year, such as charitable donations, medical expenses, and property taxes. By doing this, you can maximize your deductions and receive a larger tax benefit in that year.
Examples of Deductions You Can Bunch:
- Charitable Contributions: Donating to charity can be a powerful way to reduce your taxable income. By contributing to a donor-advised fund or making large donations in one year, you can maximize the tax benefit.
- Medical Expenses: If your medical expenses exceed 7.5% of your adjusted gross income (AGI), you may be able to itemize these costs and reduce your taxable income.
- Property Taxes: Prepaying property taxes or state income taxes can increase your deductions in a given year.
How PEAK BCS Can Help: Our team at PEAK BCS helps you identify opportunities for bunching deductions, ensuring that your itemized deductions exceed the standard deduction and maximize your tax savings. We can help with planning charitable contributions, medical expenses, and other deductible expenses to help reduce your tax liability.
5. Take Advantage of Tax Credits
Tax credits directly reduce your tax liability, and there are several credits available that could help you lower your tax bill. Common credits that businesses and individuals should consider include:
Common Tax Credits to Consider
- Child Tax Credit (CTC): If you have qualifying children, you may be eligible for a credit of up to $2,000 per child. This credit is partially refundable, meaning you can receive a refund even if you don’t owe any tax.
- Earned Income Tax Credit (EITC): Designed for low-to-moderate-income earners, the EITC can provide substantial savings depending on your income, family size, and filing status.
- American Opportunity Tax Credit (AOTC): This credit can be worth up to $2,500 for each eligible student, helping offset the cost of tuition and related educational expenses.
- Energy-Efficient Home Improvement Credit: Taxpayers who make energy-efficient upgrades to their homes, such as installing solar panels or energy-efficient windows, may be eligible for this credit.
How PEAK BCS Can Help: At PEAK BCS, we specialize in identifying eligible tax credits for our clients, ensuring that you maximize your credits and lower your tax bill. Our team can assist with all aspects of tax planning, from claiming the Child Tax Credit to advising on energy-efficient home improvements.
6. Review Your Filing Status
Choosing the correct filing status is an important factor in determining your tax liability. Depending on your situation, filing as “married filing jointly” versus “married filing separately,” or “head of household” can significantly impact your tax rate and eligibility for various credits. Before year-end, review your filing status to ensure you’re maximizing your potential tax savings.
How PEAK BCS Can Help: Our team at PEAK BCS can help you review your filing status options to ensure you’re taking advantage of the best tax benefits for your situation. We offer expert advice on tax strategies and filing status decisions, including whether it’s beneficial to file jointly or separately as a married couple.
7. Accelerate Business Expenses (For Business Owners)
Business owners have additional opportunities to reduce taxable income by accelerating business expenses into the current year. This includes prepaying expenses such as rent, utilities, and employee bonuses or making capital expenditures that qualify for deductions, such as purchasing equipment or machinery. By doing so, you can reduce your taxable income for the year and lower your overall tax bill.
How PEAK BCS Can Help: PEAK BCS helps business owners identify opportunities for accelerating expenses, ensuring that you maximize your deductions before year-end. Our team works closely with businesses to create tax-efficient strategies, including deferring income and accelerating expenses.
How PEAK Business Consultancy Services Can Assist You
PEAK Business Consultancy Services provides expert tax planning and preparation services to help individuals and businesses lower their tax bills. Our team of tax professionals is experienced in identifying opportunities to reduce your tax liabilities, from maximizing credits and deductions to managing retirement contributions and deferring income.
By working with PEAK BCS, you gain access to customized tax strategies that align with your financial goals, ensuring compliance with IRS regulations and maximizing your tax savings. Whether you’re looking to optimize personal or business taxes, our team is here to help.
Conclusion
End-of-year tax planning is an essential step in managing your tax liability. By implementing strategies like maximizing retirement contributions, deferring income, and taking advantage of available tax credits, you can significantly reduce your tax burden. However, navigating these strategies requires careful planning and attention to detail.
PEAK Business Consultancy Services offers comprehensive tax planning services that help individuals and businesses minimize their tax liabilities and optimize their financial situation. Our experienced team can guide you through the complexities of end-of-year tax planning and ensure that you’re taking full advantage of all available tax-saving opportunities.
To schedule a consultation or learn more about how we can help you, visit www.peakbcs.com.
