Key Tax Considerations

Comprehensive Year-End Tax & Financial Planning Guide (Updated for OBBBA Considerations)

Year-end is an ideal time to take stock of your financial picture and prepare for the tax law changes that have resulted from the One Big Beautiful Bill (OBBBA). Proactive planning now can help you preserve deductions, avoid surprises, and position yourself for 2026 and beyond.

1. Share Major Life or Financial Changes

Keeping us informed ensures your tax and financial plan stays aligned with your goals. Please notify us of:

• Marriage, divorce, births, or deaths
• Inherited IRAs
• Foreign investments or accounts
• New business or investment activities
• Significant purchases, sales, or liquidity events

2. Maximize Contributions to Tax-Advantaged Accounts

Reducing taxable income is one of the simplest planning wins.

• Max out contributions to 401(k)s, IRAs, HSAs, and employer retirement plans.
• Review your eligibility for catch-up contributions.
• Fully use FSA balances before they expire.
• Evaluate 529 plans—unused amounts may be eligible for a Roth IRA rollover for beneficiaries.

3. Strategic Charitable Giving

With OBBBA introducing tighter charitable deduction limits for high-income taxpayers starting in 2026, 2025 may be an advantageous year to give.

• Make year-end charitable contributions to lock in current rules.
• Consider a Donor-Advised Fund (DAF) for large gifts in high-income years.
• If you’re 70½ or older, use a Qualified Charitable Distribution (QCD) from an IRA—this can also satisfy RMDs tax-efficiently.

4. Capital Gains, Losses & Investment Planning

Tax-efficient portfolio management is especially important heading into 2026.

• Harvest gains or losses thoughtfully to manage your overall tax liability.
• Use losses to offset gains.
• Take advantage of favorable long-term capital gain rates when possible.
• Keep detailed basis records—especially for digital assets, where tracking can be challenging.

5. Estate & Gift Planning

The current window for strategic gifting remains open.

• Use the annual gift exclusion ($19,000 per person; $38,000 per couple).
• Review and update estate plans before OBBBA-related changes take effect.
• Consider using the Federal lifetime estate and gift tax exemption ($13.99M in 2025) and ($15M in 2026) to lock in planning.
• Washington state continues with a lower estate exclusion of $2.193M up to 6/30/2025 and $3M starting 7/1/2025.

6. Retirement Income & RMD Planning

Efficient withdrawal planning can prevent unnecessary taxes.

• Plan Required Minimum Distributions (RMDs) to avoid bunching income into higher tax brackets.
• QCDs can satisfy RMDs while keeping taxable income lower.
• Coordinate Social Security timing, retirement account withdrawals, and Medicare thresholds.

7. Optimize Available Tax Credits

• Review eligibility for credits like the Child Tax Credit, education credits, and energy-efficiency incentives.
• Evaluate HSAs and FSAs for health-related tax savings.

8. Estimated Taxes, Withholding & Cash Flow

• Rising underpayment penalties make accurate withholding important—let us review your estimates.
• Prepare for liquidity needs tied to year-end tax payments or expected 2026 rule changes.

9. Business & Investor Tax Planning

For business owners, accelerated planning before December 31, 2025, is key.

• Bonus Depreciation: Confirm qualifying assets are placed in service before year-end to capture 100% bonus depreciation.
• Excess Business Loss Limits: Monitor 2025 limits ($626,000 MFJ) and understand how disallowed losses become NOLs.
• 199A Deduction: Ensure qualification for the QBI deduction under existing phaseout rules.
• Consider timing for employee bonuses, executive compensation, rent prepayments, and inventory write-offs.

10. Prepare for OBBBA and 2026 Changes

• New limits on charitable deductions for high-income taxpayers
• Adjusted income tax brackets
• A modified estate and gift exemption in 2026
• Updates to pass-through deductions and business incentives

Planning ahead in 2025 allows you to take advantage of the current rules before these changes take effect.

E-filing of W2s and 1099s

Taxpayers must e-file W-2s and 1099s if they are filing more than 10 forms total. Penalties apply to any paper filed forms in excess of 10. Plan ahead and obtain W-9 information from your service providers well ahead of the January 31 deadline.

Standard mileage rates 

Beginning on 1/1/2025, the standard mileage rates for the use of a car are 70 cents per mile driven for business, 21 cents per mile driven for medical or military moving, and 14 cents per mile driven in service of charitable organizations.

Business meals and entertainment deductions

Meals remain a 50% deduction in 2025. Entertainment is not deductible.

Simplified employee pension (SEP)

Contribute as much as 20-25% of your net earnings from self-employment, up to $70,000 for 2025.

100% Bonus Depreciation

Starting with assets purchased after January 19, 2025, businesses can once again fully deduct the cost of qualifying equipment, software, vehicles, furniture, and land improvements in the first year. This 100% bonus depreciation is now a permanent feature of the tax code. While this immediate expensing can significantly reduce your 2025 taxable income, it’s important to plan strategically. Using all deductions now may mean missing out on valuable deductions in future years when they could be more beneficial.

Domestic R&E Expenses

The new law allows taxpayers to fully deduct U.S. research and experimental (R&E) expenditures for tax years beginning after December 31, 2024. Deciding whether to take this deduction, how it interacts with the research credit, and whether retroactive relief is available will depend on your specific situation. Consult us before filing or amending returns to ensure you’re making the best choice.

Qualified small business stock (QSBS) gain exclusion

For stock acquired after July 4^th, 2025 there have been expansions to the stock requirements. These include a graduated exclusion for how long the stock has been held, exclusion increased to $15M and the gross asset limitation has increased to $75M. Both of these are indexed for inflation adjustments.

Business charitable contributions

Starting in 2026, corporations will only be able to deduct charitable contributions to the extent that they exceed 1% of their taxable income. While the overall charitable deduction limit will remain at 10% of taxable income, any contributions below the 1% threshold will be lost. However, contributions that exceed the 1% floor but are still subject to the 10% cap can be carried forward for up to five years, allowing them to be used in future tax years before being forfeited

Qualified Business Income (QBI) Deduction Made Permanent

The 20% deduction for pass-through business income is now permanent and will not expire after 2025. The phase-in threshold has increased to $75,000 for single filers and $150,000 for joint filers, after which wage/property or other limits may apply. Additionally, active owners with at least $1,000 of QBI are guaranteed a minimum $400 deduction.

Excess Business Loss Cap Now Permanent

Business losses are now permanently capped at $313,000 for single filers and $626,000 for joint filers. Any disallowed losses will be carried forward as Net Operating Losses (NOLs).

Energy and Green Credits

Most clean energy credits, including those for vehicles and commercial property, will expire for property placed in service after 2025 or 2026.

NEW LAWS IN 2025

No Tax on Tips

From 2025 to 2028, employees and self-employed individuals in certain occupations may deduct qualified tips on their personal 1040s, even without itemizing. Maximum annual deduction is $25,000, or for self-employed individuals, limited to net income from the business where the tips were earned. Married couples must file jointly to claim the deduction.

No Tax on Overtime

Effective 2025–2028, individuals may deduct qualified overtime pay above their regular rate (e.g., the “half” portion of “time-and-a-half”). Maximum annual deduction is $12,500 ($25,000 for joint filers).

No Tax on Car Loan Interest

Allows deduction for up to $10,000 of interest on new personal car loans through 2028. Applies only to vehicles under 14,000 pounds with final assembly in the US, secured by a lien. Lease payments and used cars do not qualify. Deduction phases out for taxpayers with modified AGI over $100,000 ($200,000 joint).

Trump Accounts

The federal government will contribute $1,000 to an investment account for every American baby born between Jan. 1, 2025, and Dec. 31, 2028. Parents, employers, or other private entities may contribute an additional $5,000 annually.

Electronic Payment Mandate

Refund checks for individuals ended Sept. 30, 2025. Additional e-payment guidance will be issued for the 2026 filing season.

Adjustments to Old Laws

Permanent Tax Brackets

The seven-rate federal income tax system (10%, 12%, 22%, 24%, 32%, 35%, 37%) is now permanent and will continue to adjust for inflation.

Individual Retirement Accounts (IRA) and 401(k)

2025 IRA contribution limit is $7,000, with an additional $1,000 catch-up for those 50+. 2026 limits increase to $7,500 and $8,500 for those over 50. The 401(k) limit increases to $23,500 in 2025, with additional catch-ups of $7,500 (or $11,250 for ages 60–63, if plan allows).

Required Minimum Distributions (RMDs)

First RMD for those turning 73 in 2025 is due April 1, 2026. Rules for inherited IRAs changed for account owners who died after Dec. 31, 2019. Planning is especially important for first-year RMDs.

Qualified Charitable Distributions (QCDs)

A one-time $54,000 QCD is allowed to fund a charitable trust from IRAs in 2025 as part of the $108,000 annual limit.

IRA to HSA one-time transfer

IRA funds may also be transferred directly to an HSA without tax or penalty.

It’s a good idea to contribute to your HSA as much as possible to maximize your tax benefits. The contribution limits are $4,300 for individuals and $8,550 for family in 2025 and $4,400 for individuals and $8,750 for family in 2026. If you are 55 or older by the end of 2025.

Washington State Capital Gains Tax

Applies only if long-term capital gains exceed $278,000 in 2025 and the gains allocated to Washington State. Rates are 7% for the first $1,000,000 of taxable gains and 9.9% for amounts above $1,000,000.  The cap on the Charitable Donation Deduction for 2025 has increased to $111,000

Standard Deduction

2025 standard deduction: $15,750 (single), $23,625 (head of household), $31,500 (married filing jointly).

Seniors Deduction

Seniors 65+ may claim an additional deduction of $6,000 ($12,000 joint), which phases out at MAGI $75,000 (single) / $150,000 (joint).

Itemized Deductions

State and local tax deduction capped at $40,000, phasing to $10,000 for high-income filers. Mortgage interest limited to $750,000 of indebtedness. Medical expenses deductible only above 7.5% of AGI. Charitable contributions capped at 30% of AGI for non-cash gifts and 60% for cash.

Credits and Other Updates

• Child tax credit: up to $2,200 per qualifying child, with refundable portion $1,400.
• Adoption credit: up to $5,000 refundable.
• Clean vehicle credits: up to $7,500, for purchases through Sept. 30, 2025.
• Earned Income Tax Credit (EITC) eligibility without qualifying child: income < $19,104 ($26,214 MFJ), age 25–64.
• Energy Efficient Home Improvement Credit: 30% credit ends after 2025, max $1,200/year ($2,000 for heat pumps, biomass stoves/boilers).
• Residential Clean Energy Credit: 30% of qualifying expenses through 2032, no annual or lifetime limit.

Consider for 2026 Tax Year

Charitable deductions for itemizers are limited to contributions above 0.5% of AGI. Non-itemizers may claim an above-the-line deduction of $1,000 (single) / $2,000 (MFJ). 1099 reporting thresholds increase to $2,000. K-12 529 withdrawals double to $20,000, and 529-to-Roth rollovers remain ($35,000 lifetime).

2025 Estate & Gift Key Considerations

Estate and gift planning doesn’t have to feel daunting. Think of it as shaping your financial legacy with purpose—and taking advantage of valuable tax opportunities along the way. Below are the key updates for 2025, along with what you should prepare for as we approach 2026.

Annual Gift Tax Exclusion

One of the easiest ways to transfer wealth tax-efficiently is through annual exclusion gifts.

• 2025 Annual Gift Tax Exclusion: $19,000 per donor, per recipient.
• 2026 Annual Gift Tax Exclusion: Remains $19,000 (no increase projected).
• Married couples: You count as two separate donors, allowing you to jointly gift $38,000 per recipient in 2025.

Consistent annual gifting can make a meaningful impact over time, reducing your taxable estate while supporting the people you care about.

Federal Estate & Gift Tax Exclusion

The federal lifetime exclusion continues to remain high:

• 2025 Federal Estate Exclusion: $13.99 million per person
• 2026 Federal Estate Exclusion: $15 million per person with inflation indexing starting in 2027.

These figures create a substantial window for estate planning—especially if your net worth is at or near these thresholds.

Washington State Estate Tax

Washington State continues to have a lower estate tax threshold:

• WA Exclusion up to 6/30/2025: $2.193 million
• WA Exclusion starting 7/1/2025: $3 million
• For 2026: the amount is expected to be available around mid-December 2025 and may increase for inflation.

Residents should pay particular attention to state-level planning—especially homeowners, business owners, and those with rapidly appreciating assets.

Review Your Estate Plan

The start of a new year is a great time to revisit your overall plan. Consider reviewing your:

• Will and trust documents
• Beneficiary designations
• Gifting strategy
• Asset titling
• Business succession plans

Ensuring these elements align with current tax laws can help avoid surprises and keep your legacy intact.

We recommend you reach out to us and your estate planning attorney to discuss gift planning strategies. Given the upcoming changes—especially at the state level in Washington and the federal exclusion projection for 2026—planning proactively is a wise move.