Cordasco & Company

There’s still time to save 2025 taxes

Just because it’s December doesn’t mean it’s too late to reduce your 2025 tax liability. Consider implementing one or more of these year-end tax-saving ideas by December 31.

Defer income and accelerate deductions

Pushing income into the new year will reduce this year’s taxable income. If you’re expecting a bonus at work, for example, ask if your employer can hold off on paying it until January. If you’re self-employed, you can delay sending invoices so that they won’t be paid until January and thus postpone the revenue to 2026.

If you itemize deductions, remember that deductions generally are claimed for the year of payment. So, if you make your January 2026 mortgage payment in December, you can deduct the interest portion on your 2025 tax return. Similarly, if you’ve received your 2026 property tax assessment and pay it by December 31, you can claim it on your 2025 return (provided your total state and local taxes don’t exceed the applicable limit).

But don’t follow this approach if you expect to be in a higher tax bracket next year. Also, if you’re eligible for the qualified business income deduction for pass-through entities, consider how this approach might affect it.

Harvest investment losses

An investment loss has a bit of an upside — it gives you the opportunity to offset taxable gains. If you sell investments at a loss before the end of the year, you can offset gains realized this year on a dollar-for-dollar basis.

If you have more losses than gains, you generally can apply up to $3,000 of the excess to reduce your ordinary income ($1,500 if you’re married and filing separately). Any remaining losses are carried forward to future tax years.

Donate appreciated stock to charity

If you want to give to charity, you can simply write a check or use a credit card. Or you can donate from your taxable investment portfolio, which sometimes saves more tax.

By donating appreciated publicly traded stock, you can claim a charitable deduction (assuming you itemize deductions) equal to the current market value of the shares at the time of the gift. Plus, you escape any capital gains taxes you’d owe if you sold those shares.

But don’t donate stock worth less than it cost. Instead, sell the shares so you can claim a capital loss, which can reduce your taxes now or in the future as discussed above. Then, give the sales proceeds to a charity and claim a charitable deduction.

Maximize retirement contributions

Making pretax or tax-deductible contributions to traditional retirement accounts — such as a 401(k) plan, Savings Incentive Match Plan for Employees (SIMPLE), IRA and Simplified Employee Pension (SEP) plan — can be a significant tax saver.

For 2025, taxpayers can contribute pretax as much as $23,500 to a 401(k) or $16,500 to a SIMPLE. The IRA contribution limit is $7,000, though your deduction may be reduced or eliminated if you or your spouse also contributes to an employer-sponsored plan. Self-employed individuals can contribute up to 25% of net income (but no more than $70,000) to a SEP IRA.

Taxpayers age 50 or older by December 31 can also make “catch-up” contributions of up to $7,500 to a 401(k) or $3,500 to a SIMPLE and $1,000 to a traditional IRA. Those age 60, 61, 62 or 63 can make an additional catch-up contribution of up to $3,750 to a 401(k) or $1,750 to a SIMPLE.

The deadline for making 2025 401(k) and SIMPLE contributions is generally December 31, 2025. (And if you want to increase the amount that’s deferred from your paycheck, you’ll need to check with your plan on whether increases for the year are still allowed.) But you might be able to make deductible 2025 IRA contributions as late as April 15, 2026, and deductible 2025 SEP contributions as late as the extended 2025 filing deadline of October 15, 2026.

Act soon

Most of the ideas discussed here must be implemented by December 31 to reduce your 2025 taxes. So act soon. Let us know if you have questions or are looking for more last-minute tax-saving strategies.

6 last-minute tax tips for businesses

Year-round tax planning generally produces the best results, but there are some steps you can still take in December to lower your 2025 taxes. Here are six to consider:

1. Postpone invoicing. If your business uses the cash method of accounting and it would benefit from deferring income to next year, wait until early 2026 to send invoices.

2. Prepay expenses. A cash-basis business may be able to reduce its 2025 taxes by prepaying certain 2026 expenses — such as lease payments, insurance premiums, utility bills, office supplies and taxes — before the end of the year. Many expenses can be deducted even if paid up to 12 months in advance.

3. Buy equipment. Take advantage of 100% bonus depreciation and Section 179 expensing to deduct the full cost of qualifying equipment or other fixed assets. Under the One Big Beautiful Bill Act, 100% bonus depreciation is back for assets acquired and placed in service after January 19, 2025. And the Sec. 179 expensing limit has doubled, to $2.5 million for 2025. But remember that the assets must be placed in service by December 31 for you to claim these breaks on your 2025 return.

4. Use credit cards. What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, expenses paid by credit card are deductible when charged, even if you don’t pay the credit card bill until next year.

5. Contribute to retirement plans. If you’re self-employed or own a pass-through business — such as a partnership, S corporation or, generally, a limited liability company — one of the best ways to reduce your 2025 tax bill is to increase deductible contributions to retirement plans. Usually, these contributions must be made by year-end. But certain plans — such as SEP IRAs — allow your business to make 2025 contributions up until its tax return due date (including extensions).

6. Qualify for the pass-through deduction. If your business is a sole proprietorship or pass-through entity, you may be able to deduct up to 20% of qualified business income (QBI). But if your 2025 taxable income exceeds $197,300 ($394,600 for married couples filing jointly), certain limitations kick in that can reduce or even eliminate the deduction. One way to avoid these limitations is to reduce your income below the threshold — for example, by having your business increase its retirement plan contributions.

Most of these strategies are subject to various limitations and restrictions beyond what we’ve covered here. Please consult us before implementing them. We can also offer more ideas for reducing your taxes this year and next.

An ILIT can protect life insurance proceeds from estate tax

Life insurance is often a cornerstone of estate planning, providing liquidity to cover estate taxes, debts or other obligations. However, life insurance proceeds generally will be included in your taxable estate if you own the policy outright. So if your estate is (or in the future might be) large enough that estate taxes are a concern, you’ll want to consider strategies for shielding insurance proceeds. An irrevocable life insurance trust (ILIT) is one option. It removes the policy from your estate, ensuring that the death benefit passes to your beneficiaries free of estate tax.

How it works

To establish an ILIT, you create an irrevocable trust, transfer ownership of an existing life insurance policy to it and designate beneficiaries. Alternatively, you can set up an ILIT as the owner of a new policy you purchase. In addition, the ILIT must be funded so that it’s able to pay the premiums on the policy.

The transfer of an existing policy to an ILIT is, however, considered a taxable gift. Further, subsequent transfers to the trust to fund premiums would also be treated as gifts. But the gifts can be sheltered from tax by your available gift and estate tax exemption. (You may even be able to add “Crummey” provisions to your ILIT that allow you to apply your gift tax annual exclusion to the transfers to the trust for funding premiums.) Gifts up to the annual exclusion amount — $19,000 for 2025 — are tax-free and thus don’t use up any of your lifetime exemption.

Because the trust is irrevocable, you can’t change its terms once established. For example, you can’t change the beneficiaries. But this “loss of control” is what keeps the proceeds outside your taxable estate. You can, however, name another family member or a knowledgeable professional as the trustee.

Typically, you’ll designate the ILIT as the primary beneficiary of the life insurance policy. On your death, the proceeds are deposited into the ILIT and held for distribution to the trust’s beneficiaries. In most cases, these will be your spouse, children, grandchildren or other family members.

Potential pitfalls

There are some pitfalls to watch for when transferring an insurance policy to an ILIT. For example, if you transfer an existing policy to the ILIT and die within three years of the transfer, the proceeds will be included in your taxable estate. But the three-year rule doesn’t apply if the ILIT purchased a new policy on your life.

Another pitfall is naming your surviving spouse as the sole beneficiary. It may merely delay estate tax liability until your spouse dies (assuming he or she outlives you).

Consider all your options

An ILIT isn’t a one-size-fits-all solution. It’s generally most beneficial for high-net-worth individuals who anticipate significant estate tax exposure.

The trust can provide heirs with tax-free liquidity precisely when it’s needed most, without forcing the sale of family assets or business interests to cover tax bills. But if estate tax liability isn’t a significant risk for you, the tax benefits of an ILIT may not outweigh the downsides of giving up control of the policy. We can help you determine whether an ILIT is appropriate for achieving your goals.

Is an HDHP plus an HSA a financially smart health care option for you?

Health care costs continue to increase. Pairing a high-deductible health plan (HDHP) with a Health Savings Account (HSA) can help. Insurance premiums will be lower because of the high deductible. And the HSA provides a tax-advantaged way to fund the deductible and other medical expenses.

5 HSA tax benefits

HSAs offer both current and future tax savings:

1. Your contributions are pretax or tax deductible. This saves you tax in the year contributions are made.

2. Contributions your employer makes aren’t included in your taxable income. Again, you save tax in the current year.

3. Earnings on the HSA funds aren’t taxed as long as they remain in the account. HSAs can bear interest or be invested and grow on a tax-deferred basis, similar to a traditional IRA.

4. Distributions to pay qualified medical expenses aren’t taxed. This means you benefit from permanent tax savings. (If funds are withdrawn from the HSA for other reasons, the distribution is taxable. Generally, a 20% penalty will also apply.)

5. Distributions after age 65 are penalty-free even if not used for medical expenses. But they’re still taxable. So, HSAs can help fund retirement, again, similar to a traditional IRA.

Annual limits

You can contribute to an HSA only if you have an HDHP. For 2026, an HDHP is health insurance with an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage. (These amounts increased from $1,650 and $3,300, respectively, for 2025.) Additionally, the 2026 out-of-pocket expenses you’re required to pay for covered benefits can’t exceed $8,500 for self-only coverage or $17,000 for family coverage (up from $8,300 and $16,600, respectively, for 2025).

Beginning in 2026, the definition of HDHP will be expanded. It also will include Bronze and Catastrophic plans available on state and federal insurance exchanges under the Affordable Care Act.

For self-only coverage, the 2026 HSA contribution limit is $4,400. For family coverage, it’s $8,750. (These amounts are up from $4,300 and $8,550, respectively, for 2025.) If you’re age 55 or older by year-end, you may make additional “catch-up” contributions of up to $1,000.

The annual contribution limit is reduced if you have an HDHP for only part of the year or go on Medicare at some point during the year. But you can still take tax-free distributions from your HSA for qualified medical expenses.

Determining your best option

The combination of an HDHP and an HSA can be financially smart, particularly for healthy individuals who don’t currently have many medical expenses. Such individuals can reduce premium costs today and potentially build up substantial HSA funds to use in the future, such as to cover the costs of a major health issue or to supplement their retirement plans. But an HDHP-HSA pairing isn’t the best option for everyone. Contact us to discuss the tax and financial aspects of funding your health care.

Review your business expenses before year end

Now is a good time to review your business’s expenses for deductibility. Accelerating deductible expenses into this year generally will reduce 2025 taxes and might even provide permanent tax savings. Also consider the impact of the One Big Beautiful Bill Act (OBBBA). It makes permanent or revises some Tax Cuts and Jobs Act (TCJA) provisions that reduced or eliminated certain deductions.

“Ordinary and necessary” business expenses

There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Section 162, which permits businesses to deduct their “ordinary and necessary” expenses.

An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It doesn’t have to be indispensable.) Even if an expense is ordinary and necessary, it may not be deductible if the IRS considers it lavish or extravagant.

OBBBA and TCJA changes

Here are some types of business expenses whose deductibility is affected by OBBBA or TCJA provisions:

Entertainment. The TCJA eliminated most deductions for entertainment expenses beginning in 2018. However, entertainment expenses for employee parties are still deductible if certain requirements are met. For example, the entire staff must be invited — not just management. The OBBBA didn’t change these rules.

Meals. Both the TCJA and the OBBBA retained the pre-2018 50% deduction for business meals. What about business meals provided in connection with nondeductible entertainment? They’re still 50% deductible, as long as they’re purchased separately from the entertainment or their cost is separately stated on invoices or receipts.

Through 2025, the TCJA also expanded the 50% deduction rule to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. (Previously, such meals were 100% deductible.) The deduction was scheduled to be eliminated after 2025. The OBBBA generally retains this deduction’s 2026 elimination, with some limited exceptions that will qualify for a 100% deduction. But meal expenses generally can be 100% deducted if the meals are sold to employees.

Transportation. Transportation expenses for business travel are still 100% deductible, provided they meet the applicable rules. But the TCJA permanently eliminated most deductions for qualified transportation fringe benefits, such as parking, vanpooling and transit passes. However, those benefits are still tax-free to recipient employees, up to applicable limits. The OBBBA doesn’t change these rules.

Before the TCJA, employees could also exclude from taxable income qualified bicycle commuting reimbursements, and this break was scheduled to return in 2026. However, the OBBBA permanently eliminates it.

Employee business expenses

The TCJA suspended through 2025 employee deductions for unreimbursed employee business expenses — previously treated as miscellaneous itemized deductions. The OBBBA has permanently eliminated this deduction.

Businesses that don’t already have an employee reimbursement plan for these expenses may want to consider implementing one for 2026. As long as the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees.

Planning for 2025 and 2026

Understanding exactly what’s deductible and what’s not isn’t easy. We can review your current expenses and help determine whether accelerating expenses into 2025 makes sense for your business. Contact us to discuss year-end tax planning and to start strategizing for 2026.

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