With only days remaining in 2025, there’s still time to take steps that can significantly improve your tax return when you file in early 2026. While it’s natural to enjoy the holiday season, a little financial planning now can translate into more money back from the IRS later.
The IRS begins accepting tax returns in late January, but proactive tax strategies now can lower your tax liability and boost your refund. These moves range from maximizing retirement contributions to strategically timing charitable donations.
Maximize Retirement Savings
One of the most effective ways to reduce your tax bill is by increasing contributions to tax-advantaged retirement accounts like 401(k)s and IRAs. For 2025 taxes, the 401(k) contribution limit is $23,500 (plus employer matching), while IRA contributions can reach $7,000 (or $8,000 if you’re over 50).
Why this matters: Reducing your taxable income through retirement savings isn’t just a tax benefit; it’s also building financial security for the future. For someone in the 24% tax bracket, maxing out a 401(k) can reduce their tax bill by nearly $5,000.
The SECURE 2.0 Act further expands options, allowing those aged 60–63 to contribute up to $11,500 in catch-up contributions.
Harvest Tax Losses from Investments
If you’ve had investment losses this year, now is the time to realize those losses through selling underperforming stocks. This is called “tax loss harvesting,” and it allows you to offset capital gains from profitable sales.
How it works: If you made $50,000 from selling real estate but lost $50,000 on a stock, you can sell the stock to eliminate your capital gains tax burden. This strategy only works if you actually sell assets before the year ends.
Boost Home Energy Efficiency
While some incentives from the Inflation Reduction Act have been scaled back, tax credits for energy-efficient home improvements still exist. Installing solar panels, heat pumps, or geothermal systems can yield a 30% tax credit on the cost.
The impact: A $11,970 solar installation in California could reduce your taxes by $3,591. Remember, tax credits directly reduce the amount you owe, unlike deductions that lower taxable income.
Defer Income to Next Year
If possible, ask your employer to delay bonus payments until January, or postpone invoicing as a freelancer. This shifts income into the next tax year, potentially lowering your 2025 tax liability. This strategy works best if you anticipate being in a lower tax bracket next year.
Maximize Charitable Donations
If you itemize deductions, donate to qualified charities before the end of the year. The IRS allows donations up to 50% of your adjusted gross income (AGI).
Important note: Verify that the organization is tax-exempt by checking the IRS database to ensure your donation is deductible.
Don’t Miss Required Minimum Distributions (RMDs)
If you’re 73 or older, ensure you take your required minimum distributions (RMDs) from retirement accounts. Failure to do so can result in steep penalties. The SECURE 2.0 Act reduced penalties to 25% (or 10% if corrected within two years), but it’s still a costly mistake.
Bundle Medical Expenses
Medical expenses are deductible only if they exceed 7.5% of your AGI. If you’re close to that threshold, schedule any elective procedures or purchases (glasses, dental work) before year-end to maximize deductions. Conversely, if you’re far from the threshold, postpone non-urgent expenses to next year.
Strategically Time Business Expenses
For self-employed individuals, prepaying for next year’s business expenses in December can lower your current tax burden. Ordering supplies or equipment now can reduce your taxable income for 2025.
Final Thought: Everyone’s tax situation is unique. These tips can be effective, but it’s essential to consult a tax professional for personalized advice. Taking action now can result in a larger refund when you file in early 2026, but proper planning is key.
