Year-End Tax Planning Strategies

Retirement contributions are one of the most effective ways to lower taxable income.

• 401(k) / 403(b): Contributions must be made by Dec 31 (via payroll deduction). Maximize this ($24,000 limit in 2026) if possible.
• IRA: Traditional IRA contributions allow tax deductions. You have until the April filing deadline, but planning now helps.
• Solo 401(k): Must check plan establishment deadlines (often Dec 31) even if funding is later.

If you have investments that have lost value, selling them realizes a "capital loss."

• Offset Gains: Losses first offset any capital gains you realized this year.
• Offset Income: If losses exceed gains, you can deduct up to $3,000 against ordinary income (wages).
• Wash Sale Rule: Be careful not to buy the "substantially identical" security within 30 days before or after the sale, or the loss is disallowed.

If you itemize deductions, paying expenses before year-end pulls the tax benefit into the current year.

• Charitable Donations: Donate cash or goods by Dec 31. Charges to credit cards count in the year charged.
• Medical Expenses: If you're near the 7.5% AGI threshold, prepay upcoming medical/dental bills.
• Property Taxes: Pay property tax bills due early next year before Dec 31 (check SALT cap first).
• Mortgage Interest: Make January's mortgage payment in late December.

If you expect to be in the same or lower tax bracket next year, deferring income delays the tax bill.

• Bonuses: Ask if year-end bonuses can be paid in January.
• Self-Employed Invoicing: Send invoices later in December so payment arrives in January (if using cash basis accounting).

• HSA: Max out HSA contributions ($4,400 self / $8,750 family in 2026). Triple tax advantage!
• FSA: Spend down Flexible Spending Account funds if your plan doesn't allow rollover. "Use it or lose it."

• RMDs: If you are age 73+, ensure you've taken your Required Minimum Distribution to avoid a 25% penalty.
• Roth Conversion: If you have a low-income year, consider converting Traditional IRA funds to Roth (pay tax now at low rate, tax-free growth forever).
• Mutual Fund Distributions: Avoid buying effectively taxable distributions by purchasing mutual funds after their annual distribution date in December.