2025: Year-End Planning Checklist

As we head toward year-end, we wanted to share a few ideas to help you prepare and make the most of recent tax
law changes. The biggest development this year was the passage of the “One Big Beautiful Bill Act” (OBBBA), which
includes several updates that will affect your taxes in 2025, 2026, and beyond. Highlights include maintaining the
current federal estate and gift tax exemption of $13.99 million, with an increase to $15 million per person starting in
2026, raising the SALT deduction for itemizers (with some limits), and reducing itemized charitable contribution
deductions next year along with other changes. For more details, check out our latest article here.

Review Charitable Contribution Rules Under OBBBA. One significant change made by the OBBBA is the new limit on the deduction for charitable contributions. Starting in 2026, taxpayers who itemize their deductions will be subject to a 0.5% AGI floor on their charitable contributions—this means that donations will not be deductible except to the extent they exceed 0.5% of your Adjusted Gross Income (AGI). In addition, they will be subject to what’s been dubbed the “haircut,” which limits the value of all itemized deductions to the 35% tax bracket (37% being the highest federal tax bracket currently). Charitable contributions are subject to other limits as well. For example, in any year, donations of appreciated stock to a public charity are limited to 30% of your AGI. Any donation of stock in excess of this amount may be carried forward up to 5 years and deducted later. Note that donations of cash to a public charity will be subject to a 60% AGI floor.

New Rule for Those Who Don’t Itemize

Under the OBBBA, taxpayers who do not itemize deductions can claim a new “above-the-line” charitable deduction for cash donations starting in 2026. The new deduction is limited $1,000 for single filers and $2,000 for married couples filing a joint tax return. Only cash contributions to qualified public charities count toward this deduction. The deduction does not apply to donations made to a Donor-Advised Fund (DAF).

Gifts of Appreciated Stock to Charity

One of the most tax-efficient ways to make charitable donations is by contributing appreciated securities to a qualified charity, including a DAF, which is classified as a public charity for tax purposes. Giving to a DAF allows you to dispose of the securities and avoid a capital gains tax on the appreciation while getting a full fair-market-value deduction for the gift up to applicable AGI limits. In addition, you can invest the DAF’s funds and act as an “advisor” by recommending charitable donations. Further, unlike a private foundation, current tax rules do not put a 5% minimum annual grant requirement on a DAF. Moreover, DAFs are not subject to the other complex tax rules that apply to foundations, which makes them especially user-friendly.

Tip: In 2025, try to make the largest gift you can to a DAF before the new rules kick in.

Qualified Charitable Distributions From an IRA

If you’re age 70½ or older, you can distribute up to $108,000 from your traditional IRA directly to a qualified charity (but not a DAF or foundation). These Qualified Charitable Distributions (QCDs) will qualify as satisfying part or all of your Required Minimum Distribution (RMD). When you make a QCD, the withdrawal is reported to you on Form 1099-R as income, but you subtract the amount of the QCD as an adjustment to income, which reduces the taxable amount. Starting this year, the IRS has introduced a new code “Y” on Form 1099-R to indicate that a QCD was made. Charitable donations must be completed before December 31, 2025, to count for this year. Be sure to retain a written acknowledgment of your gift for tax purposes. Do not wait until the last minute to make a QCD.

Tip: In 2026, QCDs will not be subject to the new 0.5% AGI limitation since they are not reported as itemized deductions.

Take Your RMD. IRA owners over a certain age must take RMDs from their retirement accounts by the end of
the year. You must take an RMD from your traditional IRA by December 31, 2025, if you turned age 73 before
January 1 of this year. If you turned 73 in 2025, you may wait until April 1, 2026, to take your first RMD. In addition,
beneficiaries of inherited IRAs may have to take an RMD.

In 2025, the tax penalty for failing to take an RMD is 25% on the amount that was not withdrawn. This penalty can
be reduced to 10% if you correct the missed distribution within a two-year period and file the required IRS
paperwork. If you missed the RMD due to a “reasonable error,” you can request to have the penalty waived
entirely.

Inherited IRAs: Starting in 2025, the IRS has ended its waivers for missed RMDs for heirs subject to the 10-year
rule, which was introduced by the SECURE Act in 2020. It requires most inherited IRAs not going to a spouse to
be fully withdrawn within 10 years of the deceased owner’s death. Non-spouse beneficiaries (such as adult
children) who inherited an IRA from someone who had already reached their RMD age must now take yearly
distributions or face a penalty. Note that Roth IRAs do not have RMDs but may be subject to the 10-year rule.

Tip: And, as we mentioned above, if you are age 70½ or older, you may be able to make a Qualified Charitable
Distribution from your IRA that qualifies as your RMD.

Use Your Annual Gift Exclusion. The IRS allows you to make tax-free gift up to $19,000 per year to an
unlimited number of people. If you are married, you and your spouse can give twice this amount even if only one
spouse is the source of the funds. Further, gifting to minor children (or grandchildren) is possible by setting up a
custodial account under the Uniform Transfers to Minors Act or a trust designed to receive such gifts. Annual
exclusion gifts made after December 31, 2025, won’t count for 2025. Next year, the annual exclusion amount is
expected to remain at $19,000.

Contribute to a 529 College Savings Account. A 529 College Savings Account is a very versatile savings
vehicle. Tax-free withdrawals from a 529 are allowed for “qualified education expenses,” which includes college
tuition, room and board, books and materials, as well as K-12 tuition expenses up to $10,000 per year. Under a
special rule for 529s, you may give 5 times the annual exclusion amount to a 529 account in a single year if you
make an election on a gift tax return to prorate the gift over 5 years. Further, contributions to a 529 account may
be partially deductible for state tax purposes. Under a new rule that took effect in 2024, excess funds in a 529 (up
to a lifetime cap of $35,000) may be rolled over to a Roth IRA if certain conditions are met. Another aspect that
makes 529s so versatile is that the beneficiary may be changed so that the funds can be used for another
person’s education expenses. Withdrawals of earnings from a 529 that don’t qualify as education expenses are
subject to income tax and a 10% penalty.

Contribute to Your IRA. As long as you have sufficient earned income, you may contribute up to $7,000 to an
IRA in 2025 ($8,000 if you are age 50 or older). The contribution deadline for 2025 is April 15, 2026. And if your
income is less than $150,000 (for single filers) or $236,000 (for married couples filing jointly), you may contribute
that amount to a Roth IRA. In addition, if you’re self-employed, you can contribute the lesser of 25% of
compensation or $70,000 to a SEP IRA. Moreover, the SEP contribution deadline can be extended to as late as
October 15, 2026, if a tax filing extension was obtained. Be sure to check with your accountant about this.

Maximize Contributions to Your Workplace Retirement Plan. If your employer matches retirement
contributions, be sure to contribute enough to your tax-deferred retirement plan (such as a 401(k) or 403(b)) to
get the full amount of the match. Also, consider contributing the maximum to your workplace retirement plan if
you have the means and your financial circumstances allow it.

For 2025, the workplace pre-tax contribution limit is $23,500 for 401(k)s and similar plans, but older workers can
make an additional catch-up contribution—up to $7,500 if age 50 or older ($31,000 total), and a super catch-up
of up to $11,250 ($34,750 total) applies to those ages 60–63. Funding a Roth account is also a good strategy. If
your employer offers the option and you haven’t already maxed out your traditional 401(k), you can make after-tax
contributions to a Roth 401(k) (or 403(b)) up to these limits minus whatever you contributed to your traditional
workplace retirement account.

Tip: If you receive a bonus, you may be able to allocate a percentage of your bonus to your workplace retirement
plan to top off your contributions.

Consider a Roth Conversion. Converting a traditional IRA to a Roth IRA can be a good financial move if you
have the means to pay the tax on the conversion from a source outside of the IRA. As long as certain conditions
have been met, withdrawals from the Roth IRA will be tax-free and there will be no RMDs in the future. Generally,
the economic rewards of converting will start to accrue 5 to 7 years after the year of conversion. A Roth
conversion is also subject to a few special rules. Withdrawals from a Roth IRA within 5 years of conversion will
trigger a tax on the earnings plus a 10% early withdrawal penalty if you are under age 59½. Roth conversions can
be done in batches over time, which may allow you to take advantage of lower tax brackets.

In 2025, the 24% bracket applies as follows:

• • Single filers: taxable income from $103,351 to $197,300
  • Married filing jointly: taxable income from $206,701 to $394,600

Tip: If your taxable income falls within (or below) these ranges, a Roth conversion might make sense.

“Backdoor” Roth Conversions

So-called “backdoor” Roth conversions allow an individual (who is not otherwise eligible to contribute to a Roth
IRA due to income limitations) to make a non-deductible contribution to a traditional IRA and then convert the
funds over to a Roth IRA. The tax on the conversion is minimal because the owner has a high basis in the IRA–
only the earnings would be taxed on the conversion. Again, we advise checking with your accountant about a
Roth conversion.

Converting assets from a traditional IRA to a Roth IRA may be a smart move if:

• • Your future income tax rates may be higher
  • You can pay the conversion taxes with cash from another source
  • You don’t plan to leave the IRA assets to charity
  • You expect the funds to remain in the IRA for a long period of time so that you will get the maximum
    benefit of tax deferral

“Mega” Backdoor Roth Conversions

A mega back-door Roth conversion is a tax-planning strategy that allows high-income wage earners to save
more in a Roth retirement account by sidestepping the income limits of a Roth IRA and the tax consequences of
a regular Roth conversion.

If permitted by your workplace retirement plan, you would first max out your normal 401(k) contributions for the
year, then contribute after-tax dollars up to the 2025 overall account limit—including employer matches—of
$70,000 ($77,500 for ages 50–59 and 64 or older; $81,250 for ages 60–63). To avoid being taxed on any
additional investment returns, you can convert or roll over those after-tax funds (doing so as quickly as possible)
to a Roth 401(k) or to a Roth IRA—this technique is referred to as a “mega” backdoor Roth conversion because of
the large amount that can be contributed.

Caution: The IRS has allowed taxpayers to use these two types of “backdoor” Roth conversion strategies, but it
hasn’t issued official guidance. Tax law is subject to change at any time, so consult your tax advisor to ensure you
don’t run afoul of the rules.

Maximize Your Tax Savings with Tax-Loss Harvesting. Capital gains realized in 2025 can be offset by
realized losses. Consider taking losses this year to reduce your net capital gains. The top federal long-term capital
gains tax rate is 20%. A 3.8% Net Investment Income Tax could also apply if your income exceeds $200,000, or
$250,000 if you are married and filing jointly.

Beware of the Wash Sale Rule

If you sold securities at a loss but still like the securities, you can buy them back—provided you are careful not to
violate the wash sale rule, which prohibits you from taking a loss on the sale of a security in the current tax year if
you buy a “substantially identical” security within 30 days either before or after the loss-trade date (a 61-day
period).¹

If you do not want to be out of the position for an entire month, you may want to consider doubling up on your
position (i.e., buying the identical position at the current price, then waiting more than 30 days before selling the
original loss position). Another alternative is to buy an Exchange Traded Fund (ETF) that is not substantially
identical to the security you sold at a loss, but which you think will keep you invested in the market or economic
sector, before you buy back the security.

Note that the IRS does not provide a clear definition of “substantially identical.” Instead, it is determined by the
facts and circumstances of each case. Here are some general guidelines:

• ETFs tracking the same index: If you sell an ETF like the SPDR S&P 500 (SPY) for a loss, buying another S&P
  500 ETF, such as Vanguard’s VOO, may trigger a wash sale. The IRS could see them as tracking the same
  index and therefore being substantially identical.
• ETFs tracking different indexes: You can avoid a wash sale by replacing an ETF with another one that tracks
  a different, but similar, index. For example, if you sell an S&P 500 ETF, you could purchase a large-cap ETF
  that tracks the Russell 1000 index.
• ETFs tracking different asset classes: Selling an ETF that invests in a specific sector, such as technology,
  and then immediately buying a broad-market ETF, is generally not considered a wash sale.
• Actively managed ETFs: Actively managed ETFs are designed to outperform an index rather than track it,
  making them fundamentally different from passive index funds. Selling a passive index ETF for an active ETF
  in a similar category may help avoid a wash sale.

Important Considerations

• Keep all of your accounts in mind: The wash-sale rule applies across all your accounts, including IRAs and
  those held by your spouse. You cannot claim a loss if you sell a security in a taxable account and then buy a
  substantially identical one in a retirement account.
• Pause dividend reinvestments: If you sell an ETF for a loss, ensure that any dividend reinvestment plans are
  temporarily turned off for that fund. The automatic purchase of new shares within the 61-day wash-sale
  period (30 days before or after the sale) will trigger the rule.
• You can harvest losses at any time of year: Tax-loss harvesting isn’t limited to year-end. You can regularly
  review your portfolio for harvesting opportunities.
• Consult a professional: The wash sale can be complex and has some gray areas. If you are unsure, speak
  with a tax advisor or financial professional.

Consider Funding an Irrevocable Trust. The federal lifetime estate and gift tax exemption is currently $13.99
million per person. The OBBBA increased this amount to $15 million starting in 2026. The exemption amount will
be adjusted for inflation in subsequent years.

For persons with sufficient wealth who are concerned about potential estate taxes when they die, we
recommend speaking with an estate planning attorney about your options. One technique that some married
couples have used is to fund a Spousal Lifetime Access Trust (or SLAT). This type of irrevocable trust allows an
independent trustee to pay funds from the trust to your spouse if he or she may need access to the money in the
future. That way, you can make a completed gift now, and lock in your exemption before it possibly gets reduced.
Although we have more certainty today about the permanence of the federal estate tax exemption, those who
live in states with an estate tax or who wish to get the future appreciation of their assets out of their taxable
estates, should consider funding a SLAT or an irrevocable trust for their family. Such trusts can also be exempt
from the Generation-Skipping Transfer (GST) tax. So-called “dynasty trusts” can be set up in states, such as
Delaware or Nevada, that allow long-term or even perpetual trusts and don’t tax the income of the trust at the
state level.

Update Your Estate Plan. It’s always a good idea to review your estate plan every 5 to 10 years or if you have
recently experienced a major life event. As 2026 approaches, this is a good time to start the conversation with
your attorney and other advisors about your estate plan. We recommend that every client have an up-to-date
will, revocable trust, durable power of attorney and health care directive.

Review Year-End Health Care Elections. As the year winds down, you may be able to make certain
elections in your employee benefit plans, such as modifying your health insurance coverage or contributing to a
Health Savings Account (HSA) or flexible spending account. In some instances, prior-year elections may not
automatically roll over. So, be sure to double-check and make sure you have made all of your healthcare elections
before the window of opportunity closes. Similarly, for those eligible for Medicare, Open Enrollment ends on
December 7, 2025. Now is a good time to review your health care options.

Health savings accounts (HSAs), if available to you: contribution limits are $4,300 for individuals ($5,300 if age 55
or older) and $8,550 for families ($9,550 if age 55 or older). HSAs allow for many tax benefits, including tax-free
contributions and potential growth, and you won’t owe taxes on withdrawals so long as you use the funds to pay
for qualified medical expenses. To be eligible for an HSA, you must be enrolled in a qualifying high-deductible
health plan.

Footnote
¹Losses disallowed due to the wash sale rule are added to the cost basis of the replacement securities you bought within the 61-day period, which will reduce your capital gain in the future when you sell the securities.

About 1919 Investment Counsel
1919 Investment Counsel is a registered investment advisor. Its mission for more than 100 years has been to provide investment counsel and insight that helps families, individuals, and institutions achieve their financial goals. The firm is headquartered in Baltimore and has offices across the country in Birmingham, Cincinnati, New York, Philadelphia, San Francisco and Vero Beach. 1919 Investment Counsel seeks to consistently deliver an extraordinary client experience through its independent thinking, expertise and personalized service. To learn more, please visit our website at 1919ic.com.

Disclosures
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of 1919 Investment Counsel, LLC (“1919”). This material contains statements of opinion and belief. Any views expressed herein are those of 1919 as of the date indicated, are based on information available to 1919 as of such date, and are subject to change, without notice, based on market and other conditions. There is no guarantee that the trends discussed herein will continue, or that forward-looking statements and forecasts will materialize. This material has not been reviewed or endorsed by regulatory agencies. Third party information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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1919 Investment Counsel, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission. 1919 Investment Counsel, LLC, a subsidiary of Stifel Financial Corp., is a trademark in the United States. 1919 Investment Counsel, LLC, One South Street, Suite 2500, Baltimore, MD 21202. ©2025, 1919 Investment Counsel, LLC. MM-00002131

Published: November 2025