Year-End Tax Planning Strategies for December [2025 Guide]

[Last Updated on 4 hours ago]

December 2025 is the final sprint for tax outcomes that will echo through 2026. Clients want clear next steps, partners want measurable ROI, and junior staff need a repeatable playbook.

This guide gives CPAs and EAs a December-only, high-impact playbook you can run immediately—anchored in pro-forma baselining, tax-loss harvesting (with wash-sale guardrails), smart income/deduction timing, RMD and Roth decisions, multistate cleanup, and a client-ready communications pack.

What’s different here? It’s built for firm workflows and augmented by AI. With CPA Pilot, you can:

• Baseline in minutes (AGI, AMT/NIIT exposure, open items)
• Model “accelerate vs. defer” scenarios and QBI thresholds
• Auto-draft client emails and checklists for year-end outreach
• Standardize SOPs so juniors execute with confidence

Let’s start discussing year-end tax planning strategies in detail—and see how CPA Pilot can help you.

1. Baseline Your Tax Plan in 5 Minutes

Set your AGI, AMT, and NIIT exposure fast

Before any December move, build a pro-forma baseline: compile YTD income, realized/unrealized gains/losses, and planned transactions to preview AGI, marginal bracket, AMT/NIIT exposure, then generate a prioritized action list (RMD status, harvesting targets, timing opportunities, multistate flags). This sequencing prevents costly missteps and surfaces quick wins.

What you need (inputs)

• W-2/YTD payroll, K-1 estimates, 1099s to date, and expected year-end bonuses/distributions
• Brokerage realized/unrealized lot report (short vs. long), dividend/cap-gain distribution schedule
• Retirement data: RMD status, planned conversions/contributions
• Big-ticket items: real-estate closings, capex placed-in-service, charitable gifts/DAF plans
• Residency/move dates; remote work or multistate payroll/sourcing changes

What you should produce (outputs)

• Pro-forma summary: AGI, taxable income, marginal/effective rate, AMT/NIIT triggers, phaseouts in play
• Opportunity map: harvesting candidates; accelerate vs. defer timing; QBI threshold posture; SALT/charitable bunching; equity-comp events at risk
• Risk/cleanup list: missing RMDs, wash-sale proximity, placed-in-service gaps, multistate credit mismatches
• Client communication: concise “What we need this week” email + internal checklist for delegation

How to do it (Step-by-Step)

1. Assemble YTD + projections and confirm what’s already realized vs. still pending.
2. Build the pro-forma and scan for bracket edges, AMT/NIIT, and phaseout cliffs.
3. Tag opportunities/risks (Loss harvesting, RMD, Roth, timing, QBI, SALT/charity, equity comp).
4. Sequence actions (e.g., RMD → timing → harvesting → charitable → entity/real-estate).
5. Create the action queue with owners and due dates covering the final two weeks of December.

Decision rules (fast heuristics)

• RMD first: penalties can dwarf savings; confirm beneficiaries/custodians.
• Bracket edges: if within ~1–2% of a bracket or phaseout (QBI, child credit, NIIT threshold), model timing before executing.
• Harvest with exposure control: choose economically similar (not substantially identical) replacements.
• Placed-in-service check: deductions vanish if assets aren’t ready by year-end.
• Multistate tie-breakers: resolve domicile vs. statutory residency before timing large transactions.

Common pitfalls (the baseline prevents)

• Wash-sale traps from repurchases inside 30 days or dividend timing
• Missed RMDs due to custodian delays or beneficiary confusion
• Unexpected AMT from ISO exercises/state add-backs
• Bunching without substantiation for charitable deductions
• Mis-sourcing income after a mid-year move or remote work shift

How CPA Pilot helps With Pro-forma Baseline?

• One-screen baselining: ingest YTD figures and lot data to produce a clean pro-forma with exposure flags (AMT/NIIT, phaseouts, bracket edges).
• Opportunity & risk detection: automatic tags for harvesting candidates, RMD urgency, timing windows, QBI thresholds, SALT/charity bunching, and placed-in-service issues.
• Sequenced tasking: converts findings into an assignable action list with due dates for late-December execution.
• Client-ready communications: generates concise summaries and checklists you can send as outreach or attach to year-end engagements.
• Review guardrails: built-in QA checks tuned for December pitfalls (wash sales, RMD, AMT triggers, multistate credits).

Run Your December Baseline in CPA Pilot → Get a pro-forma summary, prioritized opportunities/risks, and an assignable year-end task list.

2. Harvest Capital Losses Without Triggering Wash Sales

Offset gains and manage tax impact with guardrails

Use December to harvest losses to offset realized gains, manage short- vs. long-term rates, and avoid wash-sale disallowance. Prioritize specific-lot identification, maintain market exposure with non-identical substitutes, and check interaction with DAFs/charitable gifts, fund distributions, NIIT/AMT, and state conformity.

What to evaluate first

• Realized P/L to date: net short-term vs. long-term; capital loss carryforwards.
• Unrealized lots: embedded losses, holding periods, basis accuracy, corporate actions.
• Distribution calendar: December mutual fund/ETF capital-gain distributions and year-end dividends.
• Tax overlays: NIIT exposure, AMT risk (especially with ISO exercises), phaseouts, QBI interactions for owners.
• Account types: taxable vs. IRA/401(k) (remember: wash sales span across accounts you control).
• State rules: conformity on the basis of adjustments, carryovers, and fund-distribution treatment.

Execution checklist (sequenced to avoid rework)

1. Freeze repurchase windows: check the prior 30 days and set blocks for the next 30 (wash-sale perimeter).
2. Choose the basis method: confirm specific identification at the broker; document the instruction.
3. Rank candidates: realize losses where you can retain exposure via non-identical replacements (e.g., sector/total-market ETFs instead of the same or substantially identical security).
4. Pair to gains: match losses to high-tax-cost gains (short-term first), then consider harvesting to bank carryforwards.
5. Mind distributions: avoid selling right before record dates that generate unwanted short-term income; alternatively, harvest before large capital-gain distributions.
6. Replace exposure: buy a not-substantially-identical security immediately to avoid market drift (document rationale).
7. Re-enter plan: schedule when/how to return to the original holding after day 31 (or extend if dividends/DRIPs complicate timing).
8. Coordinate with charity/DAF: donate appreciated winners (not the loss positions) to maximize deduction while you harvest losses elsewhere.
9. Paper trail: save trade confirms, basis reports, lot IDs, and a short memo tying tax outcomes to the trades.

Guardrails and nuanced pitfalls

• Wash sale scope: triggered by purchases of the same or substantially identical security 30 days before or after the sale—includes your spouse’s accounts and IRAs you control.
• ETF look-alikes: Two ETFs tracking the same index can be risky; choose distinct index families or different constructions.
• Options activity: calls/puts can create wash-sale equivalents—pause overlay strategies during the 61-day window.
• Dividend/DRIP timing: automatic reinvestments can accidentally repurchase shares, temporarily suspend DRIPs.
• Short-term vs. long-term: prioritize avoiding short-term gains; a small timing change can flip the tax rate.
• 1099-B reconciliation: your brokerage method must match your actual intention (specific ID vs. FIFO/average cost).
• State add-backs/mismatch: ensure carryover and basis align under state rules before filing.

Documentation you should produce

• Harvesting worksheet: before/after P/L, lots sold, lots acquired (replacements), wash-sale check, NIIT/AMT notes.
• Investment rationale note: exposure maintenance, index differentiation, and day-31 re-entry plan.
• Client-safe explainer: plain-English summary of the trades, tax effects, and what to avoid for 30 days.

How CPA Pilot helps With Capital Gains & Loss Harvesting?

• Lot intelligence: imports realized/unrealized data to rank loss candidates and tag short- vs. long-term differentials.
• Wash-sale defense: scans 60-day windows across taxable and retirement accounts you track, flagging DRIPs/options and substantially-identical risks.
• Replacement mapping: suggests non-identical substitutes (different index/issuer/exposure) to keep market beta while avoiding wash sales.
• Distribution radar: highlights upcoming fund distributions and potential dividend traps that could negate tax benefits.
• Sequenced checklist & tasks: turns the plan into assignable steps with due dates for late-December, including a day-31 re-entry reminder.
• Audit trail & client comms: produces a harvesting memo, basis instructions for the broker, and a client-ready summary for documentation.

See How CPA Pilot Streamlines Loss Harvesting → Identify lots, avoid wash-sale traps, document replacements, and ship client-ready summaries in minutes. Choose your Plan now!

3. Time Income and Deductions for Maximum Benefit

Use bunching, SALT, and cash-basis prepaying strategies

In December, optimize when income lands and when deductions are paid. Use bunching to exceed the standard deduction, prepayable for cash-basis clients, and coordinate SALT, charitable gifts/DAFs, medical and mortgage interest timing. Model bracket edges, QBI thresholds, and NIIT/AMT before executing.

What to Evaluate First

• Filing posture: standard vs. itemized; probability of itemizing in 2025 vs. 2026
• Bracket edges & cliffs: proximity to higher brackets, NIIT threshold, child/education credit phaseouts, QBI thresholds
• Cash vs. accrual clients: eligibility to prepay expenses; placed-in-service realities for assets
• Charitable pipeline: appreciated securities for DAF vs. cash gifts; substantiation readiness
• SALT planning: state/local tax timing, safe-harbor payments, and state conformity limits
• Irregular income events: bonuses, RSU vests, business distributions, real estate closings

Execution Checklist (practical sequence)

1. Choose your year to itemize: If near the standard deduction, bunch gifts, SALT (as allowed), and medical in the same year.
2. Accelerate or defer income: Time bonuses/invoices, capital gains realization, and equity-comp sales to stay under key thresholds.
3. Prepayables for cash-basis businesses: rent, supplies, professional fees (ordinary & necessary, 12-month rule awareness).
4. Charitable alignment: prioritize appreciated assets to DAF; pair with harvesting gains/losses elsewhere.
5. Mortgage & medical timing: consider an extra mortgage payment; cluster deductible medical to exceed AGI floors.
6. SALT strategy: confirm caps and state nuances; avoid overpaying where not deductible.
7. Document and schedule: capture receipts, acknowledgments, and payment dates; schedule January reversals if deferring.

Decision Rules (Fast Heuristics)

• Within 1–2% of a bracket/threshold? Favor deferral of income or acceleration of deductions to protect credits/QBI.
• Standard deduction ±10% band? Bunch aggressively into the stronger year; keep the other year clean and standard.
• Cash-basis prepay? Ensure the 12-month benefit doesn’t extend beyond the safe window; keep support.
• Charity? Use appreciated securities, not cash, when possible; coordinate with harvesting elsewhere.
• SALT? Don’t prepay beyond deductibility caps; validate state conformity and add-backs.

Common pitfalls (and how timing avoids them)

• Triggering NIIT with an avoidable December sale
• QBI erosion from excess W-2 wages/distributions timing
• Bunching without paperwork (charity acknowledgments, medical receipts)
• Prepaying non-deductible items or violating the 12-month rule
• Overpaying SALT in a non-deductible year

Documentation you should produce

• Timing matrix: side-by-side 2025 vs. 2026 with taxable income, credits, NIIT/AMT, QBI
• Cash-basis prepay file: invoices, payment proofs, business purpose memo
• Charitable packet: DAF confirmations, appraisals (if needed), acknowledgment letters
• SALT worksheet: payments scheduled, caps tested, state conformity notes
• Client summary: one-page recommendation + “Do/Don’t” list for December

How CPA Pilot helps with Timing Income & Deductions?

• Scenario modeling: compares accelerate vs. defer outcomes across brackets, NIIT/AMT, and QBI thresholds.
• Bunching optimizer: calculates when itemizing beats the standard deduction and surfaces which deductions to bunch.
• Cash-basis prepay assistant: flags eligible prepayables, applies 12-month checks, and creates documentation tasks.
• Charity coordinator: maps appreciated assets to DAF, tracks substantiation items, and aligns with loss/gain activity.
• SALT guardrails: tests deductibility caps and state conformity, preventing wasted payments.
• Client-ready brief: generates a plain-English timing summary and checklist for immediate approval.

Model Your Timing Plan in CPA Pilot →Protect bracket edges and credits, validate SALT/charity moves, and produce a client-ready December action brief. Schedule a Demo to know more!

4. Make Smart Retirement Moves Before Year-End

Verify RMDs, optimize Roth conversions, and maximize contributions

In December, confirm RMDs, maximize contributions (including catch-ups where eligible), and evaluate Roth conversions while managing bracket edges, IRMAA, NIIT, AMT, and state tax interactions. Sequence RMDs first (penalties risk), then contributions, then conversions with withholdings calibrated to avoid underpayment issues.

What to evaluate first

• RMD status: who, which accounts (traditional IRAs, prior employer plans), inherited vs. owner, multiple custodians, and whether “first-RMD” deferral rules apply.
• Contribution room: employer plan deferrals, IRA/HSA eligibility, catch-up availability and limits (age/plan rules).
• Conversion posture: current and projected MAGI/AGI, unused bracket headroom, loss carryforwards, upcoming life events (retirement, business sale).
• Cash & withholdings: ability to cover conversion taxes without tapping the IRA; estimated tax safety-harbor checks.
• Downstream effects: IRMAA brackets, Social Security taxation, QBI, NIIT, AMT, state conformity.

Execution checklist (practical sequence)

1. RMD first: verify each required account, custodian processing times, and beneficiary designations; withholdings optional but confirmed.
2. Top off contributions: maximize employer plan deferrals, confirm eligibility for IRA/HSA, and apply catch-ups where allowed.
3. Bracket mapping: compute headroom in the current marginal bracket and monitor IRMAA thresholds.
4. Roth conversion sizing: convert only up to desired bracket/IRMAA breakpoints; avoid tipping NIIT/AMT unless modeled.
5. Withhold/pay estimates: align withholding/quarterly estimates to avoid penalties; consider using non-retirement cash for taxes.
6. Asset selection: preferentially convert assets with high expected growth or temporarily depressed prices.
7. Documentation & confirmations: retain RMD confirmations, contribution records, and conversion 1099-R/5498 evidence.

Decision rules (fast heuristics)

• RMD → no exceptions: complete before any conversion; converting RMD amounts is not allowed.
• Catch-ups when cash is tight: prioritize employer plan deferrals (match + pre-tax shield) before IRA, if applicable.
• Conversion headroom: stop conversions just below the next bracket or IRMAA tier to avoid jump costs.
• Tax funding: avoid paying conversion tax from IRA principal (shrinks tax-free base) if external cash is available.
• State check: some states tax conversions differently—verify conformity before sizing.

Common pitfalls (and how to prevent them)

• Missed RMD due to slow custodian processing—start early and confirm receipt.
• Over-converting into higher IRMAA/marginal tiers unintentionally.
• Using IRA funds to pay conversion tax, reducing the future tax-free growth engine.
• Contribution ineligibility (active plan coverage, income limits) not vetted before funding.
• Neglected withholdings/estimates, causing penalties despite “successful” planning.

Documentation you should produce

• RMD worksheet: accounts, amounts, dates, confirmations, withholdings.
• Contribution tracker: plan/IRA/HSA amounts, catch-ups, eligibility notes.
• Conversion memo: rationale, bracket/IRMAA analysis, tax payment source, assets converted.
• Client summary: one-page “What we did and why,” with next-year reminders.

How CPA Pilot helps with Retirement Moves?

• RMD verifier: aggregates accounts, computes RMD needs, and flags missing custodian confirmations or beneficiary anomalies.
• Contribution optimizer: shows remaining deferral/catch-up room by plan/IRA/HSA and produces a funding checklist.
• Conversion sizing assistant: maps bracket headroom/IRMAA thresholds and suggests a conversion ceiling with warning bands.
• Tax payment planner: reconciles withholdings vs. quarterly estimates to avoid penalties, including safe-harbor tests.
• Evidence pack: compiles RMD receipts, 1099-R/5498 expectations, and a client-ready summary for the file.

Tighten Your Retirement Moves with CPA Pilot → Verify RMDs, maximize contributions, right-size conversions, and generate a clean client summary with supporting evidence. Buy your plan now!

5. Plan Year-End Strategies for Owner-Operated Businesses

Step-by-step December tasks for CPAs and clients

In December, lockdown placed-in-service for deductions, right-size S-Corp salary vs. distributions, test QBI thresholds/phase-outs, and plan capex (Sec. 179 vs. bonus) against cash flow and state conformity. Coordinate with estimated taxes, entity elections, and reasonable comp documentation.

What to evaluate first

• Entity profile: S-Corp vs. partnership/sole prop; ownership %, guaranteed payments, officer comp practices
• QBI posture: projected qualified business income, W-2 wages, UBIA of qualified property, specified service trade or business (SSTB) status
• Capex pipeline: assets ready by year-end, cost, class lives, §179 eligibility, bonus %; placed-in-service certainty
• Cash & financing: line availability, interest deductibility, covenants, safe-harbor estimates impact
• Owner pay mix: current reasonable compensation (S-Corp), distribution history, payroll cut-offs
• State alignment: conformity to §179/bonus/QBI; add-backs or limits

Execution checklist (practical sequence)

1. Placed-in-service audit: verify location, readiness, and documentation for any asset you intend to expense.
2. 179 vs. bonus modeling: weigh immediate expensing against future income smoothing, potential NOLs, and state non-conformity.
3. Salary vs. distributions (S-Corp): confirm reasonable comp; adjust December payroll to align with industry benchmarks and QBI/W-2 wage needs.
4. QBI threshold tuning: if near thresholds, adjust W-2 wages, consider late-year capex (UBIA), or manage income timing.
5. Payroll/withholding cut-offs: finalize officer payroll runs, fringe benefits reporting (health, group-term life), and retirement plan funding logistics.
6. Quarterly estimates & safe harbor: Recompute based on year-end adjustments; avoid underpayment penalties.
7. Board/owner minutes: document comp rationale, capex intent, and tax method elections or accounting changes.

Decision rules (fast heuristics)

• Real businesses need first: do not buy assets solely for tax—capex should pass an ROI test beyond the deduction.
• 179 vs. bonus: prefer §179 when you want asset-by-asset control or state conformity is better; prefer bonus when you need large, broad expensing without form limits.
• Reasonable comp: if officer wages look low vs. peers, increase December payroll rather than risk reclassification and penalties.
• QBI tuning: when close to thresholds, small shifts in W-2 wages or UBIA can unlock/retain the deduction.
• Estimates: after any pay/capex move, re-test safe harbor and cash impact.

Common pitfalls (and how to avoid them)

• Not truly placed-in-service → deduction denied; ensure the asset is installed, configured, and ready for use.
• State mismatch: expensed federally, added back at state level → surprise liability; check conformity tables.
• Underpaying officers → payroll tax/penalty exposure and weaker QBI wage base.
• Late payroll entries → missed W-2 wage adjustments, fringe benefit reporting errors.
• Over-expensing into NOLs** you can’t efficiently use; consider spreading deductions.
• Missing minutes → weak file for comp/expensing rationale.

Documentation you should produce

• Placed-in-service packet: invoices, delivery slips, install logs, photos/acceptance docs.
• 179/bonus memo: why chosen, asset details, class lives, expected cash-flow effect, state conformity notes.
• Reasonable comp file: comps/benchmarks, duties/time analysis, payroll changes, board approval.
• QBI worksheet: QBI, W-2 wages, UBIA, SSTB status, threshold tests.
• Estimate recalculation: updated vouchers, safe-harbor check, payment confirmations.
• Year-end minutes: resolutions for comp and capital purchases.

How CPA Pilot Helps Owner-Operated Businesses?

• Capex analyzer: checks §179 eligibility vs. bonus, placed-in-service readiness, and state conformity; highlights over-expensing risk.
• QBI tuner: projects QBI, W-2 wage and UBIA impacts; flags threshold proximity and SSTB issues with suggested levers.
• Reasonable comp assistant: aggregates role/time/industry data into a comp rationale and adjusts December payroll targets.
• Owner pay mix dashboard: simulates salary vs. distribution impacts on payroll taxes, QBI, and cash.
• Estimate guardrails: updates quarterly estimates/safe-harbor needs after any move; produces payment tasks.
• Evidence pack generator: compiles memos, minutes, and checklists for audit-ready documentation.

Optimize Your Owner-Operator Plan with CPA Pilot → Validate placed-in-service, tune QBI and wages, document reasonable comp, and generate audit-ready memos and minutes. Register Now!

6. Manage Equity Comp and Stock Option Timing

Optimize Sec. 179, bonus depreciation, QBI, and S-Corp pay mix

December is decision month for vesting events, exercises, and sales. Coordinate RSU delivery (ordinary income), ISO/NSO exercises, potential AMT exposure from ISOs, same-day sale vs. hold-for-LTCG objectives, and withholding shortfalls. Align choices with bracket edges, NIIT, state rules, and any blackout windows before year-end.

What to evaluate first

• Award inventory: RSUs (delivery dates), PSUs, ISOs, NSOs, ESPP shares (offering/purchase dates), unvested vs. vested options.
• Company timing constraints: trading windows, insider status, Rule 10b5-1 plans, blackout periods.
• Tax posture: current AGI/MAGI, bracket proximity, NIIT exposure, AMT baseline (especially for ISOs), state conformity.
• Cost basis & holding periods: grant/exercise/settlement dates, qualifying vs. disqualifying dispositions, LTCG clocks.
• Cash/withholding: employer default withholding rates on RSUs may be too low, creating underpayment risk.
• Exit/volatility risk: corporate news, vest cliffs, concentration risk in single-employer stock.

Execution Checklist (practical sequence)

1. Calendar the events: list December (and early-January) vests, option expirations, and blackout windows.
2. RSU tax coverage: compare default withholding (often supplemental rate) to actual marginal rate; plan top-up withholding/estimates.
3. ISO decision: estimate AMT with exercise spread; if exercising, decide partial vs. full, and whether to hold for qualifying disposition.
4. NSO exercise & sell: weigh same-day sale (ordinary income, no AMT) vs. hold (concentration and market risk).
5. ESPP cleanup: confirm disqualifying vs. qualifying dispositions; validate basis with W-2 adjustments.
6. Concentration controls: set a sell-down policy to limit employer-stock exposure while respecting trading policies.
7. Documentation: store grant docs, 3921/3922, exercise confirms, broker statements, and 1099-B mapping notes.

Decision rules (fast heuristics)

• RSUs: treat as ordinary income at delivery; if the default withholding is below your bracket, pre-plan estimate payments.
• ISOs: AMT risk scales with spread × shares exercised; consider staged exercises and model year-end AMT before acting.
• NSOs: simpler than ISOs; ordinary income at exercise—use same-day sale for liquidity and to avoid market drift when needed.
• Qualifying clocks: if within weeks of reaching 1-yr/2-yr ISO or ESPP holding, evaluate whether the incremental tax benefit outweighs risk.
• Diversification: avoid overexposure to employer stock—especially near company events or if a large RSU tranche is hitting.

Common pitfalls (and how to avoid them)

• Under-withheld RSUs → surprise balance due and penalties; add supplemental withholding or make estimates.
• ISO AMT shock → exercising too large a block without AMT modeling.
• Basis mismatches on 1099-B → broker statements may omit ISO/ESPP adjustments; reconcile with 3921/3922 and W-2.
• Trading window violations → plan disposals within permitted windows or via a 10b5-1 plan.
• Clock resets → inadvertent wash sales or repurchases can reset holding periods and muddle LTCG eligibility.

Documentation you should produce

• Equity comp worksheet: grant types, dates, shares, vesting/exercise, fair market value, spreads, and holding clocks.
• AMT memo (if ISOs): pre-exercise AMT baseline, sensitivity to share count, and cash needed for potential AMT.
• Withholding plan: RSU top-up schedule or estimated payments; payroll coordination notes.
• Disposition log: qualifying vs. disqualifying dispositions; 1099-B mapping; employer W-2 adjustments.
• Compliance pack: evidence of trading-window adherence, 10b5-1 instructions, and approvals.

How CPA Pilot helps with Equity Compensation & RSUs/ISOs/NSOs?

• Award inventory & timeline: consolidates RSU/ISO/NSO/ESPP data and builds a vest/exercise calendar with blackout flags.
• Withholding gap detector: compares RSU default withholding to projected marginal rate and creates estimate/top-up tasks.
• AMT early warning (ISO): highlights AMT sensitivity to exercise spread and suggests staging or ceilings to stay within targets.
• Disposition reconciler: maps 3921/3922/W-2 data to broker 1099-B to minimize basis errors and year-end surprises.
• Diversification policy aide: sets sell-down targets and schedules orders within allowed trading windows; produces a client-facing rationale sheet.
• Client summary generator: one-page plain-English explanation of what vested, what was sold/held, and what taxes to expect.

Tame Equity Comp Year-End Moves with CPA Pilot → Get a clear calendar, AMT checks, withholding plan, and a reconciled file that ties grant docs to 1099-B and W-2.

7. Boost Deductions with Charitable Giving & Donor-Advised Funds (DAFs)

Donate appreciated assets and time bunching strategies

Maximize deductions by donating appreciated securities (avoid selling first), consider DAFs for same-year deductions with flexible future grants, and coordinate gifts with bunching strategies, AGI limits, and substantiation rules. Pair charitable moves with loss/gain management and year-end timing.

What to evaluate first

• Giving intent & timing: target dollar amount for 2025 vs. 2026; cadence of grants to charities.
• Asset selection: highest-basis vs. lowest-basis lots; long-term appreciated positions for maximum leverage.
• AGI limits & carryforwards: public charity vs. private foundation limits; 5-year carryover posture.
• Bunching potential: coordinate with SALT/medical/mortgage to exceed the standard deduction in a chosen year.
• DAF vs. direct gift: need for same-year deduction with deferred grantmaking vs. immediate recipient needs.
• Documentation readiness: qualified appraisal thresholds, acknowledgment letters, brokerage transfer lead times.

Execution Checklist (practical sequence)

1. Pick the year: decide whether 2025 or 2026 is your itemize year; bunch gifts accordingly.
2. Select assets: prioritize long-term appreciated securities; avoid donating loss positions (harvest losses instead).
3. Choose the vehicle: open/fund a DAF (for immediate deduction + later grants) or transfer directly to the charity’s brokerage.
4. Initiate transfers early: confirm CUSIP/lot details, custodian forms, and year-end cutoffs.
5. Compliance files: determine if a qualified appraisal is required; secure acknowledgment letters with no-goods-or-services language.
6. Coordinate taxes: model AGI limits, carryforward usage, and interaction with QBI/NIIT/AMT.
7. Grantmaking plan: schedule 2026 grants from the DAF while locking the 2025 deduction.
8. Rebalance portfolio: backfill exposure using non-identical substitutes to maintain risk profile.

Decision Rules (fast heuristics)

• Give gains, harvest losses: donate winners, sell losers to capture the deduction.
• Long-term rule: confirm >1-year holding for FMV deduction on appreciated property to public charities/DAFs.
• DAF for bunching: when near the standard deduction, fund a multi-year DAF now and grant over time.
• Appraisal thresholds: non-cash gifts ≥ certain limits may require a qualified appraisal—check early.
• Timing discipline: brokerage transfers can slip—start before mid-December to ensure posting in 2025.

Common pitfalls (and how to avoid them)

• Late transfers that miss the custodial deadline → gift lands in January, deduction lost for 2025.
• Donating short-term assets → deduction limited to basis, losing the FMV advantage.
• Appraisal/acknowledgment gaps → deduction disallowed; keep Forms and letters consistent with rules.
• Over-giving above AGI limits without a plan to use carryforwards.
• Portfolio drift after donation due to missing replacement exposure.

Documentation you should produce

• Charitable gift packet: lot selection memo, fair market value evidence, transfer confirmations, acknowledgment letters.
• DAF confirmation: account opening, contribution receipt, and grantmaking schedule.
• AGI/limit worksheet: applied limits, carryforwards, and next-year utilization plan.
• Client summary: one page explaining why these assets were chosen, deduction math, and portfolio rebalancing steps.

How CPA Pilot helps with Charitable Giving & Donor-Advised Funds (DAFs)?

• Asset screener: surfaces long-term appreciated winners, optimal for gifting and tags loss positions to harvest instead.
• Bunching & limit testing: evaluates itemized vs. standard outcomes, AGI limits, and carry-forward utilization across years.
• DAF workflow: generates the transfer checklist, custodian form list, and a grantmaking calendar while ensuring year-end cutoffs.
• Evidence & compliance: assembles appraisal needs, acknowledgment requirements, and donation documentation into an audit-ready pack.
• Portfolio rebalance aide: suggests non-identical replacements to maintain exposure post-donation and logs rationale.

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8. Clean Up Real Estate Depreciation Before Year-End (Cost Seg, Safe Harbors, Groupings)

Cost seg, safe harbors, and §469 groupings to unlock deductions

In December, confirm placed-in-service, scrub depreciation schedules, evaluate cost segregation opportunities, consider safe-harbor elections (de minimis, routine maintenance, small taxpayer), and finalize grouping/aggregation for passive loss rules. Coordinate potential §1031 timing, installment sales, and partial dispositions to prevent basis errors and unlock deductions.

What to evaluate first

• Property inventory: residential vs. nonresidential, service dates, original and adjusted basis, land vs. improvements.
• Depreciation status: correct class lives/methods, components (roof/HVAC/land improvements), and bonus eligibility history.
• Repairs & improvements: identify items eligible for safe harbors or requiring capitalization (BAR tests).
• Passive loss posture: suspended PALs, material participation status, RE professional (REPS) documentation, and short-term rental facts.
• Transactions pipeline: sales/like-kind exchanges, casualty/theft, refinance, tenant improvements, lease incentives.
• State conformity: bonus/§179 real property limits, add-backs, and basis differences.

Execution Checklist (practical sequence)

1. Placed-in-service confirmation: verify readiness/availability of 2025 assets (photos, permits, occupancy/tenant acceptance).
2. Schedule scrub: correct class life/method; reclass land improvements; add missed components (e.g., parking, fencing, lighting).
3. Cost segregation triage: for higher-basis properties, assess feasibility to shift 39/27.5-year assets into 5/7/15-year buckets; plan documentation.
4. Safe harbor review:
   • De minimis (per-invoice threshold)
   • Routine maintenance (expected more than once in class life)
   • Small taxpayer safe harbor (building-by-building)
5. Partial disposition election: when retiring a component (roof/HVAC), consider recognizing loss on disposed portion.
6. Repairs vs. improvements memo: apply BAR (Betterment, Adaptation, Restoration) analysis; document conclusion.
7. Grouping/aggregation under §469: finalize trade or business groupings for material participation; align with facts and future years.
8. Transactions: if doing §1031, confirm identification/closing timelines; if installment, verify contract terms and interest/Imputed interest.
9. Basis & at-risk: update basis/at-risk worksheets after refinances, contributions, and distributions.

Decision Rules (fast heuristics)

• If service date < Dec 31: claim depreciation this year; if not, do not force an ineligible placed-in-service.
• High-basis property with long lives? Cost seg often pays—especially when current taxable income is high and state rules cooperate.
• Small, frequent fixes? Favor de minimis or routine maintenance where documentation supports it.
• Component retired? Consider partial disposition to avoid “ghost” basis.
• Passive loss release: Selling a fully passive activity can free suspended PALs—sequence sales accordingly.

Common Pitfalls (and how to avoid them)

• Wrong class life/method → chronic under/over-depreciation; fix now, not during audit.
• Ignoring land improvements (15-year) embedded in the “building” bucket.
• Missed partial dispositions when replacing major components.
• Electing safe harbors without policy alignment (e.g., de minimis policy not in place).
• Grouping statements missing or inconsistent → weak §469 position in future years.
• State bonus add-backs creating estimated tax surprises.

Documentation you should produce

• Placed-in-service packet: photos, permits/COs, vendor completion docs, tenant acceptance.
• Depreciation reconciliation: asset list with class life/method changes, land improvements carve-outs.
• Cost seg file: study summary or triage memo, asset reclass schedule, auditor-ready citations.
• Safe harbor elections/policy: de minimis policy statement, routine maintenance log, small taxpayer calculation.
• Partial disposition memo: basis allocation method, retired component evidence, loss computation.
• §469 grouping statement: activities included, rationale, and material participation evidence.
• Basis/at-risk worksheet: updated for year-end.

How CPA Pilot helps with Real Estate Depreciation?

• Depreciation auditor: scans schedules for misclassified assets, missing land-improvement buckets, and bonus eligibility gaps.
• Cost seg triage: estimates potential benefit, flags candidates, and builds a reclass schedule with support docs checklist.
• Safe harbor assistant: tests de minimis/routine maintenance/small taxpayer criteria and generates election language and policy docs.
• Partial disposition engine: ties vendor replacement invoices to original components and computes disposition loss entries.
• §469 grouping coach: organizes activities, drafts grouping statements, and compiles material participation evidence.
• State conformity checker: highlights differences vs. federal for bonus/§179 and produces estimated-tax adjustments.
• Evidence pack builder: creates an audit-ready folder (placed-in-service, memos, elections, reconciliations).

Tune Your Real Estate Depreciation with CPA Pilot → Audit schedules, test safe harbors, model cost seg impact, and generate elections/memos with an audit-ready evidence pack. Start your plan now!

9. Resolve Multistate Income and Residency Issues (Credits, Sourcing, Partial-Year Filings)

Avoid double taxation and prepare partial-year filings

Year-end is the moment to lock residency, domicile, and sourcing facts. Map income by state (wages, business, equity comp, real estate), confirm credits for taxes paid to other states, and prepare partial-year returns where appropriate. Clean documentation now prevents double taxation and amended returns later.

What to evaluate first

• Residency timeline: move dates, lease/home closing, voter/DMV/bank changes, family location, days-in-state logs.
• Income by source: W-2 state boxes, remote vs. in-office days, convenience of employer states, equity events tied to grant/workdays, K-1 apportionment.
• Business nexus: payroll, property, and sales footprints; marketplace facilitators; PTE taxes by state.
• Credits & conformity: resident vs. nonresident filing order; credit mechanics; add-backs/adjustments.
• Withholding posture: multi-state payroll setup accuracy, under/over-withholding, local taxes.
• Real estate: rentals (short vs. long-term), passive/nonpassive status, city occupancy taxes.

Execution Checklist (Practical sequence)

1. Build a residency file: domicile evidence + day count calendar; document ties formed/broken in 2025.
2. Reconcile payroll: ensure W-2 reflects correct state allocations; fix convenience-of-employer assumptions.
3. Allocate equity comp: split RSU/option income by workdays between grant and vest/exercise; align with state law.
4. K-1 & apportionment: collect state apportionment schedules; test credit for taxes paid interactions.
5. PTE tax decisions: elect or bypass pass-through entity taxes where beneficial; reconcile owner-level credits.
6. Estimate true-ups: if withholding is off, compute year-end estimates by state to avoid penalties.
7. Partial-year returns: determine where PY resident returns are required and which states need nonresident returns.
8. Local taxes: confirm city/county obligations (e.g., NYC, Philly, SF), especially for commuters/remotes.
9. Documentation & workpapers: maintain residency narrative, calendars, wage allocation, equity comp splits, and credit calculations.

Decision rules (fast heuristics)

• Domicile beats day count in many disputes: show intent and ties (home, family, documents) in addition to days.
• Convenience states: if the employer state applies the rule, wage sourcing may follow the employer location even when working remotely—verify exceptions.
• Equity comp allocation: RSUs/options often source to workdays across states during grant-to-vest/exercise; don’t allocate purely by residence at vest.
• Resident return first: generally prepare the resident return, then compute credits using nonresident tax on shared income.
• PTE elections: valuable when the state offers SALT cap workaround and owner’s resident state allows full credit—model both sides.

Common Pitfalls (and how to avoid them)

• Wrong W-2 state boxes due to remote work changes → request a year-end correction from payroll.
• Double tax on equity events by allocating to residence only → use workday method and keep employer records.
• Missed nonresident filings where K-1 apportionment triggers thresholds.
• Invalid credits because the resident state disallows credit on specific categories or limits calculation.
• Residency audit gaps from weak documentation of domicile change (no driver’s license, voter reg, or home sale evidence).

Documentation you should produce

• Residency dossier: lease/deed, homestead status, driver’s license, voter reg, school, physician, bank, club ties; day logs.
• Wage allocation workbook: remote/in-office days, convenience adjustments, payroll confirmations.
• Equity comp sourcing schedule: grant/vest/exercise dates, workdays by state, employer memos.
• K-1 & credit pack: apportionment factors, nonresident tax computations, resident credit calculation.
• PTE tax memo: election rationale, owner credits, cash impact.
• Estimate vouchers by state with payment proofs.

How CPA Pilot helps with Multistate & Residency?

• Residency builder: compiles domicile evidence and day-count calendars; produces a concise residency narrative for files.
• Wage & equity allocator: reconciles W-2 state boxes, applies convenience rules, and allocates RSU/option income by workdays between grant and vest/exercise.
• K-1 apportionment sync: ingests state schedules, computes credits for taxes paid, and flags resident-state mismatches.
• PTE election analyzer: models entity-level tax elections vs. owner credits to quantify SALT cap workaround benefits.
• Estimate/withholding planner: generates state-specific estimate vouchers and updates payroll withholding targets.
• Audit-ready pack: exports residency dossier, allocation workpapers, and credit calculations for fast review.

Clean Up Your Multistate Position with CPA Pilot →Lock residency, allocate wages and equity correctly, compute resident-state credits, and generate state-ready workpapers and vouchers. Start your plan now!

Run Your Final Compliance Check in CPA Pilot

Sequence tasks, reduce risk, and deliver clean documentation

December wins come from smart sequencing, clean documentation, and crisp client comms. Use this playbook to baseline fast, time income/deductions, harvest with guardrails, tune QBI/§179/bonus, and button up equity comp, charity, real estate, and multistate.

CPA Pilot makes it simple—baseline in minutes, auto-generate tasks and evidence packs, and reduce review churn. For pitfalls to avoid, see Year-End Tax Research Mistakes.

Make sure to download the checklist for client-facing tasks and prompts for automated assistance within CPA Pilot.

Disclaimer: This article is provided by CPA Pilot for educational purposes. While we may offer tax software/services, the information here is general and may not address your specific facts and circumstances. It does not constitute individual tax, legal, or accounting advice. U.S. federal and State Tax laws change frequently; please consult a qualified tax professional before acting on any information.