Retirement Download
Strategies for a successful retirement
As year-end approaches, taxpayers are rushing to optimize their 2025 returns amid changes from President Trump's megabill enacted in July.
While many prioritize state and local tax (SALT) deductions and charitable giving, several lesser-known opportunities can further reduce what you owe on April 15.
This guide explores key strategies beyond the basics, drawing from the megabill's expansions and recurring annual provisions.
Post-Year-End Contribution Opportunities
Most 2025 tax-planning moves must wrap up by December 31, but exceptions offer flexibility into 2026. Savers can contribute to traditional and Roth IRAs or health savings accounts (HSAs) until April 15, 2026—no extensions apply beyond that, even for October filers.
For Solo 401(k)s and SEP IRAs, contributions often extend past the April deadline if you file an extension. Special rules may apply for federally declared disaster victims, providing extra time in affected areas.
These options allow using 2026 insights—like unexpected bonuses—to fine-tune 2025 deductions without rushing decisions now.
Expiring Clean-Energy Tax Credits
The megabill accelerates the phaseout of energy-efficient home improvement credits, offering dollar-for-dollar reductions up to $3,200 per filer. These expire at the end of 2025, requiring full installation and functionality by December 31.
Qualifying upgrades include energy-efficient doors, windows, water heaters, and similar items. Homeowners planning renovations should prioritize completion this year to claim the full benefit before it vanishes.
Expanded Withdrawals from 529 Education Plans
The megabill broadens tax-free 529 plan distributions for K-12 expenses incurred after July 4, 2025. Beyond prior limits, funds now cover books, standardized testing fees (like SAT/ACT), test prep tutoring, therapies for disabled students, and dual-enrollment college courses for high schoolers.
For 2025, tax-free withdrawals cap at $10,000 (rising to $20,000 in 2026), per expert Mark Kantrowitz. Verify your state's plan aligns with federal rules, as some lag. This expansion aids families with private or specialized schooling needs.
Expanded Qualified Business Income (199A) Deduction
The popular 199A deduction—allowing pass-through business owners (e.g., partnerships, sole proprietorships) up to 20% off qualified income—gains permanence via the megabill, with key phaseout expansions starting in 2026.
Single filers see the full deduction up to $276,750 in taxable income (from $247,300 in 2025); joint filers reach $553,500 (from $494,600). Advisors like Tim Steffen at Baird recommend shifting income: defer 2025 earnings to 2026 or accelerate expenses now to maximize benefits across years.
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Required Minimum Distributions for Inherited IRAs
Nonspouse heirs of traditional or Roth IRAs must generally empty accounts within 10 years of the owner's death. If the original owner was taking RMDs, heirs must continue annually.
The IRS waived penalties for missed 2021–2024 distributions due to confusion, but that relief ends. Affected heirs must take 2025 RMDs by year-end to avoid penalties.
Caution on Roth Conversions and New Deductions
The megabill boosts the standard deduction, expands SALT (with phaseouts), and introduces targeted breaks for seniors, overtime, tips, and car-loan interest—claimable even without itemizing.
These enhancements tempt Roth IRA conversions, as added deductions offset conversion income. However, pitfalls loom: new breaks and SALT expansions reduce taxable income but not adjusted gross income (AGI).
AGI drives thresholds for the 3.8% net investment income surtax, Social Security benefit taxation, and Medicare premiums (IRMAA). A conversion could trigger higher future costs.
Example: Married retirees gaining $30,000 in extra SALT deductions might offset a matching Roth conversion on taxable income—but AGI rises $30,000, potentially elevating IRMAA brackets or surtaxes. Proceed informed, weighing long-term Roth benefits against immediate AGI impacts.
These strategies highlight the megabill's nuances. Consult a tax professional for personalized advice, as individual circumstances vary. Smart planning now can yield significant 2025 savings.
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