Don't Wait until December - 2025 Tax Planning Edition
Why put off until December what you can do today?
With the passage of HR 1 (otherwise know as the One Big Beautiful Bill) back on July 4th, tax brackets are not returning to the higher 2017 rates, but tax law did get much more complicated. As we enter the final months of 2025, it’s time to start making tax-saving moves now so you can enjoy your holidays in December.
Review the list below to see if there are steps you can take now to reduce your 2025 tax bill.
PERSONAL TAX STRATEGIES
Maximize your 401(k) deferral
Make sure you are on track for your 401(k) contributions to be maxed out by year end. The 2025 contribution limit is $23,500 with an additional $7,500 catch-up contribution if you are 50 or older.
You should consider whether contributions to a ROTH 401(k) would be more beneficial. A ROTH contribution can cause your current tax bill to be higher not lower. But the contributions and growth are distributed tax-free in retirement so the ROTH strategy generally works better when you are younger and not taxed at the highest tax rates.
Additionally, be aware that starting in 2026, any employee age 50 or older who is earning more than $145,000 may only make the $7,500 in catch-up contributions with after-tax dollars into a ROTH. If you are a dentist over 50, ensure your 401k plan is set up to allow for this new rule.
Health Savings Account
Make sure you are on track to maximize your HSA contributions by year end. The 2025 maximum contribution is $4,300 for individual plans and $8,550 for family plans. If you are 55 or older, you can contribute an additional $1,000 catch-up contribution.
Monitor your Non-Retirement Investment Portfolio
With the fluctuations in the stock market, monitor your taxable portfolio (not retirement accounts) and harvest tax losses to offset capital gains if it makes sense when considering your overall investment strategy.
Use Back Door ROTH
While you technically have until 4/15/2026 to fund your back door ROTH for 2025, we advise that you complete the process before the end of the year to avoid any timing issues. Remember that to get the most benefit, your IRA should have a zero balance before your 2025 contribution and the contributions and rollover should happen on the same day.
Consider a ROTH conversion
Since the new tax law extended the lower rates permanently (which just means until Congress changes them again), the next few years may be ideal to convert some of your traditional retirement accounts over to ROTHs in order to reap the benefits of tax-free withdrawals in retirement. Generally, you will want to convert just enough to fill the remainder of your current tax bracket. As an example, you are married with 2025 taxable income of $350,000 and in the 24% tax bracket, which ranges from $206,701- to $394,600. You could convert $44,600 without being pushed up into the 32% bracket and paying higher federal income taxes.
Plan for Charitable Contributions
The One Big Beautiful Bill did include some ugly little rules around charitable deductions that begin in 2026. First, all charitable deductions will be reduced by 0.5% and then all itemized deductions for those in the top 37% bracket will be reduced by another 2%. To avoid these limits on future deductions, you may want to consider bunching charitable gifts into 2025 with the use of a Donor Advised Fund. You get the benefit of a big itemization and unlimited deduction in 2025 and taking the standard deduction in future years.Minimize paying IRS Interest
The higher interest rates are beneficial for your savings accounts but they mean the IRS gets to charge higher rates on underpaid estimates. Verify that you have paid your required estimated payments, which are generally 110% of your prior year tax. If you find yourself short, you can make additional payments via payroll withholding or with a fourth quarter estimate due on 1/15/2026.
TAX PLANNING STRATEGIES FOR YOUR PRACTICE
Check on the PTE status in your state
Over 36 states now allow owners of PTEs (pass-through entities) like S-corps to pay state tax at the practice level. This rule is a workaround to avoid the cap on state tax deductibility on the personal return and can significantly reduce your total tax bill. To be deductible, the payment must be made before the end of 2025.Consider adding a Profit Sharing component to your 401k plan
Have you maximized your 401k deferrals (see above) but are looking for additional practice deductions and sitting on extra cash? Ensure that your 401k plan has a profit sharing option so you can potentially put another $46,500 into your retirement funds and get a tax deduction for it.
Look into a Defined Benefit Plan
If your debt is paid off and the practice cash flow is consistently high, it is probably time to set up a Defined Benefit Plan (also known as a cash balance plan) as the final step in building your retirement cake. It is a great tax tool as well since your contribution of up to $280,000 is considered a practice cost.
Decide on treatment for Research & Development Credits
For those who qualify (the window is small and the study costs are expensive), the new tax bill eliminated the requirement to capitalize salaries used in the calculation, which dramatically reduces the immediate impact of the credit. For those that had R&D credits in 2022-2024, you now have several options to deal with the capitalized costs including amending returns.
Pay yourself and any vendors before year-end
Once the clock strikes midnight on December 31st, all payments (except for a few odd exceptions like profit sharing) are considered 2026 expenses. Make sure that you have paid yourself for any Augusta Rule rental costs and reimbursed yourself for business mileage before year end. You can also pay the dental supply bill due in early January during the last week of December if you are looking for additional deductions.
Purchase NEEDED equipment
This is always the salesman’s favorite way for you to reduce your tax bill as you can use the bonus depreciation rules to deduct the full cost of the equipment in 2025 rather than spreading it across the next five years. If you:
have some equipment that you are going to purchase in the next 12 months
are flush with cash or can get a 12 month 0% financing deal
can get a great deal with year-end pricing,
…it may be a great time to purchase that equipment and reduce your tax bill at the same time.
Since each practice and each situation is different, please schedule a consultation with JNG Advisors today to see what tax planning strategies you can implement.