Year-End Tax Planning Checklist: Steps to Take Before December 31st

Table of Contents

Year-End Tax Planning Checklist: Steps to Take Before December 31st

With the calendar flipping to December, many people think the tax year is already set. It isn’t. A handful of targeted moves between now and December 31 can lower your tax bill, improve cash flow, and set you up for a smoother filing season. This checklist guides you through practical, easy-to-follow steps with examples, sample numbers, and expert tips so you can act confidently before year-end.

Quick overview: What to tackle in the final weeks

Start by running a quick tax health check. Ask yourself these questions:

Will I itemize deductions or take the standard deduction this year?
Have I maxed out pre-tax retirement accounts available to me?
Do I have investment gains I should harvest or losses to harvest to offset gains?
Are my estimated tax payments on track to avoid underpayment penalties?
Do I need to take required minimum distributions (RMDs) or file tax forms for any major transactions?

“Year-end planning is less about sweeping changes and more about prioritizing the one or two moves that will meaningfully change your tax picture,” says Maria Gonzalez, CFP. “Spot the levers—retirement deferrals, charitable gifts, and tax-loss harvesting—and pull the ones that fit your goals.”

1. Retirement account moves: Defer income, reduce taxable income

Maxing out pre-tax retirement contributions is one of the simplest ways to reduce taxable income. Confirm your options and deadlines now—many employer plans allow retroactive payroll deferrals only through December pay dates.

401(k)/403(b)/457 plans: Increase your salary deferral through your December payroll. For workers who haven’t hit the annual limit, moving $500–$1,000 per month into a 401(k) for the last few months can make a difference.
Traditional IRA: If you qualify for a deductible contribution, contribute by the tax-filing deadline (usually April 15 of next year) unless you prefer to complete it by December for current-year bookkeeping.
SEP and Solo 401(k) for business owners: Make employer contributions before your business’s tax-return deadline (extensions included, depending on the plan).

Example: If you are in the 24% federal marginal bracket and you contribute $5,000 pre-tax to your 401(k), you might reduce federal income tax by about $1,200 (5,000 × 24%). States may provide additional savings.

“Many people forget to increase deferrals just for the last paychecks of the year,” says John Miller, CPA. “Even a couple thousand dollars deferred in December lowers your taxable income immediately.”

2. Health accounts: HSA and FSA planning

Health accounts are tax-efficient—contributions reduce taxable income, growth is tax-free, and distributions for qualified medical expenses are tax-free.

HSA (Health Savings Account): Confirm your contributions for the year. If you’re eligible and haven’t maxed out, you can contribute by the tax filing deadline (for IRA/HSA this differs—check your plan). For many, an HSA acts like a triple-tax-advantaged savings vehicle.
Flexible Spending Account (FSA): Use it or lose it. Review eligible expenses and use remaining funds or consider a last-minute medical or dental appointment to spend down the balance.

Example figures (sample for clarity): contributing $3,500 to an HSA while in the 22% bracket saves roughly $770 in federal tax (3,500 × 22%).

3. Charitable giving: Bunching and smart gifting

Charitable contributions remain a key year-end strategy—especially if you’re close to the standard deduction threshold.

Bunching: Consider grouping two years of charitable donations into one tax year so you can itemize this year and take the standard deduction next year.
Donor-advised funds (DAFs): Put cash or appreciated securities into a DAF by December 31 to claim the deduction in the current year, then recommend grants later.
Qualified Charitable Distributions (QCDs): If you are subject to RMDs and are over the QCD-eligible age, you can donate up to $100,000 directly from an IRA to charity (this satisfies RMDs and excludes the distribution from taxable income).

“Donor-advised funds are a great practical tool for taxpayers who want the immediate deduction but want time to decide where to direct the funds,” notes Maria Gonzalez.

4. Capital gains and tax-loss harvesting

Review your investment portfolio to identify realized gains and losses. You can sell losing positions to offset realized gains and up to $3,000 of ordinary income per year, carrying forward excess losses.

Tax-loss harvesting: Sell underperforming securities to lock in losses; buy a similar (but not “substantially identical”) investment to maintain market exposure.
Offset gains with losses: If you have large capital gains—say a $30,000 gain from selling a concentrated stock position—find losses that can offset that gain rather than paying taxes at the capital gains rate.
Watch the wash-sale rule: If you buy the same or substantially identical security within 30 days before or after the sale, the loss is disallowed for current-year deduction.

Example: You have $10,000 in realized gains and $15,000 in realized losses. The $10,000 offsets the gains-dollar-for-dollar, and you can use $3,000 of the remaining losses to reduce ordinary income this year, carrying forward $2,000.

5. Roth conversions: Consider partial conversions

A Roth conversion moves pre-tax retirement savings into a Roth account, creating tax-free future withdrawals but generating taxable income in the year of conversion.

Partial conversions: Convert an amount that keeps you within a lower marginal tax bracket this year. Small, staged conversions over several years can be more tax-efficient.
Watch Medicare IRMAA and Social Security: Larger conversions may increase your modified adjusted gross income (MAGI) and affect Medicare Part B/D premiums or taxation of Social Security benefits.

“Think of a Roth conversion as tax diversification: paying some tax now to avoid potentially higher taxes later,” says John Miller.

6. Required minimum distributions (RMDs) and retirement withdrawals

If you’re required to take RMDs, don’t miss them. Late RMDs can trigger steep penalties—historically 50% of the required amount, though penalties and rules have changed; consult your advisor for current rules.

Take RMDs before year-end if you are required to do so.
Consider QCDs (mentioned above) to satisfy RMDs while supporting charity tax-efficiently.

7. Estimated taxes and payroll adjustments

Freelancers, business owners, and anyone with non-wage income should check estimated tax payments. If your income spiked this year, you may owe underpayment penalties.

Make a final estimated tax payment by December 31 if you expect to owe and want to reduce the safe-harbor look-back to this year.
Adjust withholding: If you find you will owe, increasing W-4 withholding before year-end can be an easy way to cover the gap because withholding counts as paid in the year it’s withheld.

8. Business owners: Entity-level moves and deductions

If you run a business, end-of-year decisions can affect taxable income substantially.

Accelerate expenses: Buy equipment or pre-pay rent, utilities, or other deductible expenses if it makes sense for cash flow and tax planning.
Section 179 and bonus depreciation: Evaluate whether expensing equipment under the current rules is advantageous versus capitalizing and depreciating.
Review payroll timing, contractor payments, and retirement plan contributions (SEP/Solo 401(k)) to maximize deductions.

Example: Purchasing $25,000 of qualifying equipment and expensing it can reduce net taxable income by that amount this year—saving roughly $6,000 in federal tax at a 24% rate.

9. Document and organize receipts and records

Good recordkeeping saves time and headaches. Organize charitable receipts, medical expenses, business receipts, home office records, and investment statements.

Scan or photograph receipts and store them in a secure cloud folder.
Label documents clearly (e.g., “2023 Charity – Red Cross – $1,200 – receipt.pdf”).
For investments, save brokerage reports showing date of sale, cost basis, and sales proceeds.

“When you review deductions, you want to be able to back them up instantly,” says Maria Gonzalez. “That reduces stress and audit risk.”

10. Review credits and other non-deductible opportunities

Some tax benefits aren’t deductions but credits that directly reduce tax liability:

Energy credits: Home improvements with energy-efficient heat pumps, solar panels or electric vehicle chargers may qualify for tax credits.
Child and dependent credits: Confirm eligibility and documentation for any credits you plan to claim.
Education credits and student loan interest: Check eligibility if you paid qualifying expenses this year.

Year-end checklist: Actionable items with timeline

Now–December 15: Estimate your tax year income and withholdings. Adjust payroll deferrals and make final charitable gifts into a donor-advised fund if bunching.
December 16–24: Execute investment sales for tax-loss harvesting, avoiding wash sales if you plan to repurchase similar securities.
December 25–31: Confirm payroll deferrals hit the payroll system (not just submitted). Make any final estimated tax payments. Take RMDs if required.
By tax-filing deadline next spring: Traditional IRA contributions for prior year (if you prefer to postpone), unless you want the deduction counted in the closing year—clarify with a tax advisor.

Small, last-minute errors matter: for example, increasing payroll deferrals on December 30 may not process until January. Confirm with payroll.

Sample table: Potential tax savings from common year-end moves

Action	Amount Contributed / Expensed	Tax Rate Used	Estimated Federal Tax Savings
401(k) pre-tax contribution	$10,000	24%	$2,400
HSA contribution	$3,500	22%	$770
IRA deductible contribution	$6,500	22%	$1,430
Tax-loss harvesting (net loss used)	$5,000	24% (capital gains offset)	$1,200

Notes: These are illustrative examples. Actual savings depend on your full tax situation (state taxes, phase-outs, AMT/Net Investment Income Tax, etc.).

Common pitfalls to avoid

Assuming payroll changes will take effect immediately—confirm with HR/payroll.
Triggering the wash-sale rule when tax-loss harvesting and repurchasing the same security within 30 days.
Ignoring state tax impacts—some states treat retirement or HSA differently from federal rules.
Making large Roth conversions without considering potential impacts on Medicare premiums or Social Security taxation.

When to call a professional

If any of the following apply, scheduling a short year-end call with a CPA, CFP, or tax advisor is time well spent:

You sold or plan to sell a business or substantial investment position.
Your income jumped or dropped significantly this year.
You’re considering complex moves like large Roth conversions, QCDs, or business deductions tied to tax credits.
You faced unexpected events—inheritance, divorce, or relocation to a different state.

“A 30–60 minute review in December often prevents surprises in April,” says John Miller. “Bring your year-to-date pay stubs, estimated tax payments, and a snapshot of your investments. An advisor can run scenarios and prioritize the moves with the best return.”

Checklist recap: 10 items to complete before December 31

Estimate year-to-date income, withholdings, and projected tax liability.
Increase 401(k) or similar payroll deferrals if possible.
Contribute to HSA and use FSA balances wisely.
Plan charitable giving—consider bunching or donor-advised funds.
Harvest tax losses and rebalance investments while avoiding wash sales.
Consider partial Roth conversions if they align with long-term strategy.
Take required minimum distributions if applicable.
Make any final estimated tax payments or adjust withholding.
Accelerate or defer business expenses and review retirement plan contributions for your business.
Organize and secure documentation for deductions and credits.

Final thoughts

Year-end tax planning doesn’t have to be overwhelming. Focus on a few high-impact actions that match your goals—lowering taxable income now, increasing tax-free income later, or smoothing cash flow. Small, well-timed moves can translate to meaningful tax savings.

“You don’t need to do everything,” Maria Gonzalez reminds us. “Pick the two or three strategies that matter most for your family’s finances and execute them well.”

If you want, I can help you create a short, personalized year-end checklist based on your situation—just tell me whether you’re a W-2 employee, self-employed, retired, or running a small business, and any other major events this year (sold property, large inheritance, etc.).

Source: