Tax & Financial Planning

Strategic moves you can make before year-end 2025

By Ben Barchilon, CPA

Versant Capital Management’s holistic family office approach integrates investment portfolio strategies, wealth management, income tax planning, estate and transfer planning, asset protection, next-gen financial education, family governance, and business succession planning. Because many of these areas intersect at year-end, it’s an important time for you to review tax and planning-related considerations based on your circumstances and goals.

Tax Legislation
Taxpayers are facing a rapidly changing tax environment, with shifting rates, new credits and incentives, and legislation shaped by ongoing economic challenges. As 2025 began, uncertainty grew with the scheduled expiration of key provisions of the Tax Cuts and Jobs Act (TCJA) at the end of the year. In response, Congressional Republicans passed the One Big Beautiful Bill (OBBB), which extended many TCJA measures and introduced additional changes to the tax code. However, several provisions of the OBBB are also set to expire in the coming years, meaning the tax landscape will remain fluid.

For more information on the OBBB, check out the Tax Foundation’s summary and “What the New Legislation Could Mean for You.”

Below are tax and gifting strategies that may help manage your overall tax burden. Each should be evaluated and implemented in coordination with your tax professionals and wealth advisors to be in alignment with your goals and circumstances.

Investment & Business Income Planning

Tax Loss (Or Gain) Harvesting
Although market declines can be unsettling, there is a small silver lining: the ability to harvest capital losses. Tax-loss harvesting is selling a security that has experienced a loss and using the proceeds to buy a similar security that maintains your market exposure. This loss now becomes an asset that can offset current or future portfolio gains.

Conversely, people in the lowest tax brackets may consider harvesting long-term capital gains because they may be eligible for the 0% long-term capital gains rate (based on federal taxable income). As a result, you can sell the security and immediately repurchase it to maintain your market exposure. You have now reset your cost basis without triggering any taxable gains!

Paying Down Margin Interest
Margin interest is the interest you pay when borrowing money to purchase additional investments with your securities held as collateral. The interest is deductible as investment interest expense up to net investment income if the taxpayer is itemizing deductions. By paying accrued margin interest before December 31, an investor may reduce their investment income taxed at ordinary rates.

Margin borrowing can also offer flexibility in managing liquidity and investment choices. Rather than selling appreciated assets and realizing taxable gains, investors can borrow against their portfolios to access funds, deferring the recognition of those gains to a later year. This strategy can help preserve long-term investment positions, delay taxes, and provide cash for other purposes such as estimated tax payments or charitable gifts.

Accelerating Depreciation
Under OBBB, bonus depreciation has been permanently restored to 100 percent. This means that qualifying property acquired and placed in service after January 19, 2025, will be fully deductible in the year it is placed in service. This change offers a tax advantage for businesses making substantial capital investments now and in the future.

Research and Development Expenses
OBBB restores the ability to immediately deduct research and development (R&D) expenses, in full, for work done in the U.S. However, R&D conducted outside the country must still be deducted over 15 years. The new law also provides some retroactive relief. Certain businesses may be able to deduct R&D costs from 2021 to 2025, either all at once or spread out over one or two years, offering added flexibility and potential tax savings.

Retirement Income Planning

 Required Minimum Distributions (RMDs)
The IRS calculates RMDs by taking the balances of your tax-deferred retirement accounts at the end of the prior year and dividing the total by a number based on your life expectancy factor.

RMDs are generally required starting at age 73 for most retirement accounts, but the specific age depends on your birth year. You must take your first RMD by April 1 of the year following the year you reach your required beginning age, and all subsequent RMDs are due by December 31 of each year. RMDs are no longer required from designated Roth accounts.

RMDs could push you into a higher tax bracket. Some options could potentially reduce your tax-deferred balances, however, and lower your future RMDs (see QCD, Roth Conversions, and Withdrawals at age 59½).

Some people need help remembering to pay quarterly estimated taxes. One way to address this is to have all or part of your distributions go to federal and state estimated tax payments at year-end. The IRS views the payment as if it were made throughout the year, so you avoid an underpayment penalty. This can allow you to keep your money that is outside of retirement accounts that would normally be used to pay these estimated tax payments.

Qualified Charitable Distributions (QCDs)
QCDs from Traditional IRAs are available to taxpayers aged 70½ or older, up to $108,000 per individual in 2025. A total of $216,000 could be given to charity and excluded from adjusted gross income if married filing jointly. Each spouse must give $108,000 from their own IRA accounts to take advantage of maxing out the QCD strategy. QCDs can also satisfy the required minimum distributions noted below. RMDs do not have to start until 73 and do not require itemizing deductions.

1. The transfer must go straight from the Traditional IRA to a qualified public charity. QCDs cannot be gifts made to private grant-making foundations or donor-advised funds.
2. All of your traditional IRAs (including rollover, inherited, inactive SEP, and inactive SIMPLE IRAs) qualify for QCD treatment.
3. A new law change permits a one-time distribution of up to $50,000 of the qualified charitable distribution to be paid directly from your IRA to certain split-interest entities, such as a charitable remainder trust or charitable annuity, which qualify under the new rule.

Roth Conversions
Many year-end planning strategies aim to decrease income. For some business owners and investors, income fluctuates from year to year. A way to consider capitalizing on the opportunity that lower-income years is to convert all or part of a qualified plan (such as a 401(k) or Traditional IRA) into a Roth IRA.

At the time of conversion, you will include the amount converted into income and pay the appropriate taxes due. Converting allows you to lock in the current tax rates and could save you more on an after-tax equivalent basis during retirement. It may also provide estate planning tax efficiencies for you and your beneficiaries.

Roth conversion strategies include converting up to the top of your current tax bracket to minimize taxes, spreading conversions over multiple years, and using non-retirement assets to pay the conversion tax.

For more information on Roth IRAs, check out Charles Schwab’s summary.

Tax Deferred Retirement Withdrawals at age 59½ Another approach to reducing significant RMDs is to start withdrawing funds from tax-deferred accounts at age 59½; generally, your earliest opportunity without incurring a 10% penalty. It is important to target a specific tax bracket for your distributions.

This strategy can reduce the overall size of your tax-deferred accounts, and with them, your future RMDs. Such withdrawals can also help make it possible to defer claiming your Social Security benefit, which increases 8% for every year you wait to collect beyond your full retirement age (up to age 70, after which there is no incremental benefit for delaying).

However, drawing down your account balance at an early age means you could lose out on years of potential growth of the withdrawn funds, so be sure to collaborate with your tax professionals or wealth advisors to determine if the tax savings from this strategy can offset that growth.

Tax and Penalty-free Rollovers from 529s to Roth IRAs
Beneficiaries of 529 college savings accounts are permitted to roll over up to $35,000 throughout their lifetime from a 529 account in their name. The 529 account must have existed for more than 15 years, and the amount being rolled over must have been in the account for at least 5 years. These rollovers would be subject to annual Roth IRA contribution limits.

Retirement Deduction Planning

Employee Retirement Plan Contributions
Maximizing retirement plan contributions can be considered a good year-end tax strategy. Combined limits for 401(k) or 403(b) deferral contributions are $23,500 for those younger than age 50, $31,000 for those 50 and older, and $34,750 for those ages 60-63, if their plan allows. These employee contributions must be made by December 31, 2025.

If you are self-employed and have a Solo 401(k), you can make additional contributions to the 401(k), subject to the $70,000 limit (such as SEP IRA limits). This $70,000 limit does not include your employee catch-up contributions of $7,500 for employees age 50 or older or $11,250 for employees age 60-63.

Employer contributions can be made after 12/31/25. The contributions to these accounts must be completed by the filing deadline, including extensions, to make the contribution.

Employer SEP IRAs
Self-employed individuals or small business owners can also take advantage of retirement plans. With a SEP IRA, employers can contribute up to 25% (or the plan’s contribution rate) of compensation or $70,000 in 2025, whichever is less. Employers can also contribute to a SEP IRA for their own benefit. The maximum contribution for self-employed individuals is based on their net self-employment earnings, but is limited to $70,000. There are no “catch-up” contributions for SEP IRAs.

The deadline for making these contributions for the 2025 tax year is after December 31, 2025. The contributions to these accounts must be completed by the filing deadline, including extensions, to make the contribution.

Traditional & Roth IRAs
Contribution limits for Traditional and Roth IRAs are $7,000 for those younger than age 50 and $8,000 for those 50 and older. 2025 IRA and Roth IRA contributions can be made until April 15, 2026. Check on the deductibility of traditional IRA contributions and whether you can contribute directly to a Roth IRA. Additional plans are also available for self-employed individuals.

Charitable & Gift Planning

Charitable Contributions
Bunching charitable contributions involves combining several years’ worth of donations into a single tax year. This strategy may help you exceed the standard deduction and help maximize tax benefits, especially in high-income years or just before retirement. Donor-advised funds can support this strategy by allowing donors to make a large contribution in one year while distributing the funds to charities over time.

Under OBBBA, the tax deduction of itemized charitable deductions will be limited to 35%, even for individuals in the top 37% marginal tax bracket. For example, a $1,000 charitable donation would yield a $350 deduction rather than the current $370. This change is scheduled to take effect beginning with the 2026 tax year. High-income donors may want to consider making their gifts in 2025 (bunching) to take advantage of the existing deduction rules before the cap is implemented.

Donating appreciated property is considered an effective strategy, especially when combined with bunching. When you donate appreciated property held for more than one year, you can generally deduct its fair market value without having to pay income tax on the unrealized capital gain. This strategy may result in greater tax efficiency compared to donating cash. A common example is contributing long-held stock that has significantly appreciated in value. For donations of long-term capital gains property to a public charity, the deduction is limited to 30% of your adjusted gross income (AGI).

Starting in the 2026 tax year, individuals who itemize will only be able to deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For example, a married couple with an AGI of $300,000 would be allowed to deduct only the portion of their charitable donations that exceeds $1,500.

Health Planning

Health Savings Accounts (HSAs)
HSAs are available to participants enrolled in high-deductible health insurance plans. At the federal level, contributions to HSAs are not subject to income tax. Limits for HSA contributions for 2025 are $4,300 for individual coverage and $8,550 for family coverage. A $1,000 catch-up contribution is allowed for those 55 or older. Contributions to HSAs can no longer be made after enrolling in Medicare (eligibility for Medicare begins at age 65).

Distributions are tax-free if they are used for qualified medical expenses. However, an advantage of an HSA is that there are no annual distribution requirements, time limits on use, or required account termination. These factors theoretically allow the HSA to grow in perpetuity. This can make an HSA a powerful retirement-planning tool. Investors who can afford to do so can contribute during their working years, with current medical expenses paid out of pocket.

The contributions are invested and allowed to grow until retirement, when the HSA is used to cover qualified medical expenses and is distributed tax-free. This strategy may maximize your deductible medical expenses during working years and provide a source of triple-tax-free income during retirement.

Gift & Estate Tax Planning

Annual Exclusion and Exemptions
The annual gift tax exclusion for 2025 is $19,000. Each individual may transfer up to $19,000 per person per year to any number of beneficiaries (family or nonfamily) without paying gift tax or using up any available applicable lifetime exemption. If you are a married couple, you may be able to give $38,000 to each recipient through a gift-splitting election or the use of community property.

The estate tax rate is 40% for any amount exceeding $13.99 million (or exceeding $27.98 million for married U.S. residents or citizens).

Originally set to drop by nearly half in 2026 from $13.99 million to approximately $7.1 million, the federal estate tax exemption would have expanded the number of estates subject to the tax. However, OBBB prevented that rollback by permanently extending the higher exemption and increasing it to $15 million per person, with annual adjustments for inflation. This permanent increase can simplify estate planning for many families.

Educational Funding
Contributions to a 529 college savings plan are treated as gifts for federal tax purposes, which means they fall under the federal gift tax rules. However, most families won’t owe any gift tax, thanks to the annual gift tax exclusion. If your total gifts to an individual stay within the annual limit, no gift tax is due. Many states offer a state adjustment for contributions to 529 plans.

If you are looking to give a 529 plan a strong start, consider super funding or front-loading. Super funding allows you to contribute up to five years’ worth of gifts at once without triggering federal gift taxes. In 2025, that means you can contribute up to $95,000 per beneficiary (or $190,000 as a married couple) in a single year, using the $19,000 annual gift tax exclusion multiplied by five. This approach can give your investment more time to grow tax-free, making it a valuable tool for long-term education planning.

• Coverdell Education Savings Accounts (ESAs) are tax-advantaged trust or custodial accounts for qualified education expenses, from K-12 tuition to college. Annual contributions are capped at $2,000 per beneficiary and are not tax-deductible.

• Custodial Accounts (UGMA/UTMA) are investment accounts opened by a custodian (usually a parent) for a minor. They offer broad investment options and flexible use of funds. There are no income or contribution limits, and the funds can be used for any purpose once the child reaches adulthood.

The tax code is always evolving, and the changes scheduled in the coming years add even more complexity to planning decisions.

As 2025 progresses, thoughtful review of your tax situation and proactive adjustments can help align your wealth strategy with your long-term goals, help reduce unnecessary surprises, and may allow you to optimize opportunities available under current law.

Ben Barchilon, CPA, is a wealth advisor at Versant Capital Management, where he advises families in developing tax-efficient strategies to reach their goals. Ben has experience working with small business owners, multi-generational wealth, and families from diverse backgrounds.

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