Want to lower your 2025 tax bill? This is the perfect time to make that happen.
If you wait til next year, it’ll be too late to make these 5 tax-saving moves.
Tax Move #1: Max Out Retirement Accounts
Put as much money into traditional retirement accounts as you can. Maxing out your IRA or 401(k) contributions will lower your taxable income for the year, leading to a lower income tax bill. And if you’re getting close to retirement age, you can take advantage of catch-up contributions too.
The contribution limits for 2025 are:
| Retirement Account | Maximum Contribution | Catch-Up Contribution | Contribution deadline |
| IRA | $7,000 | $8,000 for people 50 and older | April 15, 2026 |
| 401(k) | $23,500 | $7,500 for people 50 and older OR$11,250 for people 60 – 63 | December 31, 2025 |
And even though it’s not technically a retirement account, consider maxing out your HSA (health savings account) too. These accounts are available only to people with qualifying high-deductible health plans. HSAs allow you to save pre-tax dollars (meaning deductible) for medical expenses. And unlike FSAs (flexible spending accounts – more on those below), this money is yours forever.
Tax Move #2: Take Your RMDs (Required Minimum Distributions)
If you’re 73 or older and have any money in traditional retirement accounts like an IRA or 401(k), you must take your RMD before December 31. The amount of your RMD is based on your age and the balance of your account on December 31 of the prior year.
If you don’t take the full RMD, you’ll get hit with a hefty IRS penalty. That’s 25% of the amount you were supposed to take but didn’t. For example, if you were supposed to withdraw $10,000 but didn’t take any distributions, you’d have to pay a $2,500 penalty to the IRS. And if you were supposed to withdraw $10,000 but only took $8,000, you’d face a $500 penalty on the $2,000 you didn’t take.
You have two years to correct that mistake and have the penalty lowered down to 10%. But to avoid penalties all together, make sure to take your full RMD every year.
You may also have to take an RMD if you inherited a retirement account. This situation has a lot of rules and a lot of exceptions. But if you are supposed to take an RMD and don’t, you’ll face the same huge penalties. It’s worth talking to a tax pro to make sure you don’t end up losing money.
Tax Move #3: Make Charitable Donations
The tax rules for deducting donations gets stricter starting in 2026, so you’ll get a bigger tax advantage for charitable contributions in 2025 if you itemize. If you plan to donate for tax year 2025, make sure to do it by December 31 and keep clear records of your contributions. You can find current rules for donations here.
Starting in 2026, the donation deduction will be subject to a 0.5% floor based on adjusted gross income (AGI). That means a portion of your donations will not be deductible at all. For example, if your AGI was $60,000, your donation floor would be $300. So if you donate $500, only $200 of that will be deductible.
There’s also a second limit if your income falls into the highest tax bracket, 37%. Starting in 2026, your deductions can’t be worth more than 35%. For example, if you have AGI of $850,000 and donate $100,000 in 2025, your deduction would be worth $37,000 ($100,000 x 37%). In 2026, that deduction would first be reduced by the 0.5% floor of $4,250 to $95,750. Then, the deductible value of the donation would be capped at 35%, letting you deduct $33,512.50 ($95,750 x 35%). Your tax benefit would drop by $3,487.50 in 2026.
And for non-itemizers, there’s a new tax benefit for donating starting next year. If you take the standard deduction, you may be better off tax-wise waiting until the clock strikes 2026 to make your donations. Starting in 2026, you can deduct up to $1,000 of cash donations ($2,000 if married filing jointly) from your taxes without itemizing.
Tax Move #4: Spend Your FSA Funds Down to Zero
If you have any money in an FSA (flexible spending account), use it up. FSAs are use it or lose it, meaning any money left in the account after December 31 disappears. These accounts do not roll over year to year, so you have to spend every penny in them to avoid losing your money.
Whether your FSA covers medical expenses or dependent care (called DCFSA), make sure to spend every dime before the year is over.
Here are some things you can use these funds for that you might not expect:
Eligible Medical Expenses:
- Baby monitors
- Bandages
- Condoms
- Contact lens solution
- Heating pads
- SPF 15 (or higher) lip balm
- Reading glasses
- Tampons and pads
- OTC medicines including ibuprofen, cold medicine, antacids, and nasal spray
- PPE (personal protective equipment) including face masks and hand sanitizer
Eligible Dependent Care Expenses:
- Summer day camp for kids under 13
- Babysitters (for work-related care)
- Late pickup fees
- Agency fees (like for hiring a nanny)
Tax Move #5: Consider Some Tax-Loss Harvesting
If you’ve sold off any investments for a profit during the year, you’ll owe capital gains taxes on those profits. You can reduce or even zero out those gains using a strategy called tax-loss harvesting.
December is the perfect time to reevaluate your portfolio and make sure it still syncs up with your financial goals. Your portfolio might need rebalancing. Or you might want to offload some investments that aren’t performing well. So you purposely sell these investments for a loss. Then you use the investment proceeds to buy a stake in a security that fits in better with your current portfolio, hopefully with more growth potential than the one you’ve ditched. This action performs double duty by both streamlining your investment mix and reducing your tax liabilities.
The tax law allows you to offset capital gains with capital losses. And if you end up with more losses than gains, you can generally also offset up to $3,000 of other income. Any remaining losses get carried over to next year and beyond, available to balance out future income and gains. Using tax-loss harvesting effectively can also help keep you in a lower overall tax bracket, saving you even more in tax dollars.
One word of caution: You can’t sell off investments just to offset gains and then buy them right back. That calls in the wash-sale rule that says you can’t buy the same or even a similar security within 30 days before or after you reap a loss. If you do, the loss doesn’t count for tax purposes, basically erasing the point of tax-loss harvesting.
This strategy can be very beneficial for tax purposes but only works if it also fits in with your long-term investment plans. It can be a complex issue, so it might make sense to talk with a tax pro to make sure you get the most out of it without violating any IRS rules.
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