This article is part of The Individual Investor’s Guide to Personal Tax Planning for 2025–2026. See all sections | Download complete PDF

Key year-end tax-planning steps, including income and deduction timing and safe harbor rules for avoiding underpayment penalties
Strategies for accelerating or deferring income, deductions, charitable gifts, medical costs, state taxes and interest payments
AMT considerations, estate and gift tax planning basics, and how timing choices affect future tax liability

Tax-Planning Strategies for Investors

At the end of each year, you should take the time to assess your tax situation. Doing so will give you the opportunity to shift certain items around, should that be beneficial in terms of your tax liability. Taking a few initial steps now and using year-end planning can result in significant tax savings.

Here are the basic steps you should take to help start your personal tax planning:

Estimate your income, deductions, credits and exemptions for 2025 and 2026 using the Tax Forecasting Worksheet.
Identify items that you can shift from 2025 into 2026 and beyond (or vice versa).
Determine your marginal tax rate—the rate at which your next dollar of income will be taxed—for 2025 and 2026.
Determine how much tax you owe and when you must pay it to avoid underpayment penalties.
Determine whether you are subject to the AMT.
Consult with your tax professional, and then take the actions needed to make the best of your tax situation.

To minimize your taxes, consider both short-term and long-term tax-planning issues and strategies. Starting early will give you extra time to obtain additional information about items that concern you and to investigate additional ideas for tax savings or deferral.

Where’s My Money? Tracking Your Refund 24/7

If you are expecting a refund on your 2025 income tax, you can check on its status if it has been at least four weeks since the date you filed your return by mail, or 24 hours if you filed electronically. You will need to supply the following information: your Social Security number or IRS Individual Taxpayer Identification number, your filing status and the exact whole-dollar refund amount as it is shown on your return.

You can check the status of your refund in two ways:

On the internet, go to www.irs.gov and click “Get Your Refund Status.”
On a mobile device, download the IRS2Go app.

If you are unable to get information on your refund through any of these automated services, you can call the IRS for assistance at 800-829-1040.

The IRS website also allows you to start a trace for lost or missing refund checks, or to notify the IRS of an address change when refund checks go undelivered. Taxpayers can avoid undelivered refund checks by having refunds deposited directly into a personal checking or savings account. This option is available for both paper and electronically filed returns.

Avoiding Tax Underpayment Penalties

Make sure you determine your 2026 tax liability as early as possible, as well as the due dates for paying those taxes (including the self-employment tax and the AMT), so that you avoid underpayment penalties.

Federal tax law requires the payment of income taxes throughout the year as you earn your income. This obligation may be met through withholding, quarterly estimated tax payments or both. If you do not meet this obligation, you may be assessed an underpayment penalty.

If your total tax due minus the amount you had withheld is less than 10% of your total tax due, you will not be assessed an underpayment penalty. The disadvantage of overpaying throughout the year, though, is that you are in effect making an interest-free loan to the government. However, the underpayment penalty can be high, and it is calculated as interest on the underpaid balance until it is paid, or until the regular filing date for the final tax return, whichever is earlier.

You can avoid underpayment tax penalties by adopting one of the safe harbor rules. The basic rule is to pay the required amount by the end of the year through withholding and quarterly estimated payments. The required amount will be one of the following, depending on your individual situation:

90% of the current year’s tax liability;
100% of the prior year’s tax liability (increases to 110% for taxpayers who had prior-year AGI in excess of $150,000, or $75,000 for those married filing separately); or
90% of the tax liability based on a quarterly annualization of current year-to-date income (see IRS Publication 505 for worksheets).

Penalties are based on any underpayment, which is the difference between the lowest amount required to be paid by each quarterly payment date and the amount actually paid by that date. The annual required amount, based on either of the first two alternatives, is paid in equal installments. In the case of the third method, which is based on annualized income, the amount due each quarter is based on actual income received for each installment period. The third method is typically more beneficial if you do not earn income evenly throughout the year (e.g., you operate a seasonal business) or if you had an unexpected increase in income, because it allows for lower required payments in the early quarters.

Income tax payments made through withholding from your paycheck (or from your pension or other payments) are given special treatment. The IRS treats income tax that is withheld as having been paid equally throughout the year (unless you prefer to use actual payment dates). This lets you make up for underpaid amounts retroactively because amounts withheld late in the year may be used to increase the amounts paid in earlier quarters.

State and Local Rules: Many states have underpayment rules that vary from the federal requirements.

Timing: Income and Deductions for Taxpayers Not Subject to the AMT

You have opportunities to reduce your taxes if you can control the timing of either your income or expenses. However, it is important to make sure you understand whether you may be subject to the AMT before adopting these strategies. The OBBBA reduces AMT exemption phaseout thresholds from $1,252,700 for married couples filing joint returns and $626,350 for single filers in 2025 to $1 million for married couples filing joint returns and $500,000 for single filers in 2026. More information about the AMT can be found in the online version of this tax guide on AAII.com.

Income

Your income is generally taxed in the year of receipt, so having the ability to control when you receive it affords a strategic tax-planning opportunity. Deferring income until a later year will, in most cases, delay the payment of tax. You cannot defer taxation by merely delaying receipt of the income if the funds are available to you and the time of payment is subject to your unrestricted discretion. Any decision to defer income must be weighed with the lost time value of the money and other risks that could alter or forfeit your right to the income.

The timing of bonuses, recognition of capital gains from the sale of stocks and the exercise of nonqualified stock options are all events that can easily be delayed to a subsequent year.

Consider the deferral of compensation through the use of various retirement plans and deferred-compensation arrangements. If you operate a business or collect rental income and report that income on the cash receipts and disbursements method, you have an opportunity to delay or accelerate the billing to your customers or tenants and determine the timing of the related income.

Deductions

You can reduce taxes by controlling the payment of deductible expenses. If paid by December 31, you may deduct certain expenses that are due the following year on your current-year tax return. [Property taxes prepaid in the current year can be deducted if assessed in the current calendar year and if the 2025 $40,000 limit on deducting state and local taxes ($40,400 in 2026) has not been reached.] This strategy helps when you have a higher tax liability in the current year than you expect to have in the coming year. Again, you must balance this decision with the time value of money and other inherent risks.

For example, if you pay a deductible expense in December 2025 instead of April 2026, you reduce your 2025 tax instead of your 2026 tax, but you also lose the use of your money for three-and-one-half months. Generally, this will be to your advantage, unless you have an alternative use for the funds that will produce a very high return in that three-and-one-half-month period. You must decide whether the cash used to pay the expense early should be used for something more urgent or more valuable than the accelerated tax benefit.

For those who will pay 2026 estimated taxes based on their 2025 tax liability, reducing your 2025 taxes has another advantage: Your 2026 estimated tax payments may be smaller.

State Taxes

If accelerating deductions makes sense for you and you choose to claim a deduction on your state and local income taxes, you may want to prepay the balance on your estimated state tax liability in December 2025, rather than waiting until 2026, if the taxes were assessed in 2025. This secures that deduction on your 2025 tax return, even though the payment might not be required by the state until January 15, 2026, or April 15, 2026. The deductibility of these taxes is subject to the $40,000 cap on SALT deductions in 2025. The cap will increase to $40,400 in 2026. The higher cap is subject to 1% annual inflation adjustments and is due to expire after 2029.

Charitable Contributions

If you are planning to make a gift to a charity in 2026, consider making the gift in 2025 to accelerate the tax benefit of the contribution if you have enough deductions to exceed the 2025 standard deduction of $31,500/$15,750 for married filing jointly/singles. Cash contributions can only be deducted up to 60% of your contribution base (typically AGI). Be aware that starting in 2026, charitable contributions will be deductible by those who itemize only to the extent that they exceed 0.5% of the taxpayer’s contribution base.

If you claim the standard deduction in both 2025 and 2026, the strategy changes. Delaying cash charitable donations to 2026 will allow you to take advantage of the $2,000/$1,000 deduction for married filing jointly/singles.

You should also consider the benefits of gifting appreciated stock to a charity. If you donate long-term appreciated stock directly to the charity, you get a deduction for the full fair market value of the stock, whereas if you sell the stock first and donate cash, you only get a deduction for the aftertax cash donated. (If you have an unrealized loss in the stock, however, it might be more beneficial from a tax standpoint to sell the stock and then donate the cash proceeds. Doing so would give you deductions for both the capital loss and the charitable donation.)

When making a gift to a charity, you must have an appropriate record of the gift in order to properly support the deduction.

In addition, cash contributions of any amount must be supported by a written record, either in the form of a bank record (for example, a canceled check) or a written receipt from the charity. The record must include the name of the charity, the date and the amount of the contribution.

The higher standard deductions maintained by the OBBBA keep the threshold for deducting noncash donations high. As such, you may want to bunch donations in a particular year rather than making them over two or more separate years.

Prepaid Interest

A cash basis taxpayer may not deduct prepaid interest before the tax year to which the interest relates. However, there is some flexibility to prepay year-end interest that is due early in the following year.

For example, if a mortgage payment is due on January 10, a taxpayer can accelerate the deduction of the portion of the interest relating to the period up to January 1 by mailing the check in December.

The most significant interest deductions currently available are for home mortgage interest and for investment interest expense to the extent of current-year investment income. Interest paid in relation to investments that earn a tax-free return is not deductible.

Medical Expenses

If the timing of certain medical and dental expenditures is flexible and your overall medical expenses are high in the current year, you may want to accelerate the timing of these expenses.

Because unreimbursed medical expenses are only deductible to the extent that they exceed 7.5% of AGI, it is best from a tax standpoint to incur expenses—such as replacement eyeglasses or contact lenses, elective surgery, dental work, and routine physical examinations—in a year in which you have already gone over (or in which the added expenses would take you over) the threshold for that year.

Uninsured Personal Casualties

Uninsured personal casualties can be deducted if they are attributable to a federally declared disaster or, starting in 2026, a state-declared disaster and exceed 10% of AGI. The inclusion of state disasters was introduced by the OBBBA.

Timing Caution for Taxpayers Subject to the AMT

The AMT was originally designed to ensure that everyone would pay their fair share of income taxes. It has been modified by various pieces of tax legislation since being created. The reduced exemptions included in the OBBBA increase the number of potential taxpayers subject to the AMT starting in 2026.

The wisdom of conventional tax-planning advice to defer income and accelerate certain types of deductions may not hold true if an individual expects to be subject to the AMT. Accordingly, during the tax-planning process, it is critical that you determine whether you are subject to the AMT in both the current year and the following year.

If you are continuously subject to the AMT, avoid investing in private-activity (municipal) bonds. Income from these bonds is taxable for AMT purposes. (There are exceptions; check with the bond issuer for the bond’s tax status.) Furthermore, you should be aware that unusual combinations of income and deductions might require AMT planning that runs contrary to conventional tax-planning advice.

Although the exercise of an incentive stock option (ISO) does not give rise to regular taxable income for the employee, the difference between the exercise price and the market price of a stock must be recognized for AMT purposes for the year in which the option is exercised. Accordingly, the exercise of incentive stock options with a large bargain element often causes a tax liability under the AMT regime.

The AMT arena is extremely complex, so generalizations are difficult to make. If you think you may be subject to the AMT, you should consult a tax professional to determine how best to minimize your exposure to it.

AMT: An Unpleasant Surprise

Are you subject to the alternative minimum tax (AMT)? This tax comes as a surprise to many taxpayers. You may be subject to this tax, especially if any of the following criteria apply to your situation:

You have large itemized deductions for state and local taxes, including property and state income tax, or from state sales tax;
You have exercised incentive stock options;
You have significant deductions for accelerated depreciation;
You received the qualified electric vehicle credit in 2025 before it expired;
You received income or recognized a loss from tax-shelter farm activities, passive activities, partnerships, S corporations or activities for which you aren’t at risk;
You have a large ratio of capital gains relative to your ordinary income.

The AMT is calculated by first determining the tentative minimum tax. The 2025 minimum tax for married couples filing joint returns and single filers is 26% of the first $239,100 of alternative minimum taxable income in excess of the exemption amount, plus 28% of any additional alternative minimum taxable income. A 26%/28% threshold of $119,550 exists for married individuals filing separately. In 2026, the 28% tax rate applies to income above $244,500 for married couples filing joint returns and single filers and applies to income above $122,250 for married individuals filing separately. The exemption phaseout levels for 2025 and 2026 are $200,000 for married couples filing joint returns and $100,000 for others. However, for AMT purposes, dividends and capital gains will be taxed under the same rules as those used for regular tax calculations. The AMT is the excess of the tentative minimum tax above the regular tax calculated.

Alternative minimum taxable income adds back certain preference items to regular taxable income—including state income taxes, real estate taxes and foreign income taxes—and can cause the AMT to be larger than the regular tax.

In addition, although the tax rate on capital gains and dividend income is the same for both the regular tax and the AMT, the disparity in rates between the AMT and the regular tax may result in a higher effective rate on all income, including capital gains and dividends.

To find out if you may be subject to the AMT, use tax preparation software or refer to the Alternative Minimum Tax (AMT) section in the Form 1040 Instructions at IRS.gov.

Year-End Estate and Gift Tax Planning

Year-end planning from an estate planning perspective typically involves ensuring that “annual exclusion” gifts are completed by the end of a calendar year.

Under the federal gift tax system, each donor is permitted to make nontaxable gifts of a certain amount each year to any donee. These gifts are called “annual exclusion” gifts and do not count against the donor’s lifetime gifts exemption. The annual gift tax exclusion level is $19,000 ($38,000 for married filing jointly) for 2025 and 2026. To the extent that it is not used, the annual exclusion evaporates at the end of each calendar year.

Annual transfers that take advantage of this exclusion can both diminish the donor’s estate tax liability and improve the lives of the recipients. These gifts can take many forms (such as cash, stocks, real estate and partnership interests) and can be given outright through Uniform Transfers to Minors accounts, and even through a trust—provided it contains special provisions designed to allow the gift to qualify for the annual exclusion.

Gifting may also make sense for those who intend to pass IRA assets along to their heirs. This would particularly be the case if the tax levied on the benefactor’s IRA withdrawal is less than the heir’s expected future tax. Before doing so, consider the full impact of withdrawing more from your retirement accounts on your taxes and Medicare premiums.

Gifts can also be made to Trump accounts for children under the age of 18 once accounts become available for contributions in 2026. Contributions are not tax-deductible. Contributions to these accounts should be compared to alternatives such as 529 plans and making a direct gift.

AAII + BI Webinar on Taxes

As part of AAII’s partnership with BetterInvesting to offer members of each organization exposure to joint educational content, a timely webinar on tax strategies was held on November 25. AAII’s Charles Robtlut, CFA, provided an overview of the most important 2025–2026 tax changes from OBBBA legislation, focusing on immediate year-end moves and which provisions are temporary versus permanent. Additionally, financial planner and BetterInvesting volunteer Christi Powell, CFP, RICP, explained the key 2025 rule changes affecting Roth conversions and QCDs, showing how both strategies can be powerful tools for tax-efficient retirement planning. Access the webinar at www.aaii.com/webinars.

Beyond the Guide: AAII’s Tax Seminar

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