Year-End Tax Moves: Strategies to Lower Your Next Tax Bill
As the year winds down, so does your window for making smart tax-saving decisions. Whether you're a salaried employee, self-employed, or somewhere in between, proactive year-end tax planning can help reduce your taxable income and boost your refund - or at least lessen what you owe.
Before December 31st hits, here are the most effective strategies to keep more of your hard-earned money in your pocket.
1. Max Out Retirement Contributions
Contributions to tax-advantaged retirement accounts like 401(k)s or traditional IRAs reduce your taxable income - and the deadline for most workplace retirement plans is December 31.
- 401(k): Contribute up to $23,000 in 2025 ($30,500 if age 50+).
- IRA: While contributions can be made until the tax deadline in April, acting now can help you forecast your tax situation more clearly.
Pro tip: If you received a year-end bonus, consider directing some (or all) of it toward retirement savings.
2. Harvest Investment Losses
If you sold stocks or other investments at a loss this year, you can use those losses to offset capital gains - a tactic known as tax-loss harvesting. If your losses exceed your gains, you can deduct up to $3,000 from your ordinary income and carry forward the rest.
Watch out: Be careful of the wash-sale rule, which disallows claiming a loss if you repurchase the same or substantially identical asset within 30 days.
3. Make Charitable Contributions
Giving back can reduce your tax bill - but only if you itemize your deductions! Eligible cash donations to qualified charities made by December 31 are tax-deductible.
- Keep receipts and documentation.
- Donating appreciated assets like stocks may provide a double benefit: avoid capital gains tax and receive a deduction for the full value.
4. Use Your Flexible Spending Account (FSA)
FSAs are “use-it-or-lose-it” accounts. If you haven't spent your FSA funds by year-end (or by the grace period your employer allows), you could forfeit them.
Qualifying expenses include:
- Medical copays and prescriptions
- Dental and vision costs
- Some over-the-counter items
tip: Stock up on eligible health products or schedule last-minute appointments.
5. Defer Income, If Possible
If you're self-employed or have control over when you receive income (like a year-end invoice), consider deferring income into the next tax year, especially if you expect to be in a lower tax bracket next year.
But: If your income is unusually low this year, it may be smarter to accelerate income to take advantage of lower rates now.
6. Make an Extra Mortgage or Property Tax Payment
If you itemize, an additional mortgage interest or property tax payment in December could boost your deductions for the current tax year.
Heads up: The state and local tax (SALT) deduction is capped at $40,000 - so this move only helps if you haven't already hit the limit.
7. Review Your Withholding and Estimated Payments
If you owed taxes last year or had a major life change (new job, marriage, etc.), check your withholding using the IRS's Tax Withholding Estimator.
Underpaying could lead to a penalty, but a simple adjustment in December might solve it.
8. Make a Qualified Charitable Distribution (QCD)
If you're over age 70½ and have a traditional IRA, you can make a Qualified Charitable Distribution (QCD) of up to $100,000 per year - and it counts toward your Required Minimum Distribution (RMD).
This can reduce your taxable income without requiring you to itemize.
FAQs: Year-End Tax Planning Tips
Q1: When is the deadline for year-end tax moves?
A: Most actions - like making retirement contributions or charitable donations - must be completed by December 31 to count for the current tax year.
Q2: Can I still contribute to an IRA after December 31?
A: Yes. IRA contributions can be made up until Tax Day (usually in April) and still apply to the previous year. But making contributions now can help you plan ahead.
Q3: What if I don't itemize my deductions? Are year-end moves still worth it?
A: Absolutely. Many strategies - like increasing 401(k) contributions, using FSAs, or harvesting investment losses - reduce your taxable income before itemizing even comes into play.
Q4: What is the wash-sale rule?
A: The wash-sale rule prohibits you from claiming a tax deduction on a loss if you buy the same (or “substantially identical”) investment within 30 days of the sale.
Q5: How can I tell if I should defer or accelerate income?
A: If you're in a higher tax bracket this year, deferring income to next year might reduce your tax bill. If this is a low-income year, bringing income into this year could help you pay at a lower rate.
