The year-end countdown is on. While many taxpayers wait until tax season to evaluate their financial situation, tax planning is a year-round activity. Many valuable tax-saving opportunities require action before December 31st, so waiting until April will be too late. Here are essential strategies you can implement now.
Why Year-End Tax Planning Is Crucial
Many tax strategies are time-sensitive, requiring action before December 31st to affect the current year’s return. For example, you must take your required minimum distributions (RMDs) by year-end to avoid costly penalties. Proactive planning prevents stress and gives you time to make informed decisions.
1. Review and Maximize Retirement Contributions
Max out your 401(k) ($23,000 in 2024, or $30,500 if over 50) by December 31st. Traditional IRA contributions (up to $7,000, or $8,000 if over 50) can be made until April 15th. If you anticipate higher future tax rates, a Roth conversion — completed by December 31st — pays taxes now for tax-free growth later.
2. Harvest Tax Losses
Short-term gains are taxed as ordinary income; long-term gains receive favorable rates. Tax-loss harvesting lets you sell underperformers to offset gains, potentially offsetting up to $3,000 in ordinary income, with excess carried forward. Watch out for the wash sale rule — repurchasing a substantially identical security within 30 days disallows the loss.
3. Maximize Charitable Contributions
Cash donations are deductible up to 60% of AGI if you itemize. Donating appreciated stock avoids capital gains taxes. A donor-advised fund lets you deduct now and decide later. Those 70½+ can give up to $105,000 via a Qualified Charitable Distribution, which can satisfy your RMD.
4. Defer Income or Accelerate Deductions
Deferring a year-end bonus to January lowers this year’s income; prepaying mortgage interest, SALT, or medical bills accelerates deductions into this year. Choose based on whether your bracket is higher this year or next.
5. Check Your HSA and FSA
HSAs offer triple tax benefits — contributions ($4,150 individual / $8,300 family for 2024, +$1,000 if 55+) must be made by December 31st. FSAs are use-it-or-lose-it; spend remaining funds on qualified expenses, but check for carryover or grace periods.
6. Work With a Financial Advisor
Consult a tax professional or financial advisor to personalize these strategies to your goals and tax situation before December 31st.