Smart Year-End Tax Moves For 2025 Under the One Big Beautiful Bill Act (OBBBA)

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, extends and modifies many provisions of the 2017 Tax Cuts and Jobs Act (TCJA). While the landscape remains largely familiar, important nuances introduce new year-end tax planning opportunities for individuals, investors, business owners, and donors alike. With the tax year quickly drawing to a close, proactive planning can help taxpayers maximize deductions, credits, and tax savings.

Accelerate Charitable Contributions for Maximum Deductibility

Starting in 2026, OBBBA introduces a new 0.5% floor on charitable deductions for itemizers based on Adjusted Gross Income (AGI). This means charitable donations can only be deducted to the extent they exceed 0.5% of AGI, reducing the deductible amount for many taxpayers. Additionally, those in the highest 37% tax bracket will face an overall 2/37 reduction on all itemized deductions, further limiting the tax benefit of charitable giving.

To avoid these limitations, consider making planned charitable donations before December 31, 2025. Donations made in 2025 are fully deductible under current rules, preserving full tax benefits. For those wanting to maintain flexibility on when charities receive funds, contributing to a Donor Advised Fund (DAF) allows you to receive the deduction in 2025 while recommending distributions in future years.

OBBBA also reinstates a charitable deduction for non-itemizers beginning in 2026—up to $1,000 for singles and $2,000 for joint filers—encouraging charitable giving from a broader taxpayer pool. However, this does not replace the greater benefits of itemizing.

Making large charitable gifts in 2025 before the new limits take effect can yield substantial tax savings for high-income donors.

Leverage Expanded 529 Plan Distribution Rules

OBBBA expands qualified 529 plan expenses to include up to $20,000 annually for K–12 costs and credentialing or professional certification expenses (such as CFP coursework). Distributions made after July 4, 2025, can reimburse qualified expenses incurred anytime during 2025.

This creates a one-time opportunity to tap unused 529 funds tax-free for new categories of education-related expenses incurred earlier in the year. Taxpayers with a 529 plan balance and recent K-12 or credentialing costs should consider taking distributions before year-end to maximize this benefit.

Coordinate Roth Conversions and Retirement Distributions With New Deduction Phaseouts

OBBBA introduces several temporary below-the-line deductions from 2025 through 2028 for seniors (up to $6,000 single, $12,000 married), qualified tip income, overtime wages, and auto loan interest. Each deduction phases out over specific income ranges.

Roth conversions and pre-tax retirement withdrawals increase taxable income and may shrink or eliminate these deductions. This causes a "magnified" effective marginal tax rate—taxpayers paying tax on every additional Roth conversion dollar and losing deductions on other income.

To optimize tax outcomes, retirees should consider withdrawing some funds from Roth accounts (tax-free) to remain under deduction phaseout limits, while minimizing pre-tax withdrawals. Careful modeling is critical to avoid inadvertently paying higher taxes on conversions during the deduction phaseout window.

Optimize Qualified Business Income (QBI) Deduction for SSTB Owners

The Section 199A QBI deduction phaseout range for Specified Service Trades or Businesses (SSTBs) like medical, legal, and financial services expands in 2026. Taxpayers whose 2025 taxable income falls within the current phaseout range may benefit by deferring some income into 2026, where the phaseout is more gradual.

Conversely, SSTB owners with 2025 income above the phaseout but expecting lower income in 2026 might accelerate income into 2025 to take advantage of the currently lower marginal rates. Planning income recognition with smart timing alongside SALT deduction phaseouts can reduce marginal tax rates significantly.

Complete Energy-Efficient Home Improvement Projects to Claim Credits

Several federal energy tax credits such as the Energy Efficient Home Improvement Credit (EEHIC) and Residential Clean Energy Credit (RCEC) under the Inflation Reduction Act expire on December 31, 2025. Taxpayers still have time to qualify by finishing installations or maintenance on doors, windows, insulation, heat pumps, solar panels, and home battery systems.

Smaller projects and home energy audits, which can qualify for credits, remain feasible within the short window and help reduce both tax bills and long-term energy costs.

Other Important Year-End Moves

Review tax withholding and estimated payments to ensure compliance amid new thresholds in 2025. Maximize contributions to retirement accounts and Health Savings Accounts (HSAs) before year-end deadlines.

Estate and gift tax exemptions have increased, making it a good time to review gifting and estate plans. Finally, maintain orderly documentation of all tax-related records to support timely and accurate filing.

Your Year-End Tax Planning Checklist

- ☐ Make planned charitable contributions before December 31, 2025, or fund a Donor Advised Fund (DAF)  
- ☐ Take 529 plan distributions by year-end to reimburse eligible 2025 education expenses  
- ☐ Review Roth conversions and retirement withdrawals to avoid deduction phaseouts  
- ☐ Strategically time business income if a Specified Service Trades or Business (SSTB) owner  
- ☐ Complete qualifying energy-efficient home improvements by year-end to claim credits  
- ☐ Adjust tax withholdings and estimated payments based on new 2025 rules  
- ☐ Max out retirement and HSA contributions before deadlines  
- ☐ Review and update estate and gifting plans with revised exemption limits  
- ☐ Organize all tax documents and financial records for filing

 Conclusion

The OBBBA law redefines key tax-planning dynamics heading into 2026. Waiting until next year might mean missing out on favorable deduction thresholds or expiring credits. Acting decisively before December 31, 2025, with a tailored strategy involving charitable giving, education savings, retirement moves, business income timing, and energy upgrades can save substantial taxes and set the stage for future financial efficiency. Reach out to me on the contact link below to learn more about tax-smart strategies.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid any Federal Government tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not guarantee profits or protect against losses in declining markets.