Year-End Tax Priorities Before OBBBA Changes Kick In

As 2025 draws to a close, this year’s tax review carries added urgency. The One Big Beautiful Bill Act (OBBBA), signed into law in July, made several individual tax rate cuts permanent – averting a reversal of the 2017 Tax Cuts and Jobs Act (TCJA). However, beginning January 1, 2026, a series of new provisions will take effect, creating short-lived opportunities to lock in favorable rules before year-end. 

The overarching theme for this year is to accelerate deductions and income strategies while current provisions remain in place. Acting before December 31 could mean the difference between realizing meaningful tax savings and missing a valuable opportunity. 

Charitable Giving: Frontload This Year 

For those who give charitably, 2025 presents a critical opportunity to maximize deductions. Beginning in 2026, OBBBA introduces a 0.5% of AGI floor for itemized charitable deductions. For example, if your AGI is $400,000, the first $2,000 of donations will no longer be deductible. Taxpayers in the highest income tax bracket face a ceiling that limits their itemized deduction to 35%, instead of 37%. To take advantage of the current deduction rules, many taxpayers should consider "bunching" multiple years of giving into 2025. Contributing to a Donor Advised Fund (DAF) allows you to secure a large deduction this year while maintaining flexibility to distribute gifts to charities over time. 

For those who typically take the standard deduction, note that starting in 2026, OBBBA introduces a new non-itemizer charitable deduction of up to $2,000 for joint filers. If you are near the itemizing threshold, it may make sense to group deductible expenses – such as mortgage interest and State and Local Tax (SALT) payments (up to the $40,000 cap that began in 2025) into 2025, and reserve smaller donations for 2026 and beyond, when they can be deducted separately. 

Targeted Opportunities 

A few targeted moves offer significant benefits for those who act quickly. 

Incentive Stock Options (ISOs): OBBBA’s new thresholds increase the likelihood of triggering AMT in 2026, particularly for employees exercising ISOs. Exercising in 2025—before the less favorable phaseouts take effect—can help avoid the “AMT bump zone,” where effective rates can exceed 40%. 

529 Plan Reimbursements: As of July 5, 2025, OBBBA expanded 529 plan eligibility to include costs and expenses for professional credentials (like the CFP® exam), as well as expanded K-12 expenses such as tutoring and test fees. Taxpayers can take a 2025 distribution by year-end to reimburse newly eligible expenses that were incurred on or after July 5, 2025. Starting January 1, 2026, the annual tax-free cap for K-12 expenses increases from $10,000 to $20,000 per student. 

Home Energy Credits: Several clean energy credits are set to expire sooner than expected. If feasible, completing qualifying improvements by December 31, 2025, can still yield up to $3,200 in credits for items such as windows, insulation, or HVAC systems. 

QBI Deduction: For Business Owners with specified service businesses, like lawyers and doctors. Review the Qualified Business Income (QBI) deduction. The phase-out range for the deduction is widening in 2026, so it’s worth exploring whether they can defer income until 2026 to soften the tax hit. 

Year-End Essentials 

In addition to OBBBA-related adjustments, the standard year-end actions remain critical: 

Retirement and HSA Contributions: Maximize 401(k) and HSA contributions for 2025. 

Required Minimum Distributions: Those age 73 or older must take RMDs by December 31 to avoid steep penalties. Consider Qualified Charitable Distributions (QCDs) if age 70½ or older. 

Annual Gifting: The 2025 annual exclusion remains $19,000 per individual ($38,000 per couple). Amounts above this reduce your $13.99 million lifetime exemption. Gifts must clear the recipient’s account by year-end; postdated checks do not qualify. 

Roth Conversions: Converting from a pre-tax IRA to a Roth could be valuable if you expect higher marginal tax rates after 2025. Converting now locks in tax-free growth at today’s rates. However, added taxable income from a Roth conversion could reduce eligibility for the expanded SALT deduction or trigger the Alternative Minimum Tax (AMT). 

With major rule changes ahead, 2025 is a pivotal year for proactive tax planning. Schedule a year-end review with your wealth manager and tax professional to make the most of current opportunities.