One of the easiest ways to lower taxable income is by contributing to retirement accounts. If you have access to a 401(k), SIMPLE IRA, or SEP IRA, consider increasing your contributions before year-end. These contributions are tax-deferred, meaning they reduce your taxable income now while helping you build for the future.
If you have investments, consider using tax-loss harvesting to offset capital gains. Selling underperforming stocks or mutual funds at a loss can reduce your taxable income, effectively lowering your overall tax burden. Just be mindful of wash-sale rules, which prohibit repurchasing the same asset within 30 days.
Business owners can reduce taxable income by accelerating deductible expenses. Consider prepaying rent, utilities, or office supplies before the year ends. If you need new equipment or technology, purchasing before December 31 allows you to take advantage of Section 179 deductions and bonus depreciation.
Donations to qualified charitable organizations are tax-deductible. Whether you donate cash, appreciated stock, or household goods, your contributions can provide meaningful tax savings. If you itemize deductions, ensure you obtain receipts for all donations.
If you anticipate a high tax bill this year, you might benefit from deferring income into the next tax year. Business owners can delay invoicing clients until January, and employees with end-of-year bonuses can ask to receive payment in the new year to reduce current taxable income.
If you have a health FSA, ensure you use any remaining balance before the deadline, as many FSAs have a “use-it-or-lose-it” policy. Meanwhile, contributing to an HSA (if you have a high-deductible health plan) provides tax advantages, as contributions are pre-tax and grow tax-free.
Tax credits directly reduce your tax liability and can be more valuable than deductions. Some of the most beneficial tax credits include:
• Child Tax Credit (if you have dependent children).
• Energy-Efficient Home Credit (for certain home improvements like solar panels or energy-efficient appliances).
• Earned Income Tax Credit (EITC) (for lower-income taxpayers).
If you’ve had major financial changes this year, reviewing your tax withholding can prevent unexpected tax liabilities. Self-employed individuals should also ensure they’ve made sufficient quarterly estimated tax payments to avoid IRS penalties.
Final Thoughts: Year-end tax planning is about making strategic moves to minimize your liability and maximize savings. Whether it’s maxing out retirement accounts, making deductible purchases, or utilizing tax credits, these proactive steps can help you keep more money in your pocket. If you need assistance crafting a tax strategy, our team is here to help you close out the year in the most tax-efficient way possible.
