Many people wait until April to think about taxes—but by then, it’s too late to make meaningful changes. The smartest taxpayers plan ahead, making strategic moves before December 31 to lower their tax bill. Whether you’re an employee, freelancer, or small business owner, these year-end strategies can put more money back in your pocket.
1. Max Out Retirement Contributions
Contributions to retirement accounts like a 401(k) or IRA reduce your taxable income. If you can, aim to max them out before the end of the year. Even an extra $1,000 contribution can save you hundreds in taxes.
2. Harvest Tax Losses
If some of your investments are down, you can sell them to offset gains from other investments. This strategy, known as tax-loss harvesting, reduces your taxable capital gains.
3. Bunch Charitable Contributions
If you’re close to the threshold for itemizing deductions, consider “bunching” two years’ worth of charitable donations into one year. This way, you can itemize this year and take the standard deduction next year.
4. Defer Income
If you’re self-employed, delaying invoicing until January can push income into the next tax year—reducing your current tax liability.
5. Spend FSA Dollars
If you have a flexible spending account (FSA), check the balance. Many plans have a “use it or lose it” policy, so spend those dollars on eligible medical expenses before year-end.
6. Review Withholding and Estimates
Check your paycheck withholding or estimated payments. Adjusting now can help you avoid a surprise bill or penalty in April.
7. Take Advantage of Credits
Credits like the Child Tax Credit or energy-efficient home improvement credits can significantly lower your tax bill. Don’t miss them.
Final Thoughts
Tax planning isn’t about fancy tricks—it’s about being proactive. By acting before the year ends, you can legally minimize your tax liability and keep more of your hard-earned money. Don’t wait until tax season; start now, and thank yourself later.
