As our clients prepare their 2025 tax returns, tax efficient strategies are top of mind. Thoughtful tax planning early in the year can create meaningful long‑term advantages. While every family’s situation is unique, several strategies commonly help clients reduce avoidable taxes, improve after‑tax returns, and create charitable impact.
Understand capital gains taxes, and consider tax-loss harvesting
When you sell an investment for more than its cost basis, the profit is a realized capital gain and may be subject to tax. If held more than one year, it is generally taxed at long‑term capital gains rates. If held one year or less, it is short‑term and taxed at ordinary income rates.
Tax‑loss harvesting means realizing losses in a taxable account to offset realized gains elsewhere. Any remaining net capital loss can offset up to $3,000 of ordinary income per year, with the rest carried forward. This is a timing tool, not an investment strategy, so it should be coordinated with your long‑term allocation and the wash‑sale rules.
We recommend reviewing the unrealized gains and losses in your holdings at each review meeting with your financial professional.
Consider donor‑advised funds for flexible giving
A donor‑advised fund (DAF) allows you to take a tax-deductible donation of cash or appreciated assets, claim an immediate charitable deduction subject to IRS limits, and recommend grants to 501(c)(3) organizations over time. You’ll hold advisory privileges to recommend grants, but the sponsoring charity will take legal control of the funds.
This structure can be useful in a high‑income year, year‑end planning, or when donating highly appreciated securities.
Pair charitable giving with RMD planning
If you are age 70½ or older and charitably inclined, consider a Qualified Charitable Distribution. A QCD sends funds directly from your IRA to an eligible charity, can count toward your Required Minimum Distribution for the year, and is excluded from taxable income when executed correctly. That exclusion can also help with Medicare income brackets.
Optimize the mix of retirement accounts
Traditional and Roth IRAs offer different tax benefits. For high earners who exceed Roth IRA income limits, a backdoor Roth strategy may help create future tax‑free income, but requires careful execution. Multi‑year planning matters, especially around RMD age, Social Security timing, and Medicare IRMAA thresholds.
If Roth conversions are part of your plan, remember that in any year an IRA RMD is due, you must take the full IRA RMD first before converting additional amounts to Roth. Sequencing matters to avoid excess contributions and administrative corrections.
Leverage HSAs if you have an eligible HDHP
If you have a qualifying high‑deductible health plan (HDHP), a Health Savings Account (HSA) adds triple tax advantages: contributions are tax‑deductible, growth is tax‑deferred, and qualified medical withdrawals are tax‑free. HSAs can also serve as a flexible long‑term healthcare bucket in retirement.
Coordinate across several years
Taxes are not one‑time events. Coordinating your taxable events over time can smooth your liability and reduce unpleasant surprises.
This material is for educational purposes and is not tax or legal advice. Please consult your tax advisor about your specific situation.
Contact Us
Ready to align tax strategies with your plan? We welcome you to schedule a meeting.
Contact Fiona Morina, Administrative Assistant for Jane M. LaLonde, CFP®, at 612.431.7509 or Fiona@LWAG.com.
Office: 2701 University Ave SE, Minneapolis, MN 55414.
Generally, a donor advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor's representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later. Some IRA’s have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.