Here’s How to Tame the Tax Tiger This Year

Nov 25, 2025 01:00:00 -0500 | #Taxes #Guide to Wealth

(Illustration by Josie Norton)

Growing your wealth is never just about what you earn—it’s about how much you can hang on to. So, as another tax-filing year draws to a close, we asked financial pros to describe some of their favorite strategies for paying less to the IRS. Tax management isn’t as sexy as hitting the jackpot with the right stocks, but these strategies can prove highly profitable in the long run.

Bunching Your Gifts

Damien Martin, tax partner, EY

Damien Martin, tax partner, EY (Courtesy of EY)

Because of the Tax Cuts and Jobs Act in 2017, far fewer people itemize, primarily because the standard deduction almost doubled, and the state and local tax [SALT] deduction got capped at $10,000. If your itemized charitable deductions—say they’re $10,000—don’t exceed the $31,500 standard deduction for married joint filers under 65, you aren’t getting any tax benefit for giving. That’s where a donor-advised fund, or DAF, comes in. Instead of giving $10,000 every year, you could bunch three years’ worth together and give $30,000 in one year. That helps you get over the standard deduction so that you get the tax benefit up front. Then you can dole out $10,000 a year to your favorite charities through the DAF, because that vehicle lets you recommend gifts over a long time frame.

But be aware that in 2026, two new rules will kick in. First, a floor on charitable deductions equal to 0.5% of income for those who itemize. That means your gifts have to exceed that threshold before you can deduct anything. Second, because of legislative technicalities, high earners will get an approximately 5.4% haircut on their total itemized deductions. So, if you have $1.25 million of income and give $100,000 to charity, the first $6,250 won’t be deductible, and the second change means your deduction will be cut by an additional $5,068.

Lifetime Tax-Rate Management

Anthea Tjuanakis Cox, head of financial planning, Morgan Stanley

Anthea Tjuanakis Cox, head of financial planning, Morgan Stanley (Courtesy of Morgan Stanley)

We all care about trying to minimize taxes in any given year, but lifetime tax-rate management focuses on minimizing your effective tax rate over your lifetime. That means coordinating flows of income, withdrawals, Roth IRA conversions, charitable giving, capital gains, and equity compensation so that your income lands in the optimal tax bracket over time. Most people are probably focused on tax preparation, which is an annual exercise. This is more about tax projection, which requires discussing forward-looking scenarios and having your advisor use modeling software. Instead of asking, “How do I pay less taxes this year?” we’re asking, “How do we keep you in the lowest effective tax brackets over your lifetime?”

Why does it matter? Consider a person who retires with only tax-deferred accounts: They lose strategic flexibility compared with those who diversify across taxable, tax-deferred, and tax-free buckets, which really allows us to optimize that lifetime tax rate. For example, many clients enter retirement with almost all of their money in tax-deferred accounts, and when the required minimum distribution hits them, their tax rate might spike, sometimes even higher than during their peak earning years. That can come as a real shock.

Diversifying across account types gives people the most flexibility to manage tax implications over their lifetimes. Lifetime tax-rate management is interesting in that it can turn a year that feels not great into an opportunity. If someone gets laid off, or the market is down, that could mean a depressed tax-bracket year that you can take advantage of, perhaps by harvesting long-term capital gains or accelerating income you control. A challenging moment can have potential value in the context of their longer wealth opportunity. Lifetime tax-rate management can make a six- or seven-figure difference for certain people.

Tax-Loss-Harvesting on Steroids

Michele Martin, president of Prosperity, a wealth management unit of EisnerAmper

Michele Martin, president of Prosperity, a wealth management unit of tax firm EisnerAmper (Courtesy of EisnerAmper)

Direct indexing is an aggressive tax-loss-harvesting strategy. It provides exposure to a broad market index like the S&P 500, seeking performance relative to its benchmark while actively harvesting losses, usually on a monthly basis. It’s a high-net-worth strategy because it creates passive losses in taxable portfolios, which are used to offset capital gains for tax purposes. So, for example, if you have most of your savings in IRA accounts, this strategy doesn’t really make sense for you. We typically use this for clients with taxable portfolios over $5 million, because they’re creating recurring gains in their portfolio every year. You can build up these harvested losses in your portfolio and carry them over from year to year, and once you have a gain event on your balance sheet, including passive gains on the sale of a business or a second home, they are there to offset it, which is really valuable.

We see a lot of value in direct indexing for clients who hold a concentrated stock position. Say you’re an executive who retires with a couple of million dollars of highly appreciated company stock, which will incur heavy capital-gains taxes when sold. Using the direct-indexing strategy, you can gradually sell shares of that holding, use the proceeds to create or add to a fully diversified account, and then harvest losses from that account over time to offset the capital gains from the company stock. So, it’s an elegant way of diversifying out of concentrated positions. In volatile years like 2022, we’ve used direct indexing to harvest significant losses for clients using this strategy.

Setting Up a Health Savings Account

Nell Cordick, financial advisor, Bogart Wealth

Nell Cordick, financial advisor, Bogart Wealth (Courtesy of Bogart Wealth)

A phenomenal vehicle that almost no one takes full advantage of is a health savings account. HSAs are connected to high-deductible health insurance plans through your employer. Even if they participate in the health savings account, most people use the money as they go. If they can instead pay for their medical expenses out of pocket, then the HSA becomes like a tax-deferred savings account that is even better than a Roth IRA. The money goes in tax-free, grows tax-deferred, and comes out tax-free, provided you use it for qualified medical expenses. The contributions can accumulate over the years, and if you pass away with money still in your account, it will be passed to beneficiaries.

Here’s an example of how this can work. My client, a single gentleman with $150,000 in annual income, is age 56. He hasn’t contributed to his HSA up to now, so he starts contributing the annual maximum of $4,300. And because he’s over 50, he could do an extra $1,000 per year in catch-up contributions. If he contributes $5,400 starting next year [when the annual maximum increases to $4,400] through age 65, and just sits on all the savings with a 6% assumed growth rate, he will have accumulated $71,000 and change by age 65.

Now, after age 65, you have to pay Medicare. And at some point, most people will need cataract surgery. A lot of people will need expensive dental work in their later years. Insurance pays very little of those dental costs. And Medicare only pays the bottom level of cataract replacement lens—so people typically want to pay out of pocket to get the upgraded version. Health savings accounts can take care of all those expensive things in retirement. In addition, they can be used to pay the Medicare premiums.

Combining a DAF and Roth Conversion

Amy Braun-Bostich, founder, CEO, and private wealth advisor, Braun-Bostich & Associates

Amy Braun-Bostich, founder, CEO, and private wealth advisor, Braun-Bostich & Associates (Courtesy of Braun-Bostich & Associates)

A married couple, both age 60, are clients of mine. They’ve built significant wealth and are deeply committed to philanthropy. They regularly make charitable gifts in cash and maintain a donor-advised fund, or DAF. Their estate plan includes inheritances for their three adult children. For the current tax year, the couple owes $62,000 in federal taxes, including $8,000 related to investment income. So far, they have paid $48,000 toward that total.

The couple can meaningfully cut their tax bill by donating $136,000 of highly appreciated stock to their donor-advised fund. Because donations to a DAF can usually be deducted up to 30% of adjusted gross income, this stock gift provides a dollar-for-dollar deduction and significantly lowers their taxable income. After making the DAF donation, their federal tax liability would drop from $62,000 to about $30,000. Since they already paid $48,000, they would qualify for an $18,000 federal tax refund.

Next, the couple could convert part of the husband’s traditional IRA to a Roth IRA. This conversion would add some income taxes, bringing their total tax bill to about $56,472. However, that’s still lower than the original $62,000 they would have paid without any planning. The Roth conversion also helps move money into a tax-free account for the future and supports their long-term goal of leaving a tax-efficient inheritance. In effect, this strategy keeps them in the 12% bracket instead of moving them into the 22% bracket.

An Early-Retirement Sweet Spot

Gabriel Shahin, founder and CEO, Falcon Wealth Planning

Gabriel Shahin, founder and CEO, Falcon Wealth Planning (Courtesy of Falcon Wealth Planning)

The five years from ages 62 to 67 are some of the most powerful tax-planning years of your life, if you use them wisely. For those who retire in their early 60s—prior to receiving Social Security and before required minimum distributions [RMDs] from their retirement accounts kick in—there is an underused window to gain a big tax advantage. In the few years after retirement, when your income drops, you can consequently find yourself in a lower bracket, which in many cases is 12% for mass-affluent households.

The idea is to do a Roth IRA conversion during that window. Roth conversions trigger income tax, so by doing it while your rate is low, retirees can prepay a modest amount of tax today to potentially reduce lifetime tax exposure, all while aiming to keep capital gains and Social Security benefits lightly taxed during these years. Unfortunately, many retirees miss out on this window and do little tax planning during their lowest-income years. Then, at 73, they’re required to take RMDs from growing IRA balances, which can push them into higher tax brackets and cause as much as 85% of their Social Security to become taxable. Using this lesser-known tax strategy creates the potential to reduce exposure to higher future tax brackets and to prevent potential Medicare surcharges, which are triggered at certain income levels.

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