Financial Planning Corner: Year-End Tax Planning Is a Must

With several provisions of the One Big Beautiful Bill Act (OBBBA) retroactively taking effect for 2025, but others beginning in 2026, year-end tax planning requires special attention as we enter the fourth quarter. While the new and enhanced deductions create opportunities, they also add new pitfalls. Additionally, many of the new deductions expire after four or five years, so a multi-year strategy should be implemented. It is more important than ever to confer with us and your tax preparer to review planning opportunities, avoid unintentional phaseouts, and ensure your tax liability is as efficient as possible. Below are three of the most relevant considerations for our clients.

A. Income Analysis - Since much of the new tax law is based on modified adjusted gross income (MAGI), the first step is to estimate where your MAGI will be for 2025 and 2026. The next step is to determine how close you are to any phaseouts, deduction limits, or other thresholds that could increase or decrease your tax liability. Using this information, a strategy can be developed for timing income and deductible expenses such as charitable donations, medical and dental expenses, and state and local taxes, where possible.

B. Charitable Gifting - With the increased state and local tax (SALT) limit and mortgage insurance premium deduction, more people will benefit from itemization than in previous years, creating a better opportunity for charitable deductions. However, income phaseouts can bring the higher $40,000 SALT cap back down to the previous $10,000 level and eliminate the mortgage insurance premium deduction. Beginning in 2026, there will be a new 0.5% AGI reduction on itemized charitable deductions (not applicable to Qualified Charitable Distributions) and a cap of 35% on the tax benefit, but also a new $1,000 (single filers) or $2,000 (joint filers) non-itemized deduction on cash contributions. It may make sense to expedite, delay, or bunch charitable donations, depending on where your income and other deductions fall. The amount, timing, and location of your gifts also need to be considered to maximize the overall tax benefit you receive.

C. Withdrawal Strategies - Since the new age 65+ enhanced senior deduction (up to $6,000 per filer) has an income phase-out beginning at $75,000 (single filers) or $150,000 (joint filers), you may find that creating additional taxable income through a conversion or over-withdrawal now costs more with the new tax law. Even if you are not 65+, this income may affect your itemized deductions, taxable Social Security, or Medicare surcharges (IRMAA). While these strategies may still make sense, the amount of income generated may need to be adjusted.

For a more detailed list of the OBBBA tax law changes, you can refer to the ALL CLIENT EMAIL sent on August 5^th, our website blog, or our LinkedIn post. Please reach out if you are interested in exploring any of these planning opportunities or reviewing your income situation. We look forward to working with you to determine the best course of action based on your unique circumstances.

This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.