Income Tax Planning in a New Era: What OBBBA Means for You

By Erik Berge | Senior Wealth Strategist, Citizens Private Wealth

Year-end planning for 2025 isn’t business as usual. But it may offer a valuable window.

It’s always wise to assess your financial picture as the year draws to a close. But year-end planning in 2025 may call for more than a routine check-in. Recent policy shifts, most notably the One Big Beautiful Bill Act (OBBBA), have altered tax planning in meaningful ways, creating new incentives and challenges. And while the OBBBA’s scope is broad, its effects are anything but uniform.

With so many variables in play this year, proactive tax planning and coordinating with your advisor is more important than ever. To help get you started, the questions below highlight key tax considerations, especially in areas shaped by OBBBA’s reforms.

Income & Tax Planning

The One Big Beautiful Bill Act (OBBBA) solidified existing tax brackets and income thresholds that were originally set to expire in 2025. As a result, your income mix and timing decisions may carry lasting tax implications.

• Have your income levels changed significantly in 2025?
• Should you consider deferring income into 2026?
• Are you earning more interest income from cash or fixed income?

Deductions & Charitable Giving

With OBBBA raising the standard deduction, many households will need to be more strategic about how and when they claim deductions, especially charitable contributions, to maximize their impact.

This structure can improve overall tax efficiency by:

• Are you maximizing the timing of deductions?
• Will you itemize deductions or use the standard deduction?
• Would bunching charitable contributions help exceed the standard deduction?

Tax Strategy

Beyond income and deductions, OBBBA has created new opportunities and complexities for proactive tax planning and strategic moves like Roth conversions, capital gains management, and the value of modeling scenarios with your advisor before year-end.

• Does a Roth conversion make sense this year?
• Have you reviewed your state income tax exposure?
• Are there any capital gains or losses to realize?
• Have you coordinated with your CPA or advisor?

Income & Tax Planning

Have your income levels changed significantly in 2025, and how might that affect your tax bracket under OBBBA?

If your income has shifted in 2025 (through salary changes, business income, investment gains, or higher interest from cash holdings), it’s worth reviewing how those changes affect your tax bracket. OBBBA made the TCJA-era brackets permanent, but rising income can still push you into a higher effective rate. Even modest increases can affect your eligibility for deductions, credits, or income-based thresholds like Medicare premiums. Start by reviewing your adjusted gross income (AGI) and identifying any new or increased income sources that may influence your overall tax exposure.

This is especially important if your income mix has changed. For example, interest income from cash and fixed income is more prominent in today’s higher-rate environment and may be taxed differently than qualified dividends or long-term capital gains. Whether you’re managing a complex portfolio or simply seeing higher yields on savings, it’s a good time to revisit your tax projections. A check-in with your advisor or CPA can help you understand where you stand and whether additional planning steps are needed before year-end.

Should you consider deferring income into 2026 to reduce your 2025 tax liability?

Deferring income into 2026 may be worth considering if your 2025 earnings place you near a higher bracket or if you anticipate lower income next year. Under OBBBA, the TCJA-era brackets are now permanent, and the top ordinary rate is locked at 37% (compared to the pre-TCJA rate of 39.6%). This adds predictability to multi-year planning and makes it easier to model future liabilities and weigh the benefits of deferring income, such as bonuses, consulting fees, or capital gains, into a year with lower expected earnings or more favorable deductions.

However, deferral isn’t just about bracket management. For those with complex income streams, deferral can be an effective tool to help manage surtaxes, phaseouts, and state-level exposure. For example, the expanded $40,000 SALT cap under OBBBA may be phased out for higher earners, so deferring income could help preserve that deduction. If you are considering a relocation, selling a business, or triggering a large gain, coordinating with your CPA or advisor now can help you align income timing with broader liquidity, estate, and philanthropic goals.

Are you earning more interest income from cash or fixed income, and have you accounted for its tax impact?

Many households, especially those with significant liquidity, are holding elevated cash balances after a period of historically high interest rates. Yields on savings accounts, money markets, CDs, and short-term fixed income have been attractive, and for many, this has resulted in a meaningful increase in taxable interest income. As these earnings accumulate, they can push your adjusted gross income (AGI) higher than expected, with implications for your overall tax exposure.

Interest income is taxed as ordinary income, which can affect your bracket, phaseouts, and Medicare premium thresholds. The impact may extend to surtaxes and reduced itemized deductions. Under OBBBA, the permanence of federal brackets and the expanded SALT cap make timing and source of income more relevant. Reviewing your cash and fixed income allocations with your advisor can help determine whether rebalancing, shifting to tax-exempt instruments, or adjusting income recognition could improve your overall tax efficiency.

While tax-equivalent yield is a common comparison tool, it’s important to consider how different types of interest income affect your overall tax picture. For example, municipal bond interest, though added back to MAGI for certain phaseouts, is generally exempt from federal tax and may also be exempt from state tax depending on your residency. In contrast, Treasury interest is federally taxable but often exempt from state tax. If you're already above the SALT cap, the state tax on ordinary interest may not be deductible, potentially making municipal bonds more attractive despite the MAGI add-back. These nuances are worth discussing with your advisor when evaluating fixed income allocations.

Deductions & Charitable Giving

Are you maximizing the timing of deductions, such as Q4 real estate taxes or charitable contributions, for optimal tax impact?

With the SALT cap expanded under OBBBA, timing deductions has become more strategic. For example, if you expect to itemize in 2026 but not in 2025, paying Q4 real estate taxes in January instead of December could shift the deduction into a more favorable year. Similarly, charitable contributions made in December 2025 may be more valuable if they help you exceed the standard deduction threshold. This kind of timing can also help manage AGI-related thresholds, such as the Net Investment Income Tax or Medicare surcharges.

Beyond timing, consider the type of charitable gift. Cash donations are straightforward, but appreciated securities can offer a double benefit: a charitable deduction and avoidance of capital gains. Qualified Charitable Distributions (QCDs) from IRAs, available to individuals age 70½ or older, remain especially valuable under OBBBA, as they bypass the new 0.5% AGI floor and 35% deduction cap taking effect in 2026. If you’re planning a large gift, donor-advised funds (DAFs) allow you to front-load contributions in a high-income year while distributing grants over time. These tools are especially useful when coordinating with broader liquidity or estate planning strategies.

Will you itemize deductions in 2025, or will the higher standard deduction under OBBBA apply?

OBBBA’s permanently higher standard deduction means fewer households will itemize, but that doesn’t mean itemizing is off the table. If your deductible expenses, such as mortgage interest, property taxes, medical expenses, and charitable gifts, are close to the threshold, bunching them into a single year can unlock itemization. For example, prepaying medical bills or accelerating charitable gifts into 2025 could push you over the line.

This strategy is particularly relevant for households with variable income or large one-time expenses. It’s also worth modeling whether itemizing in 2025 versus 2026 offers a better outcome, especially if you expect a change in income, residency, or major deductions. Your advisor can help you compare multiple scenarios to determine the optimal path.

If you’re planning charitable gifts, would bunching contributions into 2025 help you exceed the standard deduction threshold?

Bunching charitable contributions into a single year is a proven strategy to exceed the standard deduction and maximize tax benefit. For example, instead of giving $10,000 annually, a $30,000 gift every three years could allow you to itemize in that year and take the standard deduction in the others. This approach is especially effective when paired with donor-advised funds, which offer flexibility in timing the tax deduction and the actual grantmaking.

With OBBBA’s new 0.5% AGI floor and 35% top deduction rate taking effect in 2026, bunching contributions into 2025 may offer a stronger tax benefit than in 2026. In contrast, Qualified Charitable Distributions (QCDs) from IRAs are excluded from taxable income and not subject to these new limits, making them a more attractive strategy for eligible individuals in 2026 and beyond.

Charitable planning often intersects with liquidity events, estate planning, and capital gains management. If you’ve realized gains this year, gifting appreciated securities can offset the tax impact while supporting philanthropic goals. Coordinate with your advisor to ensure your giving strategy aligns with both your tax objectives and broader financial plan.

Tax Strategy & Advisor Coordination

Does a Roth conversion make sense this year, given your current and projected future tax brackets?

A Roth conversion can be a powerful tool, especially if your income is temporarily lower in 2025 or if you expect higher income or tax rates in future years. OBBBA’s permanence of TCJA-era brackets adds predictability, making it easier to model the long-term benefit of converting traditional IRA assets to Roth. For example, converting $250,000 in a year with lower income could lock in a lower rate and reduce future required minimum distributions (RMDs), which can help manage Medicare premiums and estate tax exposure.

For some individuals, Roth conversions can also support legacy planning. Paying tax now may reduce the size of a taxable estate and allow heirs to receive tax-free distributions. But timing is key: conversions should be coordinated with other income events, charitable giving, and liquidity needs. Partial conversions over multiple years may also help manage bracket creep and avoid triggering surtaxes (a strategy often referred to as tax smoothing).

Have you reviewed your state income tax exposure, and could deferring income or deductions improve your state tax outcome?

State tax rules vary widely. Some states conform to federal tax treatment, while others do not, especially when it comes to deductions, retirement income, and capital gains. If you’re in a high-tax state or planning a move, deferring income or accelerating deductions could improve your state tax outcome. For example, shifting income to a year when you’ll be a resident of a lower-tax state can yield meaningful savings.

This is particularly relevant for business owners, retirees, or anyone with flexibility in income timing. OBBBA’s expanded SALT cap makes state-level planning more nuanced, especially for those who itemize. Reviewing your residency status, expected income, and deduction timing with your advisor can help you optimize both federal and state outcomes.

Are there any capital gains you could realize, or harvest losses on, before year-end to manage your overall tax picture?

Realizing capital gains in a lower-income year or harvesting losses to offset gains can reduce your overall tax liability. This is especially useful if you’ve rebalanced your portfolio, sold a business, or triggered gains through liquidity events. Tax-loss harvesting can also help offset future gains, and under OBBBA’s stable bracket structure, it’s easier to model the impact across multiple years.

Gains and losses should be coordinated with charitable giving, estate planning, and income timing. For example, donating appreciated securities can eliminate the gain while generating a deduction. Reviewing your realized and unrealized gains with your advisor before year-end ensures that any harvesting or recognition aligns with your broader financial goals.

Have you coordinated with your advisor to model different income and deduction scenarios before December 31?

Given the number of moving parts introduced by OBBBA, ranging from bracket permanence to deduction changes and state-level nuances, working closely with your advisor and tax preparer is more important than ever. Modeling scenarios before year-end can help you understand how income, deductions, and timing interact, and ensure your strategy is tailored to your specific financial picture. This is especially important if your income is variable or if you’ve had significant changes in your financial picture this year.

For households with complex finances, coordination across advisors is key. Tax moves often intersect with investment strategy, estate planning, and liquidity management. A collaborative approach ensures that your planning is not only tax-efficient but also aligned with long-term goals.

Next Steps

Year-end planning in 2025 offers an opportunity to take advantage of new tax rules, optimize deductions, and align your financial moves with long-term goals. Whether you're considering income deferral, charitable giving, Roth conversions, or state tax strategies, the key is coordination. A Citizens Wealth Manager can help you model scenarios, identify the most effective strategies, and ensure your plan reflects both current law and your future vision.

Schedule a consultation to explore how year-end tax planning can support your financial goals, reduce your tax burden, and position you for success in 2026 and beyond.