By Jeremiah Barlow.
Here’s the difficult truth that accountants don’t want to tell you right now: it’s likely too late to get the best outcome on your 2025 income taxes.
For most taxpayers, tax filing is a hurried exercise that’s initiated as the April 15 tax deadline approaches. Last year, more than half of Americans had not filed their taxes by mid-March.
This means that many Americans are missing out. For many taxpayers, the best opportunities to save money on your taxes ended in December. By January 1, some of the best opportunities were no longer available. If you’re not engaging a tax professional for your 2025 taxes until February, March, or April, it’s simply too late.
That’s because the best opportunities depend upon proactive planning throughout the year.
Missed opportunities
A simple example of the sort of opportunities missed by waiting are capital gains taxes. Families who have been saving and investing for many years likely generate capital gains each year. Long-term capital gains rates can be as high as 20%, while short-term rates can be as high as 37%. An additional 3.8% tax, the net investment income tax, applies to investors above certain income limits. For many, this is a considerable tax bill.
If we were still in 2025, these gains could have been offset with tax-loss harvesting strategies, strategically selling securities at a loss, creating an offset to that year’s capital gains, then replacing them with similar assets. If the new assets perform similarly to the old ones, your portfolio ends up in a similar place, but through the strategic sale, you now have losses to offset potential gains, resulting in lower taxes. (There is precision required, such as complying with wash-sale rules, which should be navigated carefully to maximize the benefit.)
Tax-loss-harvesting is most effective when it’s opportunistic throughout the year. By January, it’s too late to even think about it for the previous year.
Maximize your charitable contributions
For investors considering their charitable giving strategies, another opportunity for year around tax planning is available. If you have securities that have appreciated in value, you can donate them to a charity at their current fair market value (if they have been held for over a year). Neither you, nor the charity, owe capital gains tax on the gift.
A moment of market upswing, which could occur at any point during the year, maximizes both the tax benefit to you and the funds available to your charitable cause.
Consider potential Roth conversions
A third tax saving strategy that’s been missed by now would be Roth conversions. For example, if the deductions from tax-loss harvesting and strategic charitable donations pushed you into a lower tax bracket, you could use this opportunity to convert taxable retirement accounts into after-tax Roth accounts.
Estate planning at the end of the year
In addition to tax strategies within your portfolio, you miss key estate planning windows if you wait until January. The annual gift tax limit was $19,000 for an individual and $38,000 for a couple in 2025. No taxes are owed, but the gift opportunity is use-it-or-lose-it.
Some families use the end of the year to take advantage of income-shifting. A family member in a higher tax bracket uses the gift tax limits to gift assets to a family member, perhaps a young adult child, in a much lower tax bracket. Future income from that asset is taxed at the lower rate of the recipient.
As the complexity of your finances grow, so do the opportunities. Most taxpayers start out with simple financial situations. Come tax time there’s little to do but record what happened the previous year. However, over time capital gains, charitable goals, pre-tax retirement accounts, company stock awards, and a wide range of other complexities stack up, creating significant opportunities for tax savings… but only if you plan ahead.
The bad news is that it’s too late for 2025 taxes. Get those taxes filed, of course, but don’t stop there. Don’t wait until March 2027 to think about your taxes again.
While you’re still in tax mode, use the completion of your 2025 taxes as impetus to begin proactive planning in 2026.
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Jeremiah Barlow is the Chief Solutions Officer at Mercer Advisors.[JR1] The opinions expressed by the author are his own and are not intended to serve as specific financial, accounting, or tax advice. They reflect the judgment of the author as of the date of publication and are subject to change. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. “Mercer Advisors” is a brand name used by several affiliated legal entities owned by Mercer Advisors, Inc., including, Mercer Global Advisors, Inc., an SEC registered investment adviser; Mercer Advisors Private Asset Management, Inc., an SEC registered investment adviser; Mercer Advisors Tax Services LLC; Heim, Young and Associates, Inc., (MA Brokerage Solutions); and Mercer Advisors Insurance Services LLC.
[JR1]Created a hyper link to our website here.
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