By: Lee Osborne, President/CEO
If you filed an extension on your taxes this year, you’re probably relieved that October 15th has passed, and you can put taxes out of your mind. That’s not necessarily true – especially considering the new tax act signed back in July made some big changes in the charitable deductions area.
When it comes to year-end tax planning, now is the time to go over new tax laws with your CPA to make strategic decisions that can reduce your tax liability. Year-end tax planning not only helps minimize your tax burden but also prepares you for the upcoming tax season.
Maximize Retirement Contributions
Maximizing retirement contributions is one of the easiest and most effective ways to reduce taxable income. Maxing out these contributions before the year ends can help you lower your taxable income and build your retirement savings.
Take Advantage of Tax-Loss Harvesting
If you have investments in taxable accounts that have declined in value, you can sell them to realize a loss and offset gains in other investments. This strategy, known as tax-loss harvesting, allows you to use those losses to reduce your overall taxable income. The IRS permits up to $3,000 in net capital losses to offset ordinary income, and any additional losses can be carried over to future years. "Tax-loss harvesting can help reduce your overall tax burden,” added Rincon.
Make Charitable Donations
Charitable donations are a great way to reduce your taxable income while supporting a cause you care about, however; major changes to charitable contribution deductions will take effect in the 2026 tax year as a result of the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025. These changes affect both itemizers and non-itemizers.
If you itemize deductions, you will face two new limitations starting in 2026:
· 0.5% Adjusted Gross Income (AGI) Floor: Charitable contributions are only deductible to the extent they exceed 0.5% of your AGI. For example, if your AGI is $200,000, the first $1,000 of your donations is not deductible.
· 35% Cap on Deduction Value for Top Earners: For taxpayers in the highest marginal tax bracket (currently 37%), the tax benefit from all itemized deductions (including charitable contributions) will be capped at a 35% tax rate.
· AGI Limits Remain: The existing limit allowing cash gifts to public charities to be deducted up to 60% of AGI is made permanent. Excess contributions can still be carried forward for up to five years, though these carryforwards will be subject to the new 0.5% AGI floor when used in 2026 and beyond.
For non-itemizers, beginning in 2026, taxpayers who take the standard deduction can claim an above-the-line deduction for qualified cash contributions made directly to public charities. You may benefit from waiting until 2026 to make cash donations to utilize the new universal deduction.
· Limit: Up to $1,000 for single filers and $2,000 for married couples filing jointly.
· Exclusions: Contributions to donor-advised funds (DAFs) and private foundations do not qualify for this deduction.
Review Your Portfolio for Capital Gains
If you've realized significant gains on investments this year, consider selling some underperforming assets to balance your capital gains with capital losses. Additionally, long-term capital gains (from investments held for over a year) are taxed at a lower rate than short-term gains.
Utilize Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs)
If you have a flexible spending account (FSA), remember that most of these accounts have a "use-it-or-lose-it" rule, meaning any unspent funds at the end of the year are forfeited. Review your FSA balance and plan to use the funds before the year-end. Additionally, contributing to a health savings account (HSA), if you're enrolled in a high-deductible health plan, can help reduce your taxable income. HSA contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
Defer Income
If you're in a higher tax bracket this year, consider deferring income to next year to potentially lower your tax bill. If you're self-employed or receive bonuses, consider deferring income until the next tax year, especially if you expect to be in a lower tax bracket. Pushing income into the next year can reduce your taxable income for the current year, potentially lowering your overall tax liability.
Take Advantage of Tax Credits
Tax credits like the Child Tax Credit or education credits provide direct reductions in tax liability and should be fully leveraged when possible.
If you are looking to consult with a tax professional about tax planning, contact us at Osborne Rincon CPAs by calling 760-777-9805.
Lee M. Osborne, CPA, joined the firm of Peterson Slater & Butvidas in 1995 and became president of the company known today as Osborne Rincon in 1998. Lee has been in accounting since 1984. During his 30-plus years in public accounting, Lee has done extensive work in many areas, including agriculture, retail sales, service industry, and manufacturing. He works hard to simplify a complex tax strategy in order to give his clients a better understanding and comfort level while focusing on increasing their business and personal wealth.