Year-End Tax Planning Strategies: What to Do Before December 31 to Minimize Your Tax Bill

The end of the year brings holidays, celebrations… and one last chance to optimize your taxes.

While many people wait until tax season to think about deductions and tax savings, the truth is, most of the best tax-reducing strategies need to happen before the year ends.

That’s why now—before December 31—is the ideal time to take action. Whether you're employed, self-employed, retired, or somewhere in between, a handful of smart, proactive steps could lower your tax liability, increase your refunds, or boost your retirement savings.

Here’s your guide to smart year-end tax planning.

1. Maximize Your Retirement Contributions

Before the year ends, contribute as much as possible to:

• 401(k) or 403(b): Contributions reduce your taxable income and grow tax-deferred.

• Traditional IRA: Deductible contributions can lower your current tax bill, depending on your income and whether you have a workplace plan.

• Roth IRA: While not deductible, Roth contributions grow tax-free and can reduce taxes in retirement.

• Self-employed accounts (SEP IRA, Solo 401(k)): These allow high contribution limits and significant tax deferral for business owners.

Be sure to check current contribution limits and deadlines to take full advantage.

2. Harvest Investment Losses

If you have taxable investment accounts, review your portfolio for any positions that are underperforming. Selling those investments at a loss can offset gains from other assets—this is called tax-loss harvesting.

You can use:

• Capital losses to offset capital gains

• Up to $3,000 in excess losses to reduce ordinary income

• Remaining losses to carry forward into future tax years

Be mindful of the wash-sale rule, which prohibits buying the same or substantially identical investment within 30 days.

3. Make Charitable Donations

Charitable giving not only supports causes you care about—it can also reduce your taxable income.

To claim a deduction:

• Donations must be made by December 31

• The recipient must be a qualified 501(c)(3) organization

• Keep detailed records and receipts

Consider donating appreciated securities instead of cash. This allows you to avoid capital gains tax on the asset and deduct the full fair market value of the donation.

4. Review Your Withholdings and Estimated Payments

If you’ve had a major life change this year—like a new job, freelance income, marriage, or selling a property—it’s important to review your tax withholdings or quarterly payments.

Use the IRS withholding calculator or speak to a tax advisor to ensure:

• You’ve paid enough to avoid penalties

• You’re not significantly overpaying and giving the government an interest-free loan

If you're behind, you may be able to make a last-minute estimated tax payment to catch up before year-end.

5. Use Your FSA Funds Before They Expire

If you have a Flexible Spending Account (FSA) through your employer, check your balance.

Many FSA plans follow a “use it or lose it” rule, meaning:

• You must spend the funds by December 31, or

• You may have a limited grace period (varies by employer)

Eligible expenses include medical co-pays, prescriptions, dental work, vision expenses, and more. If you're short on qualifying expenses, consider scheduling appointments or purchasing eligible items before year-end.

6. Bunch Deductions Strategically

If you itemize deductions (instead of taking the standard deduction), you may benefit from "bunching" deductible expenses into one year.

For example:

• Make multiple years’ worth of charitable donations in one year

• Schedule elective medical procedures in December if you're close to exceeding the medical expense threshold

• Pre-pay certain deductible expenses (like property taxes) if permitted in your state

By concentrating deductible expenses into a single year, you may exceed the standard deduction and increase your itemized benefits.

7. Take Your Required Minimum Distributions (RMDs)

If you're age 73 or older and have Traditional IRAs or 401(k) plans, you’re required to take RMDs before year-end—or face a significant penalty.

Even if you don’t need the money, RMDs must be withdrawn and taxed as ordinary income. If you want to avoid paying taxes on the RMD, consider a Qualified Charitable Distribution (QCD), which sends the RMD directly to a charity and excludes it from your taxable income.

8. Spend or Reallocate 529 Plan Funds

If you’ve saved for a child’s education using a 529 plan, ensure withdrawals are made in the same tax year that the education expenses are incurred.

This avoids tax on withdrawals and penalties for non-qualified distributions. Some families also contribute to 529 plans at year-end to:

• Take advantage of state tax deductions (available in many states)

• Continue growing savings tax-free for future education needs

9. Consider a Roth Conversion

If you’re in a lower tax bracket this year than you expect to be in the future, converting some funds from a Traditional IRA to a Roth IRA can be a smart tax move.

While you’ll pay taxes on the converted amount this year, future withdrawals will be tax-free, and there are no RMDs with Roth IRAs.

Just make sure the conversion doesn’t push you into a higher bracket or affect other tax liabilities.

10. Get Organized for Filing Season

Now is the perfect time to prepare:

• Collect receipts, statements, and donation confirmations

• Organize business income and expenses if self-employed

• Review retirement contributions and investment activity

• Consult with a financial advisor or tax professional before the year closes

The more organized you are now, the easier it will be to file accurately and on time—without missing deductions or overpaying.

Final Thoughts: Don’t Let the Tax Year End Without a Plan

Tax planning isn’t just for accountants or high earners—it’s for anyone who wants to take control of their finances and build a stronger financial future.

By taking strategic steps before the year closes, you can:

• Reduce what you owe

• Keep more of your income

• Strengthen your retirement and savings goals

Even small decisions—like adjusting your withholdings, making a donation, or funding your IRA—can lead to meaningful savings when tax season arrives.

Start now, while there’s still time to act.