Tax Planning to Avoid Panic: How Careful Preparation Can Minimize Your Tax Burden

With the end of the year quickly approaching, now is the ideal time to review your tax planning strategies, especially in light of the changes introduced by the One Big Beautiful Bill Act (OBBBA).

Proactive planning in the fall can help you avoid surprises in April and reduce the stress of last-minute decisions in December. Additionally, putting in a little extra time now will likely pay off when it comes time to file your taxes, and may even set you up for some long-term tax benefits down the road.

Here are several strategies to consider, updated for the current tax law landscape: 

1. Accelerate Your Charitable Giving 

One of the easiest and most fulfilling ways to minimize your taxes is through gifts to qualified charitable or 501(c)(3) organizations. The deductions apply to the year of the donation; if the donation is made with a credit card, the deduction will apply to the year that donation is made, even if payment is not made to the credit card company until the following year. Property and asset donations are also tax deductible. Appreciated property can provide a big boost, since the deduction in most cases is equal to the full market value of the property, and the taxpayer does not have to recognize the appreciation of the property as taxable income. 

With the passing of OBBBA, the deductibility around charitable giving will be changing a little. For individuals, beginning in 2026, only the portion of your charitable contributions that exceeds 0.5% of your adjusted gross income (AGI) is deductible. Because of this new floor, “bunching” charitable contributions into a single year may be more effective than contributing a little each year as it will allow you to exceed the threshold and maximize your deduction. The 60% AGI limit for cash contributions to public charities is now permanent, and beginning in 2026 nonitemizers can deduct up to $1,000 ($2,000 for joint filers) in cash gifts to public charities in addition to the standard deduction. 

Whatever you choose to give, you will need to keep a record of the donations. The IRS requires that taxpayers obtain letters from charities acknowledging receipt of the gifts, when the gift is $250 or more to that charity. Otherwise, you may lose out on any potential deductions. 

Another option for taxpayers who are age 70 ½ or older is to make direct contributions from their IRA. A taxpayer can make annual direct transfers to qualified charities up to $100,000 (increased yearly for inflation) from a tax deferred account. Please note that to qualify for the tax benefit the transfer must be direct from the IRA to the qualified charity. The distribution does not need to be recognized as income and can be included as part of a taxpayer’s required minimum distribution essentially lowering the taxpayer’s adjusted gross income (AGI) and overall tax liability. Many calculations and limitations are based on AGI, so this could potentially lead to larger deductions. Keep in mind that because the distribution is not included as taxable income, the charitable contribution will not be shown on the tax return. 

2. Pre-pay Expenses to Take Deductions this Year 

Consider shifting expenses you expect to incur early next year to the end of the current year. Payments such as mortgage interest, state and local taxes (SALT), or charitable donations from the early part of the following year can be paid in the current year and deducted on the current year’s taxes as an itemized deduction.

Finally, prepaying taxes, such as property and state income tax, is a great way to take an additional deduction in the current year. However, keep in mind that the deduction for SALT, which includes both property and income taxes, is capped at $40,000 per year ($20,000 if married filing separately) and is phased down to $10,000 ($5,000 if married filing separately) once AGI exceeds $500,000 ($250,000 if married filing separately). Lastly, the new itemized deduction limitation under OBBBA may reduce the benefit of these deductions for higher-income taxpayers.  

3. Increase Contributions to a Retirement Account 

This is a perennial favorite of the Truepoint tax team! Contributions to traditional IRAs are tax deductible in the year that the contribution is made. Depending upon whether you (and your spouse, if married) are covered by an employer’s retirement plan, there may be a limit to the amount of tax-deductible contributions you can make in a given year. If you (and your spouse, if married) are not covered by an employer’s retirement plan, you can deduct all contributions, no matter your income level. 

If you (or your spouse, if married) are covered by a retirement plan, the deductible limit is determined by your AGI. Determine your limit, and fund your IRA accordingly. Other types of investments aside from retirement accounts can bring tax breaks as well.

4. Convert Your Traditional IRA to a Roth IRA 

Beginning in 2010, the IRS removed the income limit that barred many high-income earners from converting their traditional IRAs to Roth IRAs. Many people jumped on this opportunity to transfer funds in their traditional IRAs to Roth IRAs because of the promise of tax-free investment growth and tax-free withdrawals during retirement.

Contributions to traditional IRAs can potentially be deducted from taxable income, while contributions to a Roth IRA cannot. However, looking ahead, Roth IRAs can provide tax savings in the long run by having the IRA grow tax free, whereas traditional IRAs are merely tax-deferred. Withdrawals from traditional IRAs are also taxed during retirement years at the taxpayer’s ordinary tax rate. The up-front taxes that come with a conversion to a Roth IRA may be a bit higher, but down the road the tax benefits will add up. Still, depending upon how much you earn, you may not be able to contribute to a Roth IRA. However, this does not affect your ability to convert funds from a traditional IRA to a Roth IRA.

5. Double-check Your Withholdings 

If you’re like most people, you probably pay the majority of your taxes through tax withholding on your wage income. Still, it’s a good idea to check exactly how much is withheld from each paycheck and compare that tax-withholding amount to your estimated income taxes. Why? Because many people either withhold too much or too little. If too little tax is being withheld from each paycheck, you may get hit with an unexpected tax bill. If too much is being withheld, you will receive a refund when you file your tax return. 

Refunds may seem like a good thing, but they essentially mean that you have lent the government money during the year. You could have put those funds to better personal use – paying off debt, saving more for retirement, saving up for a special trip, etc. Making sure you have “goldilocks” withholding – an amount that’s “just right” – can help make next April (and every April) calmer, surprise-free and means more money in your pocket. 

6. Defer Income 

If you are expecting any year-end bonuses from your company, you can request that they be paid in January as opposed to December to minimize this year’s tax burden and delay the tax paid on this bonus for another year. If you are self-employed, pushing invoices into the following year may lessen this year’s taxes and allow you to pay the tax the following year. This approach is only advisable if you believe that you will be in either the same or a lower tax bracket the following year. Otherwise, it may come back to bite you in the form of a higher tax bill down the line. 

At Truepoint, we don’t view tax planning as a once-a-year activity, but rather as a continuous process. The more you look into your tax plan in the fall, the less stress and scrambling you’ll face during the holidays or in early April.