Year-End Tax Planning Strategies: How to Save More Before December 31
Year-End Tax Planning Strategies: How to Save More Before December 31
The tax return you file next year will report what happened during 2026. The opportunity to change many of those results, however, exists before December 31. Reviewing income, deductions, investments, retirement contributions and business activity before year-end can uncover planning opportunities that may disappear once the calendar changes.
Good tax planning is rarely about finding a mysterious deduction in April. By the time a tax return is being prepared, many of the most useful planning decisions have already been made.
Effective year-end planning means looking at your projected 2026 income and tax liability while there is still time to act. Depending on your situation, that may mean increasing retirement contributions, timing business purchases, harvesting investment losses, reviewing charitable giving, adjusting withholding or simply avoiding a surprise tax bill.
1. Start With a 2026 Tax Projection
Before making tax moves, determine approximately where you stand.
A year-end tax projection should generally begin with your expected full-year income rather than simply looking at last year's return.
Estimate Full-Year Income
Include wages, business income, rental activity, interest, dividends, capital gains, retirement distributions and other expected taxable income.
Review Your Deductions
Estimate retirement contributions, business expenses, charitable contributions, mortgage interest, state and local taxes and other deductible items.
Review Withholding and Estimated Taxes
Compare federal income-tax withholding and estimated payments already made against your projected 2026 tax.
Identify Decisions You Can Still Change
Focus on transactions that can realistically be completed before the applicable year-end deadline.
Know the Tax Result Before December 31 — Not Next April
A tax projection gives you time to respond. Waiting until tax preparation means the return generally reflects decisions that have already become historical facts.
2. Maximize Retirement Contributions
Retirement plans remain one of the most valuable areas to review before year-end because contributions can combine long-term investing with current tax planning.
General employee elective-deferral limit for 401(k), 403(b) and many governmental 457 plans.
General additional catch-up amount for qualifying participants age 50 or older.
Higher catch-up limit applies to many qualifying participants who reach ages 60 through 63 in 2026.
General combined annual contribution limit for traditional and Roth IRAs.
General IRA contribution maximum including the 2026 catch-up amount.
General 2026 employee contribution limit, although certain SIMPLE plans may permit a higher amount.
The exact deadline for contributions depends on the type of retirement plan and contribution involved. Employee salary deferrals generally require action during the calendar year, while some employer and IRA contributions may have later deadlines.
Traditional vs. Roth Contributions
A traditional contribution may provide a current deduction or reduce current taxable wages when the applicable rules are satisfied. Roth contributions generally do not provide a current income-tax deduction but can create tax-free qualified withdrawals later.
Do Not Automatically Choose the Current Deduction
If your current tax rate is unusually low, a Roth contribution or Roth conversion may deserve consideration. The decision should compare today's tax cost with the expected future tax benefit.
Business owners should also review whether a broader tax-planning strategy could include a SEP IRA, SIMPLE IRA, Solo 401(k), traditional 401(k) or other qualified retirement arrangement.
3. Review HSA and Flexible Spending Account Opportunities
Health-related accounts can provide valuable tax benefits, but HSAs and FSAs operate very differently.
HSA Planning for 2026
- 2026 self-only contribution limit: $4,400
- 2026 family contribution limit: $8,750
- Additional catch-up contributions may be available beginning at age 55
- Unused HSA funds generally remain in the account rather than expiring at year-end
- Eligibility depends on qualifying health-plan coverage and other requirements
Check Your FSA Balance
- Review unused funds before your plan-year deadline
- Determine whether your employer plan permits a carryover
- Check whether a grace period applies
- Consider eligible expenses you expect before the deadline
- Do not assume unused funds will automatically remain available
4. Review Capital Gains and Tax-Loss Harvesting
Investors should review realized and unrealized gains and losses before year-end rather than waiting for brokerage tax forms after the year has closed.
Tax-Loss Harvesting
Selling an investment at a loss can allow that capital loss to offset realized capital gains. If capital losses exceed capital gains, an individual may generally deduct up to $3,000 of net capital loss against other income, subject to the applicable rules, with remaining losses carried forward.
Selling the Investment Is Only Half the Strategy
If you sell securities at a loss and acquire the same or substantially identical securities within the applicable wash-sale period, the current deduction can be disallowed. Investment strategy and tax strategy should therefore be coordinated.
Do Not Harvest Losses Just for the Tax Deduction
Taxes are one factor in an investment decision. Selling a good long-term investment solely to create a deduction may be counterproductive if the investment decision itself does not make economic sense.
5. Review Charitable Giving Before Year-End
Charitable giving changed meaningfully for 2026, making it particularly important to understand whether you expect to itemize deductions.
New Cash Contribution Deduction
Beginning in 2026, eligible taxpayers who do not itemize may generally deduct up to $1,000 of qualifying cash charitable contributions, or up to $2,000 for married couples filing jointly.
New Charitable Contribution Floor
Beginning in 2026, the charitable contribution deduction for itemizers is generally subject to a floor equal to 0.5% of adjusted gross income.
Consider Donating Securities
Donating qualifying appreciated investments directly to charity can sometimes provide a deduction while avoiding realization of the embedded capital gain, subject to applicable rules and limitations.
Bunch Several Years of Giving
A donor-advised fund may allow a taxpayer to make a larger charitable contribution in one tax year while recommending distributions to charities over time.
Charitable contributions should be completed and properly documented by the applicable deadline. Always retain contribution acknowledgments and supporting records.
6. Compare the Standard Deduction With Itemizing
The value of accelerating or bunching deductions depends partly on whether itemized deductions will exceed the standard deduction.
2026 basic standard deduction for single filers.
2026 basic standard deduction for married couples filing jointly.
2026 basic standard deduction for qualifying heads of household.
The SALT Deduction Is Also Different in 2026
The old universal $10,000 state-and-local-tax deduction limit no longer describes the general 2026 rule. The 2026 SALT ceiling is generally $40,400, subject to an income-based limitation for higher-income taxpayers and the applicable federal floor.
This means some taxpayers who previously used the standard deduction may need to reconsider whether itemizing is more valuable in 2026.
Alabama pass-through business owners should also consider whether the state's entity-level pass-through tax election affects the analysis. See our guide to Alabama's Electing Pass-Through Entity tax strategy .
7. Business Owners: Review Equipment and Capital Purchases
Business owners frequently accelerate purchases near year-end because qualifying assets placed in service during the year may generate depreciation deductions.
Section 179 for 2026
For tax years beginning in 2026, the maximum Section 179 expense deduction is generally $2,560,000. The deduction begins to phase out when qualifying property placed in service exceeds $4,090,000.
Bonus Depreciation
Current federal law restored a 100% additional first-year depreciation deduction for qualifying property acquired after January 19, 2025, subject to the applicable rules. That can make year-end equipment planning especially significant for qualifying businesses.
Do Not Buy Something You Do Not Need Just for a Deduction
Spending $100,000 does not save $100,000 in taxes. Tax deductions reduce taxable income. Business purchases should make economic sense first and tax sense second.
Property generally must satisfy the applicable placed-in-service rules. Ordering a machine or writing a check before December 31 does not necessarily create a current-year depreciation deduction if the asset is not actually ready and available for business use.
8. Clean Up Your Business Books Before the Year Closes
Tax planning is difficult when the business books are incomplete or months behind.
Before making year-end tax decisions, business owners should have a reasonably current profit-and-loss statement and understand their balance sheet.
If your books are consistently behind, professional bookkeeping can make tax planning dramatically more useful. See our guide: Do I Need Professional Bookkeeping?
9. S Corporation Owners: Review Compensation and Distributions
Year-end is an important time for S corporation shareholder-employees to review payroll.
A shareholder who performs substantial services for an S corporation generally cannot simply take all company profit as distributions while paying no reasonable compensation.
Reasonable Compensation
- Review year-to-date shareholder wages
- Consider the owner's actual duties
- Review time devoted to the business
- Compare compensation with relevant market factors
- Correct payroll issues before year-end when possible
Owner Withdrawals
- Confirm distributions are properly recorded
- Review shareholder basis
- Separate reimbursements from distributions
- Review shareholder loans
- Avoid treating every withdrawal as the same type of transaction
Business owners wondering whether their LLC should elect S corporation taxation can also review our guide: How Is an LLC Taxed?
10. Review Business Reimbursements and Accountable Plans
Owners and employees frequently pay legitimate business expenses personally during the year.
When appropriate, an accountable reimbursement arrangement can allow a business to reimburse properly documented business expenses rather than treating every payment to an employee-owner as taxable compensation.
Common Expenses to Review
- Business mileage
- Business use of a personal cell phone
- Business travel
- Supplies purchased personally
- Professional dues or subscriptions
- Qualifying home-office related expenses where applicable
The Business Mileage Rate Changed During 2026
The standard business mileage rate was 72.5 cents per mile for January 1 through June 30, 2026, and increased to 76 cents per mile beginning July 1, 2026. Businesses using the standard mileage method should separate mileage by the applicable period.
11. Review the Timing of Income and Deductions
Timing can matter when income or deductible expenditures can legitimately fall into either the current or following tax year.
Consider Your Marginal Tax Rate
If income can legitimately be received in either year, compare your projected tax brackets before deciding whether acceleration or deferral makes sense.
Evaluate Deduction Timing
Some deductible expenditures may be accelerated when doing so is commercially reasonable and permitted by the taxpayer's accounting method.
Review Investment Transactions
Realizing a gain in December rather than January can move taxable income between tax years, but investment considerations should remain primary.
Fill Lower Tax Brackets Strategically
A year with unusually low taxable income can create an opportunity to convert some traditional retirement assets to Roth accounts at a potentially favorable marginal rate.
Income cannot simply be moved between years whenever a taxpayer prefers. Constructive receipt, accounting method rules and other federal tax principles must be respected.
12. Make Sure You Have Paid Enough Tax During the Year
A year-end tax projection is not only about deductions. It should also determine whether withholding and estimated tax payments are sufficient.
Many individuals can generally avoid an estimated-tax underpayment penalty by paying through withholding and timely estimated payments at least:
- 90% of the current year's tax, or
- 100% of the prior year's tax,
- with the prior-year safe harbor generally increasing to 110% for taxpayers whose prior-year adjusted gross income exceeded the applicable $150,000 threshold.
Safe Harbor Does Not Mean You Will Not Owe Tax
A taxpayer can satisfy an estimated-tax safe harbor and still owe a substantial balance when the return is filed. The safe harbor generally addresses the underpayment penalty, not whether the remaining tax disappears.
Business owners, investors, landlords and taxpayers with significant non-wage income should pay particular attention to this calculation.
13. Review Required Minimum Distributions
Taxpayers subject to required minimum distribution rules should confirm that the required amount is withdrawn by the applicable deadline.
The required beginning age depends on birth year and other applicable retirement-plan rules, so do not rely on a blanket statement that every taxpayer begins RMDs at one universal age.
Qualified Charitable Distributions
Eligible IRA owners may also want to consider a Qualified Charitable Distribution. A properly structured QCD can allow qualifying IRA funds to be transferred directly to an eligible charity and may count toward an RMD while being excluded from taxable income under the applicable rules.
14. Account for Major Life and Financial Changes
Tax planning should change when your life changes.
These events can affect filing status, withholding, estimated taxes, deductions, credits, basis, capital gains and long-term planning.
15. Do Tax Planning Before You Do Tax Preparation
Tax preparation and tax planning serve two very different purposes.
Reports the Past
- Collect tax documents
- Report completed transactions
- Calculate the final tax return
- Claim deductions already available
- Determine refund or amount due
Changes the Future
- Project income before year-end
- Model alternative strategies
- Review entity structure
- Evaluate retirement contributions
- Review business purchases
- Adjust estimated taxes
The Best Tax Strategy Is Usually Built Before the Return Is Filed
Our year-round tax planning work evaluates projected income, business structure, compensation, retirement planning, investments, deductions, equipment purchases, estimated taxes and other available strategies before year-end decisions become permanent.
Explore Tax Planning ServicesYour 2026 Year-End Tax Planning Checklist
Before December 31, consider reviewing the following with your tax professional.
The Bottom Line: December 31 Matters
There is an important difference between discovering a tax deduction and creating a tax strategy.
When a tax return is prepared next spring, the goal is to accurately report the transactions that occurred during 2026. But many of those transactions can no longer be changed.
Year-end planning gives you a chance to ask a more useful question:
“Is There Anything We Should Do Differently While We Still Can?”
That may involve retirement contributions, investment transactions, business purchases, estimated payments, charitable giving, entity-level planning or simply getting your financial records current enough to know where you stand.
Not every strategy will apply to every taxpayer. The purpose of planning is to identify the strategies that fit your actual income, business, investments and long-term goals before the opportunity expires.
Frequently Asked Questions About Year-End Tax Planning
When should I start year-end tax planning?
Earlier is generally better. Many taxpayers begin serious year-end projections during the third or fourth quarter, although significant tax events should be reviewed whenever they occur.
What is the 401(k) contribution limit for 2026?
The general employee elective-deferral limit for 2026 is $24,500. The general age-50 catch-up is $8,000, while qualifying participants who attain ages 60 through 63 in 2026 can have a higher $11,250 catch-up limit.
What is the IRA contribution limit for 2026?
The general combined contribution limit for traditional and Roth IRAs is $7,500 for 2026, with a $1,100 age-50 catch-up contribution, subject to compensation and eligibility rules.
What is the 2026 standard deduction?
The 2026 basic standard deduction is $16,100 for single taxpayers and married individuals filing separately, $32,200 for married couples filing jointly, and $24,150 for heads of household. Additional deductions can apply in certain circumstances.
Can I deduct charitable contributions if I do not itemize in 2026?
Beginning in 2026, qualifying taxpayers who take the standard deduction may generally deduct up to $1,000 of eligible cash charitable contributions, or $2,000 for married couples filing jointly, subject to the applicable requirements.
Should I buy equipment before December 31 for a tax deduction?
Only if the equipment makes business sense. Section 179 and bonus depreciation can create significant deductions for qualifying property, but purchasing unnecessary assets merely for a deduction generally does not improve overall cash flow.
Is tax-loss harvesting always a good strategy?
No. Tax-loss harvesting can reduce taxable capital gains, but taxes should not override sound investment decisions. Wash-sale rules and the investor's long-term strategy should also be considered.
Can I wait until tax season to do tax planning?
Some planning can still occur after year-end, but many strategies must be implemented before December 31 or another specific deadline. Waiting until return preparation can eliminate options that required action during the tax year.
How do I know if I have paid enough estimated tax?
A tax projection should compare your expected liability with withholding and estimated payments. Federal safe-harbor rules commonly use 90% of current-year tax or 100% of prior-year tax, with the prior-year percentage generally increasing to 110% for higher-income taxpayers.
Do business owners need different year-end tax planning?
Often, yes. Business owners may need to review entity structure, bookkeeping, payroll, owner compensation, retirement plans, equipment purchases, reimbursements, estimated taxes and pass-through income in addition to the individual planning issues that apply to everyone else.
Do Not Wait Until Tax Season to Find Out What You Could Have Done.
Year-end tax planning gives you time to evaluate your projected income, deductions, retirement contributions, investments, business activity and estimated taxes while there is still time to make strategic decisions. Let us help you build the plan before December 31.