3 Ways to Lower Your 2025 Tax Bill Before It’s Too Late

New tax breaks for 2025 include a higher deduction for state and local taxes, or SALT. (Dreamstime)

There’s still time to take advantage of changes in tax law to lower your tax bill for 2025. Acting before year end may be critical to locking in savings.

Lowering your taxable income can help reduce your tax bill—or boost your refund—and qualify you for certain tax deductions and credits.

Many new and existing benefits have income eligibility thresholds. Taxpayers on the cusp may be able to take advantage if they can drop below the limit. Two provisions from the One Big Beautiful Bill Act could make a big difference for many taxpayers: the $6,000 deduction available to moderate- and middle-income seniors ages 65 and over, and the expanded, $40,000 deduction for state and local taxes, or SALT, that phases out at modified adjusted gross incomes above $500,000.

Here are some moves to consider before year end to reduce your taxable income:

Contribute to Tax-Deferred Retirement Accounts

Money contributed to a traditional, tax-deferred 401(k) plan is subtracted from your taxable income for the year. You don’t pay taxes on that money when you’re working, but you will owe income taxes when you withdraw it in retirement.

The contribution limit for 401(k) and related plans for 2025 is $23,500 for savers under 50, with an additional $7,500 in catch-up contributions allowed for savers 50-plus. Workers ages 60 to 63 qualify for “super-catchups” of $11,250.

These contributions are typically made through payroll deductions, and it can take a pay cycle or two to process them. Act now if you want to increase your contribution amount before year end, which you can do online.

While 401(k) contributions have a Dec. 31 deadline, you have until April 15 of next year to make retroactive contributions for 2025 to your individual retirement account and health savings account. HSA contributions reduce your taxable income, as will IRA contributions under certain circumstances, depending on your income and whether you and your spouse, if applicable, have access to a 401(k) at work.

Make Charitable Contributions

Tax pros expect the number of taxpayers who itemize their deductions to rise this year, thanks to the increase of the SALT deduction from $10,000 to $40,000 for those making $500,000 and under. That means more taxpayers will be able to deduct their charitable contributions, as well, since only itemizers get that benefit this year.

Starting in 2026, taxpayers who itemize their deductions will only be able to deduct charitable gifts that exceed 0.5% of their adjusted gross income. Itemizers can get more bang for the charitable buck this year, before that restriction goes into place. (People who take the standard deduction will get more bang for their charitable buck next year, when a new, “above the line” deduction takes effect of up to $1,000 for single filers and $2,000 married filing jointly.)

Many nonprofits accept stock as a gift. Donating long-term, appreciated stock from a taxable account will eliminate any capital-gains taxes you would otherwise owe and the 3.8% net investment income tax owed by higher-income taxpayers. If you itemize deductions, you can also get a charitable deduction on the fair market value of the donated securities.

Taxpayers ages 70½ and over have a powerful way to lower their adjusted gross income through a qualified charitable distribution, or QCD. This allows you to donate up to $108,000 from your taxable IRA directly to a qualifying charity. It reduces your income for the year, and for those 73 and over, it can count toward your required minimum distribution for the year.

The only downside is that you can’t also get a charitable deduction on your QCD. “You can’t double dip,” says Nicole DeRosa, director of tax at SKC & Co. in Boonton Township, N.J.

Realize Losses to Offset Capital Gains and Income

Losses aren’t as plentiful in this year of strong stock market returns. But if you do have a stock or other investment that has lost value since you bought it, selling it and realizing that loss can help you offset realized gains in taxable accounts. You can use any remaining loss to offset up to $3,000 of taxable income for the year.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com