Wow, 2025 is almost over. We only have about two weeks left to complete tax optimization. In fact, we have less time than that. I want to get everything done before the holidays. Mrs. RB40 has arrived in California and we will be flying out to spend Christmas with her. Who wants to deal with taxes during the holidays? Not me!
Today, year-end tax optimization is easy. There are only a few ways to optimize worker taxes. Here are the key points.
Maximize retirement contributions
The easiest way to reduce your tax liability is to contribute to your tax-advantaged retirement plan. Ms. RB40 and I maxed out our Roth IRA contributions in early 2025 at $8,000 each. This turned out to be a good decision as the stock market has done quite well this year. She also maxed out her 401k contributions before retiring. For someone over 50, that's $34,750. I haven't contributed to my personal 401k yet because I don't know how much money I will make this year. I probably made about $10,000 and should be able to contribute most of that to my personal 401k. Fortunately, the last day for individual 401k contributions is the tax deadline. I still have a few months to finish it.
Have you maxed out your 401k? This is the easiest way to become a millionaire. Keep investing!
Harvest investment losses
Investors can sell losing stock investments and deduct up to $3,000 per year from ordinary income. This is easy for me because I have nothing to lose! I have stocks in my taxable account, but I've held most of them for years. They are all in the money. It feels so good to have no losses. I totally agree with giving up this tax break.
Next year I will try to sell some stocks at a profit while maintaining 0% long term capital gains. If you are married and your AGI is less than $96,700, you do not pay taxes on your long-term gains. I'm looking forward to selling some shares.
Charitable donation
Another way to reduce your tax liability is to make some charitable donations.
This year, Trump cut funding for National Public Radio because they report accurate news. After listening to it for free for the past 30 years, I finally became a donor. Support NPR as they bring reliable, factual news to America. Yes, they lean slightly to the left, but so do I.
We made some other contributions, but I don't think it was enough to overcome the standard deduction. Charitable donations are only helpful if you itemize your tax deductions. Nonetheless, it looks like there will be some changes to the tax rules in 2026. Taxpayers who take the standard deduction can claim a new “above the line” deduction of up to $1,000 (single) or $2,000 (married filing jointly). That's interesting. We should keep an eye on this next year.
Okay, that’s all I have for today. Turns out I didn’t have that much to do. We have already taken action during the year. This is the best way. Running around on vacation is no fun.
Have you completed your tax optimization for this year? What new steps can I take to minimize my taxes?
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