Time Is Running Out: What Your 2025 Tax Strategy Should Include Before Major Federal Changes Hit

The countdown has begun. After 2025, the temporary tax relief measures from the Tax Cuts and Jobs Act face a significant sunset, which means higher income tax brackets, dramatically reduced estate and gift tax exemptions, and elimination of certain deductions loom on the horizon. For high-income households, 2025 represents a critical window to implement protective strategies before these changes take effect.

According to wealth management experts, families with substantial incomes could face material increases in their tax liability. Bill Harris, founder and CEO at Evergreen Wealth, emphasizes: “The marginal income tax rates are poised to climb, estate and gift tax exemptions will drop meaningfully, and deductions face substantial revisions.” The question isn’t whether to act, but how to act strategically.

Lock in Today’s Rates Through Strategic Income Timing

One of the most straightforward approaches involves pulling income forward into 2025. If you anticipate a higher tax bracket next year, accelerating when you receive compensation allows that income to be taxed at currently lower rates rather than at 2026’s potentially elevated rates.

For salaried employees, this might mean requesting year-end bonuses be paid in December rather than pushed into January. Business owners and independent contractors have additional flexibility: issuing invoices earlier ensures receivables are collected before the calendar flips, or alternatively, deferring certain deductible expenses shifts more net income into the 2025 tax year. Those with IRA distribution flexibility can similarly pull distributions from pretax retirement accounts into late 2025 instead of early 2026, anchoring that taxable income to today’s rates.

Capitalize on Today’s Estate and Gift Tax Exemptions

Before the sunset provisions reduce federal exemptions for estate and gift taxation, now is the optimal time to execute lifetime gifting strategies and update trust structures. The temporary increase in the federal estate and gift tax exemption expires after 2025—meaning the exemption amount will shrink substantially.

High-net-worth individuals should review their estate plans now to maximize the current higher exemption levels through strategic lifetime gifts, restructured trusts, and updated beneficiary designations. Delaying these moves until after 2025 means losing the opportunity to transfer wealth at today’s more favorable exemption thresholds.

Harness Roth Conversions to Build Tax-Free Growth

Converting a portion of pretax retirement savings into a Roth account offers dual benefits: you pay income tax on the conversion amount today, but the funds grow and withdraw tax-free going forward. This is particularly valuable before rates potentially increase.

The methodology is straightforward: estimate your 2025 income to identify your current bracket, select a “maximum bracket” threshold you wish to remain within, and convert only enough pretax IRA funds to Roth accounts to stay in that bracket. Complete the conversion by December 31, 2025. This locks in today’s tax rate on the conversion amount while allowing future growth to compound free from taxation.

Optimize Charitable Giving Through Strategic Concentration

For families committed to philanthropy, 2025 presents an opportunity to structure giving more efficiently. New rules require charitable contributions to exceed 0.5% of adjusted gross income before deductions apply, and individuals can deduct up to 35% of AGI for qualifying gifts.

David Elder, wealth manager at Merit Financial Advisors, notes: “High-income families can ‘bunch’ charitable contributions into 2025 using vehicles like donor-advised funds, capturing larger deductions in a single year, then distributing funds to charities across subsequent years. This preserves both tax efficiency and your charitable intention.” A donor-advised fund allows you to make an immediate tax-deductible contribution, receive a deduction today, and recommend grants to organizations whenever you choose.

Strategically Harvest Gains and Losses in Taxable Accounts

Before year-end, review your taxable investment portfolio for tax-loss harvesting opportunities and evaluate whether realizing capital gains sooner makes sense. If you expect to land in a higher tax bracket in 2026 or beyond, recognizing gains while in today’s lower bracket may prove advantageous.

This requires identifying securities with significant unrealized gains and determining whether locking in those gains at 2025 rates is preferable to potentially higher rates later. The inverse applies to losses—capturing them now offsets other income when marginal rates are lower.

Transfer Appreciated Securities to Amplify Donation Impact

Donating appreciated securities directly to charitable vehicles, particularly donor-advised funds, accomplishes two objectives simultaneously: you sidestep capital gains taxation on the appreciation while still claiming a charitable deduction for the full donation amount.

The process involves opening a DAF if you haven’t already, identifying securities in your brokerage account with substantial appreciation, transferring them into the DAF, and then recommending grants to charities at your preferred timing. This approach is more tax-efficient than selling appreciated assets, paying capital gains tax, and donating the after-tax proceeds.

The Bottom Line

The 2025 tax year functions as a narrow window before significant policy sunset provisions reduce the tax advantages currently available to high-income households. Whether through income acceleration, Roth conversions, estate plan updates, charitable strategies, or investment repositioning, strategic action now can materially reduce your future tax burden and preserve wealth that might otherwise transfer to the government rather than to your heirs or chosen causes.