Overview
Tax planning doesn’t happen in a vacuum. The choices you make throughout the year, such as how you save, invest, give, and earn, shape what your tax return looks like long before you sit down to file it.
As you start gathering W-2s, 1099s, receipts, and other documents, step back to consider whether you can still take advantage of any tax-saving strategies before filing your return. While some opportunities have already passed for 2025, you may be able to use them this year to reduce your tax burden next filing season.
The key is to be aware of these tax planning strategies, understand how they work, and determine whether they fit your situation.
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7 Tax Planning Strategies to Review Now
The strategies below focus on some common ways individuals and families can manage taxable income, deductions, and credits. Some may help you reduce your 2025 tax bill, while others may help you make tax-smart decisions going forward.
1. Maximize workplace retirement and IRA contributions
Contributing to retirement accounts like a 401(k), 403(b), or traditional IRA reduces your taxable income now while helping you save for the future.
Money you contribute to tax-deferred accounts doesn’t count as taxable income.
Contribution limits:
Account type | 2025 Limit | 2026 Limit |
401(k) or 403(b) | $23,500 | $24,500 |
Catch-up Contributions (Age 50 and older) | $7,500 | $8,000 |
Supersized Catch-up (Ages 60-63) | $11,250 | $11,250 |
Traditional IRA | $7,000 | $7,500 |
Catch-up Contributions (Age 50 and older) | $1,000 | $1,100 |
The deadline to contribute to a workplace retirement account is December 31st, so it’s too late to change your contributions for 2025. However, the deadline to make contributions to an IRA is your tax return filing deadline (not including extensions). So you can make a 2025 IRA contribution until April 15, 2026.
2. Front-load charitable giving through bunching
Nearly 90 percent of taxpayers claim the standard deduction rather than itemizing, meaning they don’t get to write off charitable donations. But you can give more to the causes you care about and potentially save more on your taxes by bunching multiple years’ worth of donations into one.
For example, say you normally donate $1,000 per year to your favorite charities, claim $12,000 in mortgage interest, and $5,000 in state and local taxes. On their own, your itemized deductions total $18,000. That’s just $1,900 above the standard deduction of $16,100 for single filers in 2026, so itemizing yields a modest savings of about $418, assuming you’re in the 22 percent tax bracket.
But if you bunch three years of charitable deductions into a single year by making a gift of $3,000, your total itemized deductions are $20,000. The potential tax savings are around $858, instead of $418. In the next two years, you don’t make any charitable donations and claim the standard deduction instead.
The last date to make charitable contributions for the tax year is December 31st. If you didn’t bunch contributions in 2025, you can’t retroactively fix that. But understanding the rule helps you plan your 2026 giving more strategically.
3. Optimize Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)
HSAs and FSAs let you pay certain medical and care expenses with pre-tax dollars.
To contribute to an HSA, you must have an eligible high-deductible health plan (HDHP). To find out if your plan is eligible, check your plan documents for the “HSA eligible” labor or confirm with your benefits department.
HSAs offer a triple tax benefit:
Contributions are tax-deductible
Growth in the account is tax-deferred
Withdrawals for qualified medical expenses are tax-free
For 2025, you can contribute up to $4,300 if you are covered by a high-deductible health plan just for yourself, or $8,550 if you have coverage for your family. In 2026, those limits increase to $4,400 for self-only coverage and $8,750 for families. Plus, you can contribute an extra $1,000 if you’re age 55 or older.
You have until the federal income tax filing deadline to contribute to an HSA, so you have until April 15, 2026, to make contributions for 2025.
FSAs work differently. Healthcare FSAs are employer-sponsored benefits. If your employer offers one, you can contribute up to $3,300 per year. In 2026, this limit rises to $3,400. These are pre-tax contributions, meaning your employer takes the money from your paycheck before calculating income and payroll taxes, and you take home more money.
A Dependent Care FSA lets you set aside pre-tax money from your paycheck to cover eligible care for a qualifying child or dependent adult, so you (and your spouse, if married) can work, look for work, or go to school. It covers costs like daycare, preschool, summer day camp, and eldercare.
For 2025, you can contribute up to $5,000 per year to a Dependent Care FSA. This limit increases to $7,000 for 2026.
Unlike HSAs, FSAs have a “use it or lose it” rule, meaning you forfeit any leftover funds in the account at the end of the year unless your employer offers an exception. They may give you a grace period of up to 2.5 months or let you carry over a limited amount into the following year’s allocation.
4. Shift toward tax-efficient investments
You may earn income from a variety of sources, including interest from savings accounts and CDs, wages from a job, and dividends and capital gains from investments. Not all income is taxed the same way, and recognizing this allows you to position your investments to keep more of what you earn after taxes.
For example, interest from savings accounts, CDs, and most bonds is generally taxed as ordinary income, meaning it’s taxed at your regular income tax rate, ranging from 10 percent to 37 percent. That can be significantly higher than the rate that applies to other types of income.
Interest earned on municipal bonds is generally exempt from federal income tax and, if you buy bonds issued in your home state, may also be exempt from state and local taxes.
Long-term capital gains, which are profits from selling investments you’ve held for more than one year, are taxed at preferential rates ranging from zero percent to 20 percent. To count as a qualified dividend, you must receive the payout from a domestic US or qualified foreign corporation and meet certain holding requirements. The IRS taxes qualified dividends at the same tax rate as long-term capital gains.
The structure of your investments also matters. Actively managed mutual funds often buy and sell holdings throughout the year. Gains generated inside the fund are passed on to you as taxable distributions, even though you didn’t sell any shares yourself. Index funds and exchange-traded funds (ETFs) tend to be more tax-efficient because they trade less frequently and generate fewer taxable distributions.
Where you hold your investments can be just as important as what you own. Holding tax-inefficient assets, such as taxable bonds and high-turnover mutual funds in tax-advantaged accounts like IRAs or 401(k)s, lets you defer paying taxes on those gains until retirement. More tax-efficient investments, like index funds and municipal bonds, are usually a better fit for taxable brokerage accounts.
These decisions affect your taxes and your long-term investment performance, so it’s a good idea to discuss your options with a financial advisor who can help align your investment strategy with your tax planning goals.
5. Harvest investment losses
Tax-loss harvesting allows you to sell investments that are down in value to offset capital gains from investments that went up.
For example, say you sold stock in Company A for a $10,000 gain. Later in the year, you sell stock in Company B for a $4,000 loss. The loss offsets part of the gain, so you only pay taxes on $6,000 of net capital gains.
If your losses exceed your gains, you can use up to $3,000 of the excess loss to reduce your ordinary income, which includes things like wages from a job or self-employment income. You can carry forward any remaining loss beyond the $3,000 forward and use it to offset capital gains in future years.
You do need to watch out for the wash sale rule, which disallows the loss if you buy a “substantially identical” investment within 30 days before or after the sale.
6. Take advantage of new deductions under the One Big Beautiful Bill Act
The One Big Beautiful Bill Act introduced several new deductions that apply beginning with 2025 tax returns.
Those new deductions include:
Senior deduction: If you’re age 65 or older, you can take an additional $6,000 deduction ($12,000 for married couples who both meet the age requirements), whether you itemize or claim the standard deduction. This deduction phases out if your modified adjusted gross income (MAGI) is over $75,000 ($150,000 for joint filers).
Qualified tips deduction: If you earn money from tips, you can exclude up to $25,000 of qualifying tips from your taxable income. This deduction phases out if your MAGI is over $150,000 ($300,000 for joint filers).
Qualified overtime deduction: This deduction allows you to deduct up to $12,500 of the overtime premium portion of your pay, or $25,000 for joint filers who both receive overtime pay. For example, if you normally make $20 per hour and earn $30 per hour for overtime, you can write off the extra $10 per hour, subject to the annual cap. This deduction also phases out if your MAGI is over $150,000 ($300,000 for joint filers).
Car loan interest deduction: If you purchased a car in 2025 (or plan to in 2026, 2027, or 2028), you can write off up to $10,000 of interest on qualifying vehicles. The deduction phases out if your MAGI is over $100,000 ($200,000 for joint filers). To qualify, the vehicle must be a car, minivan, van, SUV, pickup truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds that underwent final assembly in the US. It must also be a new vehicle and purchased primarily for personal use. Used vehicles and those purchased primarily for business use don’t qualify.
7. Maximize tax credits
Tax credits reduce your tax bill dollar for dollar, so they’re more valuable than tax deductions. If you qualify for a $1,000 tax credit, your tax bill goes down by $1,000. Meanwhile, a $1,000 tax deduction only reduces your tax bill by about $220 (assuming you’re in the 22 percent tax bracket).
Lawmakers design tax credits to encourage or support certain activities, such as raising children, paying for education, adopting a child, or investing in energy-efficient improvements. Each credit has its own eligibility rules, income limits, and documentation requirements. Some credits are refundable, meaning that if the credit amount exceeds your tax bill, you get the difference back in cash. Others are nonrefundable and can only reduce your tax bill to zero.
The following credits may apply to you depending on your income, family situation, and expenses:
The child and dependent care credit helps offset the cost of childcare (or adult day care for a dependent adult) so you can work or look for work. This credit can be worth up to 35 percent of annual expenses.
The American Opportunity Tax Credit (AOTC) helps offset the cost of an undergraduate education. The maximum credit is $2,500 per eligible student. Up to $1,000 is refundable if the credit reduces the tax you owe to zero.
The Lifetime Learning Credit (LLC) covers a broad range of education expenses, including graduate programs and continuing education. This credit is worth up to $2,000 per return.
The Earned Income Tax Credit (EITC) is a refundable credit for low- and moderate-income workers. The credit amount depends on your income, marital status, and family size. Families with children are eligible for higher credit amounts.
The adoption credit is available to people who adopt an eligible child. Qualified adoption expenses are limited to $17,280 per qualifying child in 2025 or $17,670 in 2026. Up to $5,000 of the credit is refundable.
The child tax credit is a nonrefundable credit that helps families with qualifying children reduce their tax liability. To qualify, your child must be under age 17 at the end of the tax year, have lived with you for more than half the year, be claimed as a dependent on your return, and be a US citizen, US National, or a US resident alien.
The energy-efficient home improvement credit is available if you make qualified energy-efficient improvements to your home before December 31, 2025. The credit is worth up to 30 percent of qualified expenses. However, there’s a dollar amount cap for certain types of improvements, such as exterior doors ($250 per door and $500 total), exterior windows and skylights ($600), home energy audits ($150), and qualified heat pumps, water heaters, biomass stoves, or biomass boilers ($2,000).
Planning Ahead Matters
If you missed a tax planning opportunity in 2025, you haven’t missed your chance entirely. Start thinking ahead toward next year. Perhaps you can increase your retirement account contributions, bunch charitable deductions, or make different investment decisions now that will make a big difference when you file your 2026 tax return.
Tax rules change often, and the right tax-saving strategy depends on your income, assets, and long-term goals. Work with a qualified tax professional who can help you decide which of these strategies works for you and apply them without guesswork or last-minute stress.
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by your friends at The Daily Navigator
