As we approach year-end, it is a good time to review planning opportunities, particularly in light of the new legislation passed in July (the One Big Beautiful Bill Act, or OBBBA). Here, we outline key opportunities relating to gifting and income tax planning – including charitable giving – that you can employ to maximize available deductions and exclusions before the end of the year.

We have also included a year-end checklist. If you have any questions about the planning opportunities discussed, your BBH wealth planner and relationship team would be happy to discuss them further.

Gift/estate tax planning

This is a popular time of year to make gifts. Each U.S. citizen has a lifetime exemption they can use to shelter transfers from estate and gift tax (with the current federal tax rate of 40%). The current exemption, which is adjusted for inflation each year, is $13.99 million per person ($27.98 million for a married couple). In 2026, the exemption will increase to $15 million per person ($30 million for a married couple). The generation-skipping transfer (GST) tax exemption tracks the gift/estate tax exemption in 2025 and beyond.

Lifetime gifting can be beneficial because it removes future appreciation on gifted assets from your estate. You can use your exemption to make outright gifts, fund new trusts, or add assets to existing trusts. Gifts may be made using cash, securities, or complex assets, such as an interest in a privately held business or family limited partnership. There are opportunities to leverage your exemption by gifting assets that qualify for valuation discounts due to lack of marketability and/or lack of control (such as interests in privately held businesses or partnership interests).

For those concerned about giving away too much, spousal lifetime access trusts (SLATs) may be a good option. SLATs have become popular over the past few years due to their flexible terms and the increased exemption amounts. SLATs allow a nongrantor spouse to be included as a beneficiary, providing a safety net because that beneficiary spouse can access funds later on if necessary.

Annual exclusion gifts

The annual exclusion represents the amount that can be gifted to any person once per year without using gift/estate tax exemption and is another great way to transfer assets. The exclusion amount is $19,000 in 2025 ($38,000 for a married couple) per recipient and will remain at the same level in 2026. Annual exclusion gifts can be made outright, to certain types of trusts, custodial accounts for minors, or 529 college savings plans, the last of which you can frontload with five years’ worth of annual exclusion gifts ($95,000 in 2025, or $190,000 for married couples).

Direct payment of tuition and medical expenses

Another strategy that can have a meaningful impact is the direct payment of tuition and medical expenses. These payments do not count as taxable gifts or use any exemption as long as the payment is made directly to the institution. These gifts are not limited to immediate family members and can be made on anyone’s behalf.

Income tax and retirement planning

Charitable planning

Year-end offers an excellent opportunity to support organizations you care about. You can make charitable donations using cash, securities, or more complex assets. From a tax perspective, gifting appreciated securities is advantageous because it allows you to avoid capital gains taxes on any unrealized appreciation.

Depending on your philanthropic objectives, you may give directly to a charity, utilize a donor-advised fund (DAF) or private foundation, or establish a charitable trust. Your tax advisor and wealth planners can help you understand the deductibility of your charitable contributions and determine your eligibility based on certain adjusted gross income (AGI) limitations.

Under the OBBBA, there are three changes affecting deductions for charitable contributions, which make charitable gifting in 2025 particularly appealing.

• There is a new 0.5% “floor” for those who itemize deductions, effective January 1, 2026. If you itemize, starting in 2026 you can only deduct charitable contributions (and other itemized deductions) to the extent they exceed 0.5% of your AGI. In practical terms, this means the first 0.5% of AGI given to charity each year will no longer be deductible. This makes 2025 the last year with no 0.5% floor – and therefore, the last year when every dollar of itemized charitable contributions (subject to the existing AGI percentage limits) will be fully deductible.
  • Example: If your AGI is $1 million, the first $5,000 of charitable giving (0.5% of $1 million) will not be deductible. Only the amount above $5,000 can be claimed as an itemized charitable deduction.
  • Amounts disallowed by the floor that cannot be used each year are permanently lost unless your total charitable contributions for the year exceed the annual AGI percentage cap. If you do exceed the AGI cap, both the disallowed floor amount and any excess can be carried forward for up to five years.
• There is a new cap on the value of deductions for taxpayers in the top tax bracket. For taxpayers in the top federal income tax bracket (37%), the OBBBA effectively caps the tax benefit of itemized deductions – including charitable deductions – at 35% through a formula that trims itemized deductions for high-income filers. This means that large charitable gifts will still reduce taxable income, but the marginal tax savings per dollar given will be lower than under current law.
  • Example: Consider the $1 million AGI taxpayer in the example above and assume they have $100,000 in itemized deductions after accounting for the 0.5% charitable floor. The maximum that may be disallowed under the 2/37th rule is $5,400 (that is, $100,000 x 5.4%). The 37% bracket begins at roughly $751,601. In this case, the excess income over the 37% bracket ($1,000,000 - $751,601) is greater than the itemized deduction, so the taxpayer can use the full $100,000 deduction amount for the calculation.
• There is a new “above-the-line” charitable deduction for nonitemizers, which does not apply to contributions to DAFs. Beginning in 2026, nonitemizers will be allowed a small “above-the-line” charitable deduction of up to $1,000 (single) or $2,000 (married filing jointly) for cash gifts to certain public charities. Note that this deduction does not apply to contributions to DAFs or most private foundations (a private operating foundation may qualify). While many of our clients itemize deductions, this can be particularly relevant for adult children or family members with charitable intent and lower AGI.

Therefore, 2025 might be the year to consider accelerating any intended charitable donations that you want to make in order to maximize the tax benefits.

Accelerated depreciation (bonus and section 179 expensing)

Recent tax law updates provide significant opportunities for business owners to accelerate depreciation and maximize deductions on qualified property. Understanding these incentives can help you make strategic decisions about capital investments and tax planning for the upcoming year.

• The OBBBA reinstates 100% bonus depreciation for certain qualified property.
• Section 179 expensing limits and phaseout thresholds have been increased.
• Qualified production property may qualify for 100% expensing under specific conditions.
• Domestic R&D costs are fully deductible starting with tax years beginning in 2025.

Key dates to look out for include:

• 100% bonus depreciation applies to property acquired and placed in service after January 19, 2025.
• Section 179 changes take effect for tax years after December 31, 2024.
• A 40% phasedown rate applies to property placed in service between January 1 and 19, 2025.

When determining a business tax loss, consider passive loss rules, excess business loss limits, and other relevant restrictions. These rules are complex, so please consult your tax advisor.