As the end of another year rapidly approaches, it is important to review your tax position to insure that you take advantage of every possible tax saving tool.
Remember, 2025 tax planning in January 2026 will be too late!
The following is a sample of 2025 tax saving and deferral strategies available to you by acting prior to Dec. 31:
1. Capital gains can be offset by capital losses. Therefore, it is recommended that you review your investment transactions for the year to ascertain your capital gains position. If you have a net capital gain position to date, you may want to review your investment portfolio for a loss position to sell before Dec. 31 to offset your net capital gain (known as capital loss harvesting). Likewise, you may want to sell appreciated securities to take advantage of a capital loss position. (Note: Do not forget the capital gain income you may receive through your mutual funds!)
2. Mortgage interest is generally paid in arrears (we pay interest on the 1st of each month for the prior month’s interest). Therefore, by accelerating the Jan. 1 mortgage payment by paying it in December 2025, you will be able to deduct the December 2025 mortgage interest in 2025 instead of in 2026.
3. Charitable contributions, when possible, should be accelerated into December 2025 instead of waiting until January. This is the time you should be packaging your unwanted clothing and furnishings for pickup by your favorite charity. Make sure to get a detailed receipt and retain it for your tax return preparer! There also can be tremendous tax saving opportunities by donating appreciated property (stocks, bonds, real estate, etc.) to charitable organizations by deducting the fair market value of the gift without having to recognize the capital gain.
4. Other deductible expenses, such as medical expenses, medical insurance premiums, real estate taxes, state estimated tax payments, etc. should be reviewed for possible acceleration into 2025. Please note that lumping of medical expenses in the same year may help you exceed the 7.5% adjusted gross income limitation.
5. Deferral of income into 2026 can often be accomplished with a little planning. There are numerous situations whereby you may be able to elect to delay the constructive receipt of taxable income until January 2026.
6. Real estate tax payments can be accelerated and deducted in 2025 by paying your 2025/2026 second half bill due April 10, 2026 by Dec. 31. However, please note that the total state and local tax deduction is limited to $40,000 for Federal itemized deductions.
The above is just a mere sampling of simple techniques and strategies that can help you reduce your income tax liability. Prior to taking ANY of the actions detailed above, I recommend that you first consult with your tax advisor.
Barry Dolowich is a Certified Public Accountant and owner of an accounting and tax practice with offices in Monterey. He can be reached at 372-7200. Please address any questions to Barry at PO Box 710 Monterey, CA 93942 or email: bdolowich@gmail.com
