Stephen Ahern
Smart 2025 tax planning moves:
Charitable giving and SALT deductions offer meaningful opportunities for smart 2025 tax planning before several new federal limits begin in 2026. Acting now can help you preserve valuable deductions and make next year’s tax season a little lighter. Key changes to focus on: the SALT cap is $40,000 for 2025 (with a phase-down above $500,000 modified adjusted gross income (MAGI)), and a new 0.5% adjusted gross income (AGI) floor on charitable deductions begins in 2026. |
Why focus on 2025 tax planning now?
As 2026 approaches, thoughtful 2025 tax planning can make a meaningful difference in how much of your income you keep. Two areas—charitable giving and state and local tax (SALT) deductions—stand out as important opportunities to act on before the 0.5% charitable floor and the new cap on the value of itemized deductions for top-bracket taxpayers apply in 2026. Both involve timing decisions that don’t require spending more; just planning ahead.
How can charitable giving strengthen your 2025 tax planning?
Starting in 2026, charitable deductions will face a new limitation. Only donations that exceed 0.5% of your adjusted gross income (AGI) will count toward your itemized deduction.
In simple terms, the first slice of your giving each year—0.5% of your income—will no longer be deductible.
That makes 2025 the last year you can deduct every dollar you give under today’s rules. (Existing percentage-of-AGI caps—e.g., 60% for cash gifts to public charities—still apply.)
Why it matters for 2025 tax planning
If charitable giving is part of your regular routine, this is the year to be intentional. You can:
- Front-load future giving. Combine multiple years of donations into 2025 and take a larger deduction now.
- Use a donor-advised fund (DAF). Deduct your full contribution this year, then support charities from the fund over time.
- Donate appreciated investments. Avoid capital gains and receive a deduction for the full market value.
- Coordinate with IRA charitable distributions. Charitable deductions reduce taxable income, not AGI; Qualified Charitable Distributions (QCDs) from IRAs reduce AGI and can be powerful for SALT planning thresholds. QCD limit is $108,000 per person in 2025. QCDs cannot go to donor-advised funds (DAFs).
Case Study: Acting in 2025 vs. waiting until 2026Mark and Lisa have an annual income of $1 million and give about $25,000 to charity each year.
The result:
This preserves their giving pace while avoiding the 0.5% floor and the 2026 benefit cap. |
How can you use SALT deductions strategically in 2025 tax planning?
For 2025, the SALT cap is $40,000 per tax return with 1% annual indexation thereafter through 2029. However, the full $40,000 cap phases down by 30% of Modified AGI above $500,000 (flooring at $10,000). For many Massachusetts taxpayers, that creates room to deduct far more in state and local taxes—but only if you plan ahead.
Case Study: Timing SALT payments to capture the 2025 benefitAlex and Jordan own two homes—a primary residence in Massachusetts and a vacation home in Maine. They pay about $18,000 in property taxes on the Massachusetts home and $10,000 on the Maine home each year, plus $12,000 in quarterly state income tax estimates. In 2025, they plan carefully (assuming $450,000 MAGI in 2025):
In 2025, they reach the full $40,000 deduction limit. If they wait until 2026, pushing that final state estimate into January, their deductible total would drop to about $28,000—leaving $12,000 of potential deductions unused. If their 2025 MAGI were ≥ $600,000, the phase-down would drive their SALT cap down to the $10,000 floor—so timing alone wouldn’t help. The result: By simply adjusting timing, Alex and Jordan capture $12,000 in extra deductions without spending a dollar more. |
Can charitable giving and SALT strategies work together in 2025 tax planning?
Absolutely. Both strategies depend on your AGI and overall financial picture, which means coordinating them can make your plan even more effective.
For example, using a Qualified Charitable Donation (QCD) from your IRA 2025 will reduce your MAGI, potentially helping you qualify for more of the expanded 2025 SALT deduction. At the same time, the higher SALT cap may improve the benefit of itemizing versus using your standard deduction, so that might allow you to benefit from additional (non-QCD) charitable donations!
Integrated planning—looking at giving, income, and state tax timing together—helps you keep more of what you earn while supporting the causes and communities you care about.
What’s the Big Takeaway for 2025 Tax Planning?
Tax planning in 2025 isn’t about complexity, it’s about timing your decisions before the rules change.
- Charitable gifts: 2025 is your final year for full deductions before the 0.5% floor begins (2026).
- Itemized benefit cap: From 2026, top-bracket taxpayers see itemized benefits limited to ~35¢ per dollar (the “2/37 rule”).
- SALT payments: The higher $40,000 cap creates a meaningful opening for itemizers who have less than $500,000 MAGI, but you need to act before December 31, 2025.
If this topic is relevant to you, you might want to learn more about becoming a client, our clients turn to us for advice on this and similar topics.
About the Author
Stephen Ahern, CPA/PFS, CFP®, AEP®, MST, is President of Sachetta. He holds a Master’s Degree in Taxation from Bentley University and for over thirty-five years, has provided individual financial, investment, estate, and tax planning, as well as small business consulting, to a diverse base of clients. His clients have included key top-level executives, high-net-worth individuals, business owners, venture capitalists, and entrepreneurs. As an established personal financial planner, Stephen has delivered numerous presentations on financial, investment, retirement, and tax planning to corporations and professional groups. He has also written articles on investments, education, and estate planning. Before joining Sachetta, he co-founded and served as President of Wealth Management Advisors, LLC.
