Topic 10 · 6 min read
Ten Things to Do Before Year End
December 31 closes most of the doors.
Very little can be changed about a tax year once the calendar turns. A short review in November or December is the highest-value hour most people spend on taxes all year.
What to know
- Check your withholding
- Compare tax paid so far against expected liability and fix shortfalls with a revised W-4 or a fourth-quarter estimate.
- Max out retirement contributions
- Workplace plan deferrals must happen through payroll by December 31; IRA contributions can wait until the filing deadline.
- Harvest investment losses
- Selling losing positions before year end offsets realized gains, subject to the wash-sale rule.
- Time income and deductions
- Bunch charitable gifts, medical procedures, or business purchases into whichever year they do the most good.
- Spend down flexible accounts
- Health and dependent care FSA balances are often use-it-or-lose-it at year end.
- Take required distributions
- Missing a required minimum distribution from a retirement account carries a steep penalty.
- Review life changes
- Marriage, a birth, a move, or a new side business changes filing status, credits, and state exposure.
- Gather documents early
- Mileage logs, receipts, and charitable acknowledgments are far easier to assemble now than in April.
- Fund an HSA
- If you are on a qualifying health plan, contributions are deductible and the account rolls over forever.
- Make the gifts you intend
- Annual exclusion gifts to family do not carry over; an unused year is gone.
The tax benefit
A handful of December decisions can move thousands of dollars of tax between years or remove it entirely.
Worked example
One December hour
A filer increases 401(k) deferrals for the last two paychecks, sells a $4,000 losing stock position, and prepays a January charitable pledge — cutting taxable income by several thousand dollars before the year closes.
Watch out for
- Do not buy something you do not need just to create a deduction.
- Accelerating deductions into this year means they are unavailable next year.
- Some moves, like Roth conversions, cannot be undone once the year ends.
Terms from this topic
Year-end planningBunchingRequired minimum distributionEstimated payment
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