Category: Finance

Charitable giving often increases toward the end of the year, but the most effective giving decisions aren’t rushed. From a tax perspective, December matters because deductions are generally tied to the year the gift is made—and because structure and documentation determine whether a gift actually reduces taxes.

Before finalizing year-end contributions, it’s worth stepping back to understand how charitable giving fits into your broader financial picture. The goal isn’t simply to give more. It’s to make sure the giving you’re already planning works the way you expect it to.

1. Start With the Itemize vs. Standard Deduction Reality

Charitable contributions generally reduce taxes only when total itemized deductions exceed the standard deduction. That means the same gift can produce very different tax outcomes depending on the year.

This is why some taxpayers intentionally “bunch” charitable giving—concentrating multiple years of planned donations into one year to exceed the itemization threshold, then reducing giving in other years. When done intentionally, this can improve tax efficiency without changing overall generosity.

2. Cash Is Simple, but Not Always the Most Efficient

Cash donations are straightforward and easy to document. But in years with higher income or investment gains, donating appreciated assets—such as long-term publicly traded securities—can be more tax-efficient.

In many cases, this approach allows a deduction for the asset’s fair market value while avoiding capital gains tax that would apply if the asset were sold first. The result: more value reaches the organization, and less is lost to taxes.

3. Understand Deduction Limits and Carryforwards

Charitable deductions are subject to adjusted gross income limits that vary based on the type of gift and the organization receiving it. When planned gifts exceed those limits, the unused portion doesn’t disappear—it typically carries forward to future years.

The planning issue isn’t memorizing thresholds. It’s knowing whether a gift will reduce this year’s tax bill or primarily benefit a future year, so expectations are aligned before filing.

4. Donor-Advised Funds Can Separate Timing From Decisions

A donor-advised fund allows a contribution to be deducted in the year it’s made, while distributions to charities can occur later. This separates the tax decision from the giving schedule.

This structure can be useful in years with uneven income, liquidity events, or when you want to be deliberate rather than rushed about where funds ultimately go.

5. Qualified Charitable Distributions May Be More Efficient for Some

For individuals age 70½ or older, a Qualified Charitable Distribution allows funds to move directly from an IRA to a qualifying charity. Instead of claiming a deduction, the distribution is excluded from taxable income.

This approach can be especially effective for those who take required distributions and give regularly, since it reduces adjusted gross income and doesn’t depend on itemizing deductions.

6. Documentation Is Where Deductions Are Commonly Lost

Valid charitable deductions are often disallowed due to missing or incomplete documentation. Contributions of $250 or more generally require written acknowledgment from the organization, and non-cash gifts come with additional reporting requirements.

Collecting documentation before year-end helps ensure that intended deductions are preserved.

Year-End Giving Checklist

• Confirm whether you’re likely to itemize this year—otherwise gifts may not reduce your tax bill.
• Match the type of gift to your tax situation (cash vs. appreciated assets).
• Check deduction limits so you know what reduces 2025 taxes versus what carries forward.
• If income was unusually high this year, consider whether a donor-advised fund helps lock in the deduction now.
• If you’re 70½ or older, evaluate whether a Qualified Charitable Distribution is more tax-efficient than a cash gift.
• Gather required acknowledgments and records early so deductions aren’t lost at filing.

The Takeaway

Charitable giving works best when generosity and tax planning are aligned. A few thoughtful decisions before year-end can help ensure that the contributions you’re already planning are structured efficiently and supported properly, without surprises later.

As 2025 winds down, every business owner faces the same question:
What can I still do before December 31 to strengthen my financial position?

Most year-end tax advice focuses on quick deductions. The smarter approach is to look at the bigger picture — how your income, expenses, and structure all work together to support your goals for 2026.

This year, timing matters more than usual. Mid-year tax changes restored 100% bonus depreciation for many new business assets, and several of the small-business incentives introduced under SECURE 2.0 remain available. Here are the high-impact moves worth your attention now.

1. Time Income and Expenses with Intention

Year-end isn’t just about what you earned — it’s about when you recognize it. A few well-timed decisions can smooth out your tax bill.

Think about:

• Paying early-2026 expenses (rent, insurance, professional fees, bonuses) before December 31 if this year’s income came in higher than expected.
• Holding certain invoices or payments until January if pushing them out lowers this year’s taxable income.
• Reviewing contracts or milestones that might shift revenue between 2025 and 2026.

A short planning conversation now can make a measurable difference in April.

2. Double-Check Q4 Estimates and Withholding

If your business performed better than last year, it’s worth a quick look at estimated taxes. Under-withholding can trigger penalties even in a profitable year.

Confirm that:

• Your fourth-quarter estimate (due January 15, 2026) reflects 2025 results, not last year’s numbers.
• Owner draws or distributions fit your compensation plan and tax strategy.
• Cash reserves will comfortably cover both taxes and year-end obligations.

One hour with your accountant now beats scrambling when returns are due.

3. Review Owner Pay and Keep Your Books Deal-Ready

Before closing the year, take a look at how money moved through the business — salary, draws, and bonuses. The right mix keeps taxes efficient and documentation clean.

Ask yourself:

• Is my compensation level appropriate for the way my business is structured?
• Will any year-end bonuses or draws trigger extra payroll or withholding issues?
• Are retirement contributions and profit-sharing percentages updated for the year’s results?

If growth, new partners, or a possible sale is on the horizon, use this moment to make your books “investor-ready.” That means confirming ownership records, reconciling loans or reimbursements, and cleaning up intercompany activity. Solid structure now prevents headaches later with lenders, buyers, or auditors.

4. Take Advantage of 2025 Investment Incentives

Mid-2025 tax legislation brought back 100% bonus depreciation for most qualifying assets placed in service after January 19, 2025. (Items placed between January 1–19 generally qualify for 40%.)

Alongside a Section 179 deduction limit of up to $2.5 million—with a gradual phase-out beginning around $4 million—business owners have extra flexibility to match year-end equipment, vehicle, or technology purchases with 2025 income.

If you plan to buy, make sure those assets are in service before December 31 to claim the full deduction.

5. Maximize Retirement and Benefit Contributions

Retirement and profit-sharing plans remain one of the best ways to manage taxable income while rewarding yourself and your team. For 2025:

• Employer contributions to 401(k), SIMPLE IRA, or SEP plans can usually be made up to your tax-filing deadline.
• New plans may qualify for SECURE 2.0 start-up and employer-match credits if properly established and eligible for the tax year they become effective.
• If you participate in your own plan, review deferral limits and catch-up contributions before making final distributions.

A brief check-in with your advisor ensures payroll, plan documents, and contributions all line up.

6. Clean Up the Books Before You Close Them

A tidy balance sheet makes every new year easier. Before closing 2025:

• Reconcile owner loans, reimbursements, and intercompany transfers.
• Review accounts receivable — collect what you can and write off what you can’t.
• Verify capitalization of major purchases and update loan schedules.

Clean books mean fewer questions from your accountant, faster turnaround, and clearer insight for 2026 planning.

Quick Year-End Planning Checklist

• Review Q4 tax estimates and cash reserves.
• Confirm equipment purchases and depreciation elections.
• Verify owner pay structure and retirement contributions.
• Prepay early-2026 expenses where it makes sense.
• Document draws and distributions properly.
• Reconcile receivables and intercompany balances.

The Takeaway

Year-end planning isn’t about rushing to spend; it’s about making clear, confident decisions that strengthen your business going forward.

By tightening up timing, compensation, and structure now, you’ll enter 2026 with clean books, flexibility, and fewer surprises.