As we approach the end of 2025, Wright Ford Young & Co CPAs is committed to helping our clients make informed decisions that minimize tax liability and maximize financial opportunities. Year-end tax planning is especially critical this year, given recent legislative changes and evolving strategies for high-net-worth individuals and business owners. Below are key moves to consider before December 31.
- Charitable Giving: Act Before New Limits Take Effect
OBBBA introduces new restrictions starting in 2026:
- A 0.5% of AGI floor for itemized charitable deductions.
- A cap limiting the tax benefit of itemized deductions to 35% for top-bracket taxpayers (down from 37%).
Action Steps for 2025:
- Accelerate charitable contributions into this year to lock in higher deduction benefits.
- Consider Donor-Advised Funds (DAFs): Contribute now for an immediate deduction, then distribute funds to charities over time.
- Donate appreciated stock instead of cash: This strategy avoids capital gains tax and allows you to deduct the full fair market value (subject to AGI limits—30% for public charities).
- Harvest Stock Losses
Market volatility can create opportunities to reduce taxes:
- Sell underperforming investments to realize losses and offset capital gains.
- Up to $3,000 of excess losses can offset ordinary income annually; unused losses carry forward indefinitely.
- Avoid wash-sale rules by reinvesting in similar (but not identical) securities.
- For Cash-Basis Business Owners: Prepay Expenses
If you operate on a cash basis:
- Prepay up to 12 months of qualifying expenses (rent, insurance, subscriptions) under IRS safe harbor rules.
- Use business credit cards for year-end purchases—charges made by December 31 are deductible this year.
- Consider delaying invoicing until January to defer income.
- Pass-Through Entities: Right-Size Wages for QBI Deduction
The Qualified Business Income (QBI) deduction allows up to 20% of business income to be deducted. For high-income taxpayers, the deduction is limited by W-2 wages:
- Apply the “2/7 Rule”: Wages should approximate 28.5% of net income before wages to maximize the deduction.
- Ensure owner compensation meets IRS “reasonable” standards while optimizing tax savings.
- SALT Deduction: New Cap and Phase-Out
OBBBA raises the SALT deduction cap to $40,000 for 2025 (up from $10,000), but:
- The benefit phases out for MAGI above $500,000 and reverts to $10,000 at $600,000.
- Plan strategically if you live in a high-tax state—itemizing may now be more attractive.
- California PTE Elective Tax Payment
California allows pass-through entities (S corporations and partnerships) to elect to pay state tax at the entity level, generating a federal deduction for the payment:
- Deadline: Payment must be made by December 31, 2025 to count for the 2025 tax year.
- This strategy can significantly reduce federal taxable income for owners in high-tax brackets.
- Coordinate with your CPA to calculate the optimal payment amount and ensure compliance with CA rules.
At Wright Ford Young & Co CPAs, we understand that year-end planning is not one-size-fits-all. These strategies can provide meaningful tax savings, but timing and execution are critical. Contact your WFY advisor today or contact us here to review your specific situation and implement the right moves before December 31. Together, we’ll help you finish the year strong and position you for success in 2026.
Wright Ford Young & Co. is headquartered in Irvine, CA and is one of the largest local CPA firms in Orange County. WFY is a full service corporate accounting firm offering audit, tax, estate and trust, and business consulting services to closely held company and family business owners. More information about our Firm can be found at www.cpa-wfy.com.