What to Do Right Now to Lower Your Tax Bill This Year
A good friend of mine came to me recently and he was white in the face.
I could tell immediately that something was wrong. He sat down and said, "I don't know what I'm going to do. I made more money than ever this year and I'm going to have a massive tax bill."
I asked him what his CPA had told him to do throughout the year. Had he done any tax strategy planning? Had anyone walked him through how to reduce his liability before December 31st?
He looked at me like he had just seen a ghost.
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He had never done any of it. Not once. His entire approach to taxes was to hand over his documents in March and find out what he owed. And this year, for the first time, that number was going to be painful.
I do not want that to be you.
The problem was not that my friend made too much money. That is a good problem to have. The problem was that nobody had ever taught him that taxes are not a once-a-year event. They are a year-round strategy. And if you are a business owner or a high earner, waiting until tax season to think about your tax bill is one of the most expensive habits you can have.
The moves that actually reduce your tax bill are almost all made before December 31st. By the time you are sitting across from your CPA in February, most of the opportunities are already gone.
So let me walk you through what to be doing right now, in the second half of the year, to make sure you are not the one sitting across from someone white in the face come January.
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โMax Out Every Tax-Advantaged Account You Have Access To
If you have not already maxed your 401k, your HSA, and your IRA, the second half of the year is the time to accelerate those contributions. Every dollar you put into a pre-tax 401k or HSA reduces your taxable income dollar for dollar. That is not a loophole. That is exactly what these accounts were designed to do.
The 401k limit for 2025 is $23,500. The HSA limit is $4,300 for individuals and $8,550 for families. If you are behind on either, adjust your contribution rate now and let the rest of the year catch you up.
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โHarvest Tax Losses in Your Taxable Accounts
If you have investments in a taxable brokerage account that are sitting at a loss, the second half of the year is a good time to review them. You can sell positions that are down to realize those losses and use them to offset capital gains elsewhere in your portfolio. If your losses exceed your gains, you can deduct up to $3,000 against ordinary income and carry the rest forward to future years.
This strategy is called tax loss harvesting and it is one of the cleaner moves available to investors with taxable accounts. Just be aware of the wash sale rule, which prevents you from buying back the same or substantially identical security within 30 days of selling at a loss.
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โIf You Own a Business, Review Your Entity Structure
If you are running a business and you have not evaluated your entity structure recently, the second half of the year is the right time to do it before the calendar resets. An S-corp election, for example, can allow you to split your income between salary and distributions, which reduces the portion subject to self-employment taxes. For profitable business owners, this one change alone can save thousands per year.
Also review what you spent this year that qualifies as a legitimate business deduction. Technology, tools, home office, professional development, business travel, health insurance premiums if you are self-employed. Make sure everything is documented and categorized correctly before year-end.
Accelerate Deductions and Defer Income Where You Can
If you have control over the timing of your income, which business owners often do, consider whether it makes sense to defer some income into January. If you expect to be in the same or lower tax bracket next year, pushing income into the next tax year buys you 12 more months before that bill comes due.
On the flip side, if you have deductible expenses you were planning to make next year anyway, consider pulling them forward into this year. Prepaying certain business expenses, making a large charitable contribution, or front-loading deductible costs before December 31st can reduce this year's taxable income meaningfully.
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โGive Strategically If You Plan to Give at All
If charitable giving is part of your financial plan, the end of the year is the time to be intentional about it. Donating appreciated stock directly to a charity is one of the most tax-efficient moves available. You avoid paying capital gains on the appreciation and still get a deduction for the full market value. A donor-advised fund can let you front-load several years of giving in one tax year to push you over the standard deduction threshold, then distribute the funds to charities over time.
Get an Estimated Tax Review Done Now
If you are a business owner or you have significant income outside of a W-2, you should know roughly what you owe before the year is over. Ask your CPA to run a projection based on where your income stands today. That gives you time to make moves rather than just writing a check.
This is the single biggest shift in mindset for most people. Taxes are not something that happens to you in April. They are something you manage all year long.
Questions to Ask Your CPA Right Now
If you have a CPA and you have not talked to them since you filed, pick up the phone. Here are the questions worth bringing to that conversation.
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โBased on where my income is tracking this year, what is my estimated tax liability? You want a number, not a vague answer. If they cannot give you a rough projection by mid-year, that is a problem.
Am I on track with my quarterly estimated tax payments? If you are self-employed or have significant investment income, underpaying your estimates can result in penalties on top of your tax bill. Make sure you are not behind.
What tax-advantaged accounts am I not fully using? A good CPA will know which accounts you have access to and whether you are leaving money on the table. SEP-IRA, Solo 401k, HSA, defined benefit plans. These are all worth reviewing if you have not already.
Is my business structured in the most tax-efficient way possible? If you started a business and just defaulted to a sole proprietorship or single-member LLC, there may be a better structure for where you are now.
Should I be doing Roth conversions this year? If you had a lower income year or expect to be in a higher bracket later, converting traditional IRA money to a Roth at today's tax rate can be a smart long-term move. Ask if the numbers make sense for your situation.
Are there any deductions or credits I typically miss? Every CPA has seen the same overlooked items come up repeatedly with clients in similar situations. Ask them directly what people like you commonly miss.
What should I be doing before December 31st that we have not talked about yet? This is the most important question on the list. Give your CPA an open invitation to surface anything that needs to happen before the calendar resets. The best tax planning happens before the year is over, not after.
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