Year-End Tax Planning Tips

Smart strategies to help you minimize taxes and start the new year on solid financial ground.

1. Maximize Retirement Contributions

Consider contributing the maximum allowed to your retirement accounts before December 31. Traditional IRA and 401(k) contributions may reduce your taxable income and help you save for the future.

2. Review and Adjust Withholdings

If you’ve experienced major life changes like marriage, a new job, or having a child, you may need to update your W-4 form. Adjusting your withholdings can prevent underpayment penalties or a large tax bill.

3. Take Advantage of Tax-Loss Harvesting

If you have underperforming investments, selling them before year-end can help offset capital gains. Be mindful of the IRS wash-sale rule when rebuying similar securities.

4. Defer or Accelerate Income

Depending on your financial situation, it might make sense to defer year-end income (like bonuses) to the following year, or accelerate income to the current year to take advantage of lower tax rates.

5. Donate to Charity

Charitable contributions made by December 31 can reduce your taxable income if you itemize deductions. Consider donating appreciated assets for additional tax benefits.

6. Spend Down Flexible Spending Accounts (FSAs)

FSAs often have a “use it or lose it” rule. Be sure to spend any remaining funds before they expire, or check if your plan allows a limited carryover or grace period.

7. Review Estimated Tax Payments

Self-employed individuals or those with investment income should review their estimated payments to avoid penalties. A year-end catch-up payment may be beneficial.

8. Meet with a Tax Professional

A proactive meeting with your CPA before the year ends can help uncover opportunities, estimate your tax liability, and avoid surprises during filing season.

Need help with your year-end tax planning? Contact Mehrdadi CPA Firm today to schedule a consultation. We’re here to help you make the most of your financial decisions.