Year-End Tax Planning: Moves Before December 31

The 2026 401(k) contribution limit is 23,500 USD (31,000 USD if 50 or older). Check your year-to-date contributions on your latest pay stub. If you have not maxed out, increase your per-paycheck contribution for the remaining pay periods. Contributing the full amount in a 22% tax bracket saves approximately 5,170 USD in federal taxes. December 31 is the hard deadline for 401(k) contributions.

While IRA contributions can be made until April 15 of the following year, contributing before December 31 gives your money additional months of tax-free growth. Traditional IRA contributions may be tax-deductible (up to 7,000 USD, or 8,000 USD if 50+). Roth IRA contributions are not deductible but grow tax-free. Contributing on January 1 or earlier maximizes compound growth time.

The 2026 HSA limit is 4,300 USD (individual) or 8,550 USD (family), plus 1,000 USD if 55+. HSA contributions are tax-deductible, growth is tax-free, and qualified withdrawals are tax-free (triple tax benefit). If you have not contributed through payroll, you can make a lump-sum contribution directly to your HSA before December 31. In a 22% bracket, maxing a family HSA saves approximately 1,881 USD in federal taxes.

Review your taxable brokerage account for positions trading below your purchase price. Selling at a loss generates a capital loss that offsets capital gains (dollar for dollar) and up to 3,000 USD of ordinary income per year. Unused losses carry forward to future years. A 5,000 USD loss offsets 5,000 USD in gains (saving 750-1,000 USD in taxes at 15-20% capital gains rates) plus 3,000 USD against ordinary income if no gains exist.

Sell the losing position and immediately reinvest in a similar (but not substantially identical) fund to maintain your portfolio allocation. For example, sell a Vanguard S&P 500 fund (VOO) at a loss and buy an iShares S&P 500 fund (IVV). The wash-sale rule prohibits buying a substantially identical security within 30 days before or after the sale. Switching between similar index funds from different providers is generally acceptable.

Donating stock held for more than 1 year allows you to deduct the full market value while avoiding capital gains tax on the appreciation. If you bought stock for 5,000 USD and it is now worth 15,000 USD, donating it provides a 15,000 USD deduction and avoids 10,000 USD in capital gains (saving approximately 1,500-2,000 USD in capital gains tax on top of the income tax deduction). Your brokerage can transfer shares directly to the charity.

The 2026 standard deduction is approximately 15,000 USD (single) or 30,000 USD (married). If your total itemized deductions are close to but below the standard deduction, bunching 2 years of charitable giving into one year can push you over the threshold. Give 2 years of donations this December (or use a Donor-Advised Fund to contribute now and distribute to charities over time). Alternate between standard deduction and itemizing in alternating years.

A Donor-Advised Fund (DAF) lets you make a tax-deductible contribution now and distribute to charities over time. Contribute appreciated stock or cash, receive the deduction in the current year, and grant funds to charities in future years. Minimum opening contributions are typically 5,000-25,000 USD at providers like Fidelity Charitable, Schwab Charitable, or Vanguard Charitable. The funds grow tax-free while you decide which charities to support.

If this year's income is higher than normal (bonus, stock vesting, business income), pull deductions into this year: prepay January's mortgage in December for an extra interest deduction, pay Q4 state estimated taxes by December 31 instead of January 15, and make charitable contributions before year-end. Each dollar of deductions in a higher tax bracket saves more than in a lower bracket.

If you expect lower income next year (career change, retirement, sabbatical), defer income where possible: delay invoicing freelance clients until January, postpone selling appreciated investments, or defer a year-end bonus to January (if your employer allows it). Income taxed in a lower bracket costs less in taxes. This strategy is especially valuable if you will drop from the 32% or 24% bracket to the 22% bracket.

Converting Traditional IRA funds to a Roth IRA triggers income tax on the converted amount, but future growth and withdrawals are tax-free. A low-income year (job loss, career transition, early retirement) is the ideal time because the conversion is taxed at a lower rate. Convert enough to fill up your current tax bracket without pushing into a higher one. A 50,000 USD conversion in the 12% bracket costs 6,000 USD in taxes but saves all future taxes on that money's growth.

Use the IRS Tax Withholding Estimator (irs.gov/W4app) with your year-to-date income and withholding to project your tax liability. If you owe more than 1,000 USD, consider increasing withholding on your remaining paychecks or making a Q4 estimated payment by January 15 to avoid an underpayment penalty. If you are getting a large refund, reduce withholding to keep more money in each paycheck next year.

If you have Traditional IRAs, SEP IRAs, or inherited IRAs and are 73 or older, you must take your Required Minimum Distribution (RMD) by December 31 (first-year RMD can be delayed until April 1 of the following year, but then you take 2 RMDs that year). Failing to take the RMD results in a 25% penalty on the amount not withdrawn. Your IRA custodian can calculate your RMD amount based on your account balance and age.

Start a folder (physical or digital) for all tax-relevant documents: W-2s, 1099s, 1098s (mortgage interest), medical receipts, charitable donation receipts, property tax records, and business expense receipts. Having these organized before January reduces tax preparation stress and ensures you do not miss deductions. Many documents arrive in January and February, but collecting what you have now saves time later. This guide is informational only, not tax advice.