Year-end tax planning moves to consider now

When the holiday season is approaching, what’s foremost on your mind? Probably not your personal finances. But the clock is ticking. When the ball starts dropping on New Year’s Eve, a door of financial opportunity will slam shut. What is it?

It’s the potential to take proactive steps now that could save you money on your next tax bill. We’ll go through several tax-saving strategies that need to be implemented before year’s end if you want to take advantage of them. As always, remember to consult your tax professional before attempting to execute these strategies.

THE IMPORTANCE OF TAX PLANNING

Many taxpayers wonder if they can genuinely save on taxes with last-minute moves, and the answer is a resounding yes. Year-end tax planning involves a comprehensive review of your financial situation and implementing tactics that can help maximize deductions and credits.

By strategically planning and taking advantage of the tax-saving opportunities available, you could significantly reduce their taxable income, thus lowering your tax liability.

LOWER TAXABLE INCOME BY MAXIMIZING RETIREMENT CONTRIBUTIONS

For 2025, employees who save for retirement through 401(k) plans, 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan can contribute up to $23,500 to those plans during the year. The additional “catch-up” contribution for those age 50 or older is $7,500; a “super catch-up” of up to $3,750 is available for ages 60-63. In 2026, the contribution limit will increase to $24,500 and the catch-up contribution increases to $8,000. In addition, a "super catch-up" contribution of $11,250 (instead of $8,000) is available for individuals aged 60-63, if their plan allows, under the SECURE 2.0 Act.

Those saving for retirement through an IRA can contribute $7,000 (increasing to $7,500 in 2026). The IRA catch-up contribution for those who are 50 and older stays at $1,000 (for a total of $8,000) and increases to $1,100 in 2026 (for a total of $8,600). The contribution limit for a SIMPLE IRA, which is a retirement plan for small businesses with 100 or fewer employees, is $16,500 in 2025 and $17,000 in 2026, with a catch-up contribution of $4,000 each year. Also beginning in 2026, participants who earned more than $150,000 in the prior year must make any catch-up contributions on an after-tax Roth basis. Pretax catch-up contributions are not permitted for these individuals.

No matter which of these plans you have, you should try to contribute the maximum – or at least as much as you can – because the money may be tax-deductible (Roth 401k and Roth IRA contributions are an exception), thereby reducing your taxable income.

CONSIDER AFTER-TAX CONTRIBUTIONS

Speaking of Roth contributions, while they won’t immediately save you on taxes, consider whether they could be a good option for you. They’ll grow and be distributed tax-free as long as you meet the requirements.

If you make too much money to contribute to a Roth, explore the possibility of making nondeductible contributions and then converting them to a Roth (known as a backdoor Roth strategy).

BUSINESS OWNER? REVIEW YOUR RETIREMENT OPTIONS

If you own a business, you have several options for establishing a retirement plan for that business. This will commonly be a Solo 401k or a SEP-IRA. A tax professional can help you decide which is the better plan for your needs and how much you can contribute to it.

THE BENEFITS OF A SOLO 401K

A Solo 401k is only available for a business with no employees other than the spouse of the owner. Because you’re both the employer and employee, you can contribute up to $72,000 in 2026 to a Solo 401k, with the additional $8,000 catch-up contribution if you’re 50 or older, plus a super catch-up of $3,250 for ages 60-63. A Solo 401k is just a regular 401k with an individual participant, so all the same rules apply. You can have a traditional or Roth 401k. If you choose the traditional, your contributions may be tax-deferred, reducing your taxable income for the year.

DON’T FORGET ABOUT YOUR HEALTH SAVINGS ACCOUNT

If you have an HSA, you can contribute a maximum of $4,300 if you have a self-only high-deductible plan or $8,550 if you have family high-deductible plan coverage. That increases to $4,400 (self) or $8,750 (family) in 2026. You’re allowed another $1,000 in catch-up contributions once you reach age 55.

Whether you have ongoing medical costs right now or not, maxing out your HSA makes great sense. You can invest the money in the HSA and let it grow, then withdraw the money tax-free as long as you have unreimbursed medical costs to offset the withdrawals. (After age 65, Medicare premiums count as qualifying expenses, and you can also claim any qualifying expenses you had while the HSA was growing.)

Bottom line, HSAs are the only account type that can offer triple tax advantages – tax-deductible contributions, tax-deferred growth and tax-free withdrawals, so consider maxing it out now and planning ahead to max it out again next year.

IF YOU ITEMIZE, MAXIMIZE YOUR DEDUCTIONS

MAKE THOSE CHARITABLE CONTRIBUTIONS

If you plan ahead, your charitable giving could mean more. Taxpayers who itemize their deductions can deduct the value of their cash donations to qualified charities up to 60% and noncash contributions up to 30% of their Adjusted Gross Income.

Donations must be dated no later than December 31, including stock donations to charities. Tangible gifts must also be received by the charity by December 31. Just make sure you don’t try to overstate a donation; the penalty for doing so is either 20% to 40% of the underpayment. Also, be aware that the IRS requires you to keep a record of any charitable gifts of $250 or more that you write off.

Here are two ways to make charitable distributions that can give you additional tax benefits.

QUALIFIED CHARITABLE DISTRIBUTIONS

A Qualified Charitable Distribution is a direct transfer of funds from your IRA, payable directly to a qualified charity. You must be at least 70½ years old to request a QCD, and doing so can help you draw down a high-balance IRA in order to lessen future Required Minimum Distributions.

If you’re already subject to RMDs, amounts distributed as a QCD can be counted toward satisfying your RMD for the year, up to $108,000 in 2025 and $111,000 in 2026, as long as funds are transferred directly from your IRA custodian to the charity. If you receive a distribution and then give it to charity, it won’t be counted as a QCD but as taxable income instead.

SCHEDULE MEDICAL PROCEDURES

Taxpayers who itemize can deduct qualified, unreimbursed medical expenses that exceed 7.5% of their 2025 AGI. That means if your AGI is $100,000, anything beyond the first $7,500 of medical bills – or 7.5% of your AGI – could be deductible.

Perhaps you’re already near that threshold and know that you will soon need a certain costly medical procedure. If you schedule it before the end of this year, you can benefit from a tax deduction when you file an itemized tax return next year.

USE TAX-LOSS HARVESTING TO REDUCE CAPITAL GAINS

Tax-loss harvesting is a strategic tool investors can use to mitigate capital gains tax liability. By deliberately selling investments at a loss, investors can offset the gains realized from other successful assets, thereby reducing their taxable income for the year. Many investors choose to tax-loss harvest near the year’s end, because you’ll have a clearer picture of what your taxable gains are likely to be.

Furthermore, any excess losses that are greater than your realized gains for 2025 can be employed to offset up to $3,000 of other income, or they can be carried forward to offset capital gains in subsequent years.

When tax-loss harvesting, to ensure the loss remains valid for tax purposes, it’s essential to adhere to the IRS’s “wash sale rule,” which prohibits repurchasing the same or substantially identical security within 30 days before or after the sale.

Effectively executing tax-loss harvesting requires a thorough understanding of one’s entire portfolio and market conditions, along with careful consultation with a financial planner and tax professional to help ensure compliance and optimize benefits.

THE CLOCK IS TICKING

Remember that you should never seek to minimize taxes at the expense of everything else. After all, you could lower your taxable income by quitting your job, but what good would that do you in the long run?

And tax moves shouldn’t be made in a vacuum, because they can impact other aspects of your financial plan. Make sure to align financial moves with your overall financial goals and ensure that any action taken is appropriate for your situation. Consulting with a qualified tax professional can provide personalized guidance and streamline the year-end tax planning process to help ensure you can capitalize on the available benefits and enter the new year on solid financial footing.