Year End Tax Moves to Make Before the Deadline

The end of the calendar year is a firm deadline for many tax-planning opportunities. To impact your current year’s tax return, certain financial actions must be completed by December 31st. Understanding these strategies allows you to proactively manage your tax liability through maneuvers within your investment accounts, retirement savings, and personal finances.

Investment Portfolio Adjustments

A taxable brokerage account allows for year-end tax management through tax-loss harvesting. This involves selling investments at a loss to offset capital gains. If your losses exceed your gains, you can use up to $3,000 of the excess to reduce ordinary income, with any remainder carried forward to future tax years.

This strategy is subject to the IRS “wash sale” rule. You cannot claim a loss if you buy a “substantially identical” security within 30 days before or after the sale. To comply, wait at least 31 days to repurchase the same security or immediately reinvest in a different, non-identical one.

Investors in a lower tax bracket might use tax-gain harvesting. Some individuals qualify for a 0% tax rate on long-term capital gains, allowing them to sell appreciated assets held for over a year tax-free. For 2025, individual filers with taxable income of $48,350 or less qualify for this rate.

You can immediately repurchase the asset, which resets its cost basis to the current market value. This higher basis reduces the taxable gain on a future sale, which is useful if you anticipate being in a higher tax bracket later.

Another strategy is donating appreciated securities directly to a qualified charity. Transferring a stock held for more than one year directly to the charity provides a dual tax benefit: you avoid capital gains tax on the appreciation and can claim a charitable deduction for the security’s full fair market value.

Retirement and Education Savings Strategies

Maximizing contributions to accounts like a 401(k) or 403(b) before December 31st can reduce your taxable income. For 2025, the maximum employee contribution is $23,500, with an additional $7,500 catch-up for those 50 and over. A new rule allows a higher catch-up of $11,250 for ages 60-63, if the plan permits. Unlike IRA contributions, employer plan contributions are based on the calendar year.

A Roth conversion can be beneficial if your income is lower this year or you expect to be in a higher tax bracket in the future. This involves transferring funds from a traditional retirement account to a Roth account. You pay ordinary income tax on the converted amount now, and in exchange, future qualified withdrawals will be tax-free.

Individuals who have reached the age for Required Minimum Distributions (RMDs) must take these withdrawals by year-end. The RMD age is 73 for those who turned 72 on or after January 1, 2023. Failing to take the full RMD amount from retirement plans by December 31st can result in a penalty on the amount not withdrawn.

A strategy for those subject to RMDs is the Qualified Charitable Distribution (QCD). An individual aged 70½ or older can donate up to $108,000 in 2025 directly from their IRA to a charity. A QCD counts toward your RMD for the year, and the distributed amount is excluded from your taxable income, which is often more beneficial than taking an RMD and donating it after taxes.

Maximizing contributions to a Health Savings Account (HSA) offers a triple tax benefit: a tax deduction, tax-free growth, and tax-free withdrawals for medical expenses. For 2025, HSA contribution limits are $4,300 for self-only coverage and $8,550 for family coverage. You can also contribute to a 529 plan, and some states offer a tax deduction for contributions made by year-end.

Optimizing Your Itemized Deductions

If your total deductible expenses are near the standard deduction amount, year-end planning can help. For 2025, the standard deduction is $30,000 for married couples filing jointly and $15,000 for single filers. A strategy known as “bunching” involves consolidating deductible expenses into one year to surpass this threshold.

You can deduct medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI). Scheduling and paying for elective medical, dental, or vision procedures before year-end can help you meet this threshold. This could include new glasses, dental work, or other non-urgent treatments.

The state and local tax (SALT) deduction is capped at $10,000 per household annually for combined income, sales, and property taxes. If you are below the cap, consider prepaying your fourth-quarter state estimated tax payment or an upcoming property tax bill before December 31st to reach the limit.

Charitable contributions are also itemized deductions. When bunching, it is effective to concentrate charitable giving in the same year as other accelerated expenses. Cash contributions are deductible up to 60% of your AGI, and you must retain records for all donations. This is distinct from donating appreciated stock.

Timing Income and Business Expenses

Controlling the timing of income is a tax planning method, especially for the self-employed or those with fluctuating income. If you expect to be in a lower tax bracket next year, you can defer income. This can be done by delaying invoices for late-year work until January to ensure payment is received in the new year.

Conversely, if you expect to be in a higher tax bracket next year, you can accelerate income into the current year. This could involve collecting outstanding payments before December 31st or requesting a year-end bonus be paid in December instead of January. The goal is to realize income in the year with the lower tax rate.

Small business owners can accelerate deductions to reduce net business income for the current year. This involves buying and paying for necessary items before year-end. Examples include stocking up on office supplies, purchasing new equipment, or prepaying professional dues for the upcoming year.

For larger equipment purchases, Section 179 allows businesses to deduct the full cost of qualifying property in the year it is placed in service, up to a limit. For 2025, the maximum deduction is $1,250,000. This provides an immediate write-off rather than depreciating the cost over several years, which can significantly lower taxable income.

Final Tax Withholding and Payment Review

A final review of your tax situation before year-end can help you avoid underpayment penalties. Compare your total income for the year with the federal income tax withheld from your paychecks or paid via estimated taxes. The IRS offers a Tax Withholding Estimator tool on its website to help with this review.

If your review shows you are under-withheld, you can still make adjustments. Submit a new Form W-4 to your employer to request additional tax be withheld from your final paychecks. This can help cover a projected shortfall and reduce potential penalties.

For those with income from sources other than wages, estimated tax payments are the primary payment method. If you project a shortfall, make an additional payment. While the fourth quarter payment is due in January, making a payment by December 31st can be beneficial for penalty calculations.