End of 2025 Tax Optimization

Wow, 2025 is almost over. We only have about 2 weeks left to finish tax optimization. Actually, we have less time than that. I want to get everything done before the holidays. Mrs. RB40 is already in California, and we’ll fly down to join her for Christmas. Who wants to deal with taxes during the holidays? Not me!

These days, year-end tax optimization is pretty simple. There are only a few ways to optimize taxes for workers. Here are the main points.

Maximize retirement contributions

The easiest way to reduce your tax liability is to contribute to your tax-advantaged retirement plans. Mrs. RB40 and I maxed out our Roth IRA contributions early in 2025, $8,000 each. That proved to be a good decision because the stock market performed quite well this year. She also maxed out her 401k contributions before she retired. That’s $34,750 for people over 50. I haven’t contributed to my solo 401k yet because I don’t know how much money I will earn this year. I probably made around $10,000 and should be able to contribute most of that to my solo 401k. Fortunately, the last day to contribute to a solo 401k is the tax deadline. I have a couple of months left to get it done.

Did you max out your 401k? That’s the easiest way to become a millionaire. Keep investing!

Harvest Investment Losses

Investors can sell their money losing stock investment and deduct up to $3,000 per year against their ordinary income. This is an easy one for me because I don’t have any losses! I have individual stocks in my taxable account, but I’ve held most of them for many years. They are all in the money. It feels great to have no losses. I’m perfectly fine with giving up this tax deduction.

Next year, I’ll work on selling some stocks to take profit while staying in the 0% long-term capital gains bracket. If you’re married, you don’t have to pay tax on long-term gains if your AGI is under $96,700. I’m looking forward to selling some stocks.

Charitable Giving

Another way to reduce your tax liability is to make some charitable donations.

This year, Trump cut funding to National Public Radio because they report accurate news. I finally became a donor after listening for free for the last 30 years. Support NPR because they bring reliable factual news to America. Yes, they lean a little left, but so do I.

We made a few other donations, but I don’t think it’ll be enough to overcome the standard deduction. Charitable donations only help if you itemize your tax deduction. Although, it looks like there will be some tax rule changes for 2026. Taxpayers who take the standard deduction can claim a new “above-the-line” deduction up to $1,000 (single) or $2,000 (married filing jointly). That’s interesting. We should keep an eye on that for next year.

Alright, that’s all I got today. It turns out I don’t have that much to do. We already made our moves throughout the year. That’s the best way to do it. It’s no fun to scramble around during the holidays.

Have you finished tax optimization for the year? Are there any new moves I can do to minimize taxes?

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Joe recommends Empower for DIY investors. They have many useful tools that will help you reach financial independence.