Key Takeaways
- A completed tax return is one of the most useful planning tools available, it reveals withholding gaps, carryovers, and opportunities that can be acted on before year-end.
- Large balances due or large refunds are signals. Withholding and estimated tax payments should be adjusted to reflect your current-year income, not last year’s facts.
- Schedule K-1 owners, rental property investors, and taxpayers with loss carryovers have the most to gain from a post-filing review, these situations rarely resolve themselves without planning.
- The fourth quarter is a natural window for retirement and charitable planning. Waiting until spring leaves far fewer options on the table.
Filing the 2025 tax return is not just the end of last year’s compliance process. It is also one of the best starting points for 2026 tax planning. Once the numbers are finalized, taxpayers can see what worked, what changed, and what may need attention before the next filing season.
For many individuals, real estate investors, and owners of partnership interests, the most useful planning opportunities come from reviewing the return while the information is still fresh. A careful post-filing review can help identify estimated tax issues, underwithholding, loss carryovers, passive activity limitations, charitable giving opportunities, and other items that may affect the current year.
Start with the big-picture question
The first question to ask is simple: was the 2025 result expected?
If the balance due or refund was significantly different from expectations, that may indicate that 2026 withholding or estimated tax payments should be adjusted. Year-end planning for individuals generally includes reviewing prior-year returns, estimated tax worksheets, carryovers, and large or unusual items of income, gain, loss, or deduction.
Common items to review include:
- Wage withholding and quarterly estimated tax payments
- Capital gains, dividends, and interest income
- Business or Schedule K-1 income
- Rental real estate income or loss
- Loss carryovers from prior years
- Charitable contributions
- Retirement plan contributions and distributions
- State tax payments and residency changes
If income is expected to increase or decrease in 2026, planning should begin before year-end. Waiting until tax documents arrive next spring may leave fewer options.
Review withholding and estimated tax payments
A return that shows a large balance due may signal that tax payments did not keep pace with income. This can happen when taxpayers receive partnership income, capital gains, rental income, bonuses, retirement distributions, or other income that is not fully covered by withholding.
A return that shows a large refund may also deserve review. Some taxpayers prefer overwithholding as a forced savings tool, but others may benefit from improving cash flow during the year.
Planning points:
- Employees may want to update Form W-4 if wages, bonuses, marital status, dependents, or itemized deductions have changed.
- Self-employed individuals and partners may need to revisit quarterly estimated tax payments.
- Taxpayers with investment income should consider whether gain or dividend activity in 2026 will differ from 2025.
- Retirees may be able to adjust withholding from pension, IRA, or Social Security payments.
The goal is not necessarily to eliminate every dollar of balance due or refund. The goal is to avoid surprises and make tax payments align more closely with the taxpayer’s current-year facts.
Look for carryovers and unused deductions
The 2025 return may include items that can affect 2026, such as capital loss carryovers, charitable contribution carryovers, investment interest expense carryovers, passive activity losses, or net operating losses. These items should not be overlooked.
For example, a capital loss carryover may create an opportunity to recognize capital gains in 2026 with a reduced tax cost. Suspended passive losses may become more valuable if a taxpayer expects passive income, sells a rental property, or changes participation in an activity.
Year-end planning may also include evaluating charitable contributions of appreciated stock or securities, passive activity dispositions, investment interest carryovers, and education credits.
Pay special attention to Schedule K-1 income
Partnership and S corporation income can create tax planning challenges because owners may owe tax even when cash distributions are limited. After the return is filed, owners should compare taxable income from the entity with actual distributions received.
Questions to ask include:
- Did the partner or shareholder receive enough cash to cover the tax liability?
- Were estimated tax payments sufficient?
- Did the K-1 include items that are likely to recur in 2026?
- Are there separately stated items that need planning, such as charitable contributions, Section 179 deductions, investment interest, or credits?
- Does the taxpayer have sufficient basis or at-risk amount to deduct losses?
For partnership clients, the 2025 return may also highlight whether capital accounts, liability allocations, and partner basis records are current. These records are especially important for real estate partnerships that generate losses, refinance debt, admit new partners, or distribute property.
Use the return to identify passive activity issues
Rental real estate and other passive activities often create losses that are limited or suspended. The 2025 return can show whether a taxpayer is accumulating suspended passive losses and whether any current-year planning may help.
For rental real estate, the $25,000 special loss allowance begins to phase out when modified AGI exceeds $100,000 and is completely phased out when modified AGI reaches $150,000. Planning before year-end may help taxpayers near those thresholds evaluate income timing, deductions, and other AGI-sensitive items.
Real estate professionals should also review whether they are on track to meet the applicable participation requirements. Certain qualifying real estate professionals may treat otherwise passive rental real estate activities as nonpassive under IRC Section 469(c)(7), but the taxpayer must materially participate and meet the statutory time tests.
Practical steps include:
- Keeping contemporaneous records of time spent on real estate activities
- Reviewing grouping elections and activity classifications
- Monitoring AGI-sensitive limitations
- Discussing planned sales or acquisitions before year-end
- Evaluating whether suspended losses may be used in the current year
Consider retirement and charitable planning before year-end
The final months of the year can be an effective time to review retirement and charitable planning. Fourth-quarter Roth conversions may be easier to evaluate because taxpayers often have a clearer estimate of taxable income by that point in the year.
Taxpayers who are taking required minimum distributions should also consider whether qualified charitable distributions make sense. Qualified charitable distributions from an IRA can count toward required minimum distributions, are not included in income, and may reduce the impact of certain AGI-based tax provisions, including the 3.8 percent net investment income tax and phaseouts tied to rental real estate losses.
Potential planning topics include:
- Roth IRA conversions
- Required minimum distributions
- Qualified charitable distributions
- Charitable gifts of appreciated securities
- Retirement plan contributions for self-employed individuals
- Timing of income and deductions before December 31
Turn last year’s return into this year’s planning tool
A completed tax return is more than a historical record. It is a roadmap for current-year planning. Reviewing the 2025 return now can help identify tax payment issues, changing income patterns, unused deductions, entity-level planning needs, and year-end opportunities.
Clients who experienced major changes in income, investments, real estate holdings, business ownership, retirement, or residency should consider a planning conversation before year-end. A short review now may prevent a much larger surprise later.
