5 Tax Strategies to Enact Before the
End of the Year
As the year comes to a close, there’s still time to make smart financial moves that directly reduce your tax bill. These are strategies that I help my clients enact and what I personally look into during this time of year. Whether you own multiple large business or have just a W-2, you should look into these options to cut your tax bill.
1. Increase Retirement Account Contributions
Year-end is a natural checkpoint for IRA, 401(k) contributions, and other retirement accounts. While IRA deposits can be made up until the filing deadline, 401(k) and 403(b) salary deferrals must be made by December 31st to count for the current year.
Maxing out pre-tax retirement contributions is one of the most straightforward ways to reduce taxable income. Many workers receive a holiday bonus at the end of the year and a last-minute contribution to a traditional retirement account could bring down the tax on this substantially. For Roth accounts, year-end is a chance to front-load tax-free growth.
If you’d like to know more about retirement accounts, check out the article below:
Understanding Retirement Accounts: 401(k)s, IRAs and Self-Employed Options
2. Max Out Your Health Savings Account (HSA)
For taxpayers with a high-deductible health plan, HSAs offer one of the most powerful tax advantages available. Contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are tax-free. Few accounts offer a triple benefit like this!
For 2025, the deductible must be no less than $1,650 if self-only coverage, $3,300 for family. At the same time, the out-of-pocket maximum can be too high and must be no less than $8,300 if self-only coverage, $16,600 for family. Fortunately, the recent One Big Beautiful Bill Act eased the requirements for catastrophic and bronze plans to where they’re considered a high-deductible health plan even outside these ranges. If you were partially insured for the year, please note that the law checks your coverage as of December 1st to determine eligibility.
Individuals with self-only coverage can contribute up to $4,300 for 2025 while people with family coverage can contribute up to $8,550. Finally, there is a $1,000 catch-up for each individual under the plan that is 55 or over.
3. Boost 529 College Savings Contributions
If you’re saving for your child’s education, consider making a final December contribution to a 529 plan. Although there is currently no deduction available on the federal level, various plans do allow a state deduction which can be very beneficial if you’re in a state with high income tax. Growth is tax-free and distributions for qualified education expenses avoid federal tax entirely.
Even if you don’t have children, 529 plans can be created for nieces, nephews, grandchildren or even yourself if future education costs are likely. For families doing holiday gifting, contributing directly to a child’s 529 plan is an easy, tax-efficient option.
4. Review Investments for Tax-Loss Harvesting Opportunities
If you have a taxable brokerage account, take a close look at underperforming investments. Selling securities at a loss before December 31st can offset realized capital gains, and up to $3,000 of net losses can offset ordinary income.
This goes double for anyone who uses an investment brokerage firm to manage their assets. Frequently these companies will make numerous trades throughout the year which could all be taxable events. If nothing is done then a 1099 will be sent at the beginning of the following year, there could be substantial capital gains, and nothing can be done at that point. Now is the perfect time to check with your brokerage firm. They should be able to send a year-to-date analysis on realized gains and possibly be able to sell underperforming assets to wipe those gains.
Please be mindful of the wash-sale rule. This rule disallows the deduction if you buy a “substantially identical” security within 30 days before or after the sale. A well-designed tax-loss harvesting plan can rebalance your portfolio while reducing taxes you’d otherwise owe.
5. Accelerate Deductible Expenses
Most taxpayers take the standard deduction which ranges from $15,700 through $31,500 depending on filing status. There is also an extra deduction if you’re 65 or older and/or blind. Alternatively, taxpayers can take itemized deductions which mostly consists of the following:
- Medical expenses that exceed 7.5% of AGI (Adjusted Gross Income).
- Charitable donations.
- Mortgage interest on qualified personal homes.
- Property taxes and other state taxes.
- Casualty and theft losses.
If you already have substantial medical expenses for the year, made a large charitable contribution, etc. it may be worth considering accelerating more of these itemized deductions before the end of the year. Delaying to the following year may not provide any tax benefit if you end up taking standard.
For business owners, pulling forward purchases such as a vehicle, equipment, software, professional fees, advertising, etc. can reduce taxable income while still supporting next year’s operations. Cash-basis taxpayers especially benefit from this strategy because expenses are deductible when paid, not when incurred. If paying by check, a cash-basis is typically able to deduct the expense if the check is written and mail before the end of the year.
Finally, please keep in mind that you shouldn’t make these purchases solely for the tax deduction. It is not worth spending $100 to save even $60 in taxes if that $100 isn’t benefiting you! The general idea is that you were going to make these purchases anyway so by accelerating these deductions you’re able to fulfill your needs/desires while maximizing the tax benefits.
Sources:
https://www.irs.gov/publications/p560
https://www.irs.gov/publications/p969
https://www.irs.gov/newsroom/529-plans-questions-and-answers