As Congress has now kicked off a new session, tax policy is taking center stage, with discussions underway on what could become the largest tax bill in U.S. history. These anticipated changes, including the possible sunset of the Tax Cuts and Jobs Act (TCJA), are set to significantly impact both individuals and businesses, bringing shifts to income tax rates and reshaping financial planning strategies for the future.

For taxpayers, the time to act is now. When tax rates are projected to rise, strategies like accelerating income into the current year and deferring deductions to future years with higher tax rates can help individuals and businesses better position themselves financially. To prepare for these changes effectively, here are the top 10 income tax planning tips: 

Tip #1: Always time your earned income strategically

When tax rates are low, collecting as much taxable income as possible is a good idea.

• Self-employed individuals and cash-based taxpayers should aim to collect income in low-rate years.
• Employees with equity compensation should be mindful of vesting schedules and plan accordingly.

Additionally, consider what taxable income sources you can control:

• For retirement accounts, converting a traditional IRA to a Roth IRA may allow you to lock in lower rates now while enjoying tax-free withdrawals later. This doesn’t have to be all or nothing – run the numbers to see what makes sense.

Conversely, defer deductions to future years with higher tax rates to maximize their impact.

Tip #2: Postpone charitable contributions and business expenses

If you know you’ll be taxed more next year, consider postponing large charitable contributions or business expenses.

For managing SALT (State and Local Tax) exposure:

• Adjust the timing of your state income tax and real estate payments to optimize deductions.
• Explore whether electing a Pass-Through Entity Tax (PTET) is viable.

Tip #3: Donate appreciated stock to charity

Donating publicly traded stock held for over a year is a highly efficient way to give. You can:

• Deduct the fair market value of the stock
• Refrain from realizing a capital gain on the sale

Tip #4: Consider “bunching” charitable donations

Maximize the impact of your charitable giving by bunching two years’ worth of donations into one year. This approach helps exceed the high standard deduction threshold in 2025, helping ensure your contributions deliver a tax benefit.

Tip #5: Max out contributions to tax-deferred accounts

Take full advantage of tax-deferred savings vehicles like 401(k)s and IRAs:

• Contribute the maximum amount allowed
• If you’re 50 or older, make catch-up contributions of an additional $7,500 for 401 (K) and $1,000 for IRA in 2025
• If you are aged 60 to 63, the catch-up limit is $11,250 in 2025 for 401 (K)

Tip #6: Leverage carryforwards

Review your 2023 tax return for carryforwards such as:

• Passive activity losses
• Foreign tax credits
• Capital losses
• Investment interest expense carryforwards
• Net operating losses (NOLs) created by an excess business loss (EBL)

Discuss these opportunities with your tax advisor to take advantage of them sooner rather than later.

Tip #7: Avoid underpayment penalties

Double-check your estimated tax payments and withholdings to avoid the IRS underpayment penalty, which currently has a steep 7% interest rate with the potential for being even higher. Ensuring accuracy here can prevent costly penalties.

Tip #8: Move high-growth assets out of your estate

Consider gifting high-growth assets or contributing them to a trust. This strategy allows you to:

• Remove future appreciation from your taxable estate
• Use valuation discounts, such as for marketability or minority interests, to reduce the taxable value

Don’t forget to make your annual exclusion gifts for 2025, with a limit of $19,000 per person. Planning like this takes time, so it’s never too early to start.

Tip #9: Review your investment portfolio for tax efficiency

Regularly review your portfolio for opportunities to realize capital losses to offset current or future capital gains. This process, known as tax loss harvesting, can be done year-round. However, watch out for wash sale rules, which could disallow losses if you repurchase the same or a similar asset within 30 days.

Tip #10: Consult with your tax advisor

Tax planning isn’t one-size-fits-all. Every taxpayer’s financial, income, and estate tax situation is unique. Consulting with a tax advisor helps ensure you receive tailored guidance that maximizes your opportunities and minimizes your liabilities.

Next steps

With the TCJA provisions scheduled to sunset, 2025 offers opportunities for proactive tax planning. By timing income and deductions, leveraging carryforwards, and consulting with an experienced professional, you can take control of your tax strategy; but don’t wait – contact CohnReznick to create a personalized plan that positions you for success in the years to come.

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}