Holiday season is in high gear. The last thing you want to think about as you gather with friends and family is taxes. However, tax season is just a month away. Now is the time to review what options may be available to you to reduce your tax liability. Although some options are available through April 15, others require that you take action by December 31.

Actions which must be taken by December 31

1. Required Minimum Distributions: Determine whether you are required to take a minimum distribution (RMD) from your retirement accounts. Generally, taxpayers who are 73 or older must take the RMD. Failure to take the distribution before the end of the year can result in a penalty of 25% on the portion of the distribution which was not received. Those who reached RMD age in 2025 have until April 1, 2026 to take the RMD.

2. Maximize Contributions to Employer Retirement Plans: The 2025 contribution limit for 401(k) and similar retirement plans is $23,500. Workers who are 50 and older can contribute an additional $7,500 as a catch-up contribution. For those who are between the ages of 60 and 63 a supersized catch-up contribution in the amount of $11,250 is allowed. The contribution to your retirement plan will not only reduce your tax liability this year, but receipt of the funds will be deferred to retirement age at a time when your income will likely be taxed at a lower bracket. In addition, if your employer matches your contribution, or a percentage of the contribution, you will get the added benefit of increasing your retirement savings.

The employer’s contribution does not impact the individual contribution limit. However, the total amount that can be contributed to the retirement plan (employee plus employer match) cannot exceed the lesser of 100% of the employee’s compensation or $70,000 for workers under 50, $77,500 for workers over 50 or $81,500 for workers between 60 and 63.

3. Maximizing Charitable Contributions: You are entitled to take the larger of the standard deduction or the itemized deduction. There are many strategies to help you maximize your charitable contribution so that your itemized deduction will be the larger than the standard deduction. The most common strategies are: (a) bunching your charitable giving into one year as opposed to giving over several years, and (b) donating appreciated capital assets which you have owned more than one year instead of selling the asset and contributing the sales proceeds to the charity. By donating the appreciated asset, you will save the capital gains tax which would have been generated by the sale of the asset and you will receive a deduction for the fair market value of the donated asset (limited to 30% of your adjusted gross income).

There are other strategies such as qualified charitable distributions, charitable trusts and naming a charity as designated beneficiary. All are beyond the scope of this article.

4. Non-Qualified Stock Options: These stock options are issued by employers. The exercise of these options generates ordinary income for the employee. Hold off on exercising the options until the end of the year. Base the exercise of the options in light of the income earned thus far so that exercising the option(s) does not trigger a change to a higher tax bracket.

5. Harvest Capital Gain Losses: If you plan to rebalance your portfolio, review your capital gains and losses for the year before doing so. If capital gains are high, the sale of positions which will generate capital losses will reduce your tax liability since the gains will be offset by the losses. If you have incurred capital losses, then this is a good time to sell positions that will generate capital gains so that you can offset the gains with the losses.

Note that while capital losses and capital gains fully offset each other, capital losses in excess of capital gains can only offset up to $3,000 of ordinary income. Capital losses in excess of the $3,000 are carried forward until the following year.

Actions which must be taken by April 15

1. Health Savings Accounts: Contribute to your HSA. The contributions are tax deductible. The contribution limits for 2025 are: $4,300 for individuals, $5,300 for individuals over 55, $8,550 for families (limits are higher when spouse(s) are over 55). You must meet certain requirements to establish an HSA. For more information see: https://magdaabdogomezlaw.com/a-health-savings-account-as-a-retirement-tool/

2. Traditional IRAs: Unlike contributions to Roth IRAs, contributions to a traditional IRA may be tax deductible. The contribution limits for 2025 are $7,000, or $8,000 for those 50 and older. If you or your spouse are covered by an employer provided retirement plan, the contribution may not be fully deductible.