Year-End Tax Planning Strategies to Help Reduce Your Tax Bill

As the year winds down, many investors focus on market performance or upcoming holiday expenses—but October through December is also prime time for proactive tax planning. Taking action before December 31 can help you optimize deductions, reduce taxable income, and set yourself up for a stronger financial start to the new year.

At Great Lakes Benefits & Wealth Management, we’ve seen that the most effective tax strategies aren’t the ones you scramble to find in April—they’re the ones you plan for now.

Why Tax Planning Before Year-End Matters

Tax planning isn’t just about avoiding surprises—it’s about controlling what you can. By reviewing your income, deductions, and investments before the year closes, you can identify opportunities to:

• Lower your taxable income
• Maximize available deductions and credits
• Time income or capital gains strategically
• Strengthen retirement contributions
• Avoid unnecessary penalties or missed deadlines

A few timely adjustments today can lead to meaningful savings when you file your return next spring.

1. Review Your Income and Deductions

Start with the basics—look at your year-to-date income and projected earnings through December.

If your income is higher than usual, you might consider accelerating deductions or deferring some income until next year. Conversely, if your income is lower this year, it might make sense to recognize additional income (such as converting a portion of a traditional IRA to a Roth IRA) while you’re in a lower tax bracket.

Example

• For retirees (ages 55+): If you’ve started taking withdrawals from your retirement accounts but don’t yet need all the income, we can explore partial Roth conversions to take advantage of lower marginal rates before they rise in future years.
• For working families: Consider prepaying deductible expenses—like property taxes or medical costs—before December 31 if it helps push you above the standard deduction threshold for itemizing.

2. Maximize Retirement Contributions

Contributing to tax-advantaged accounts before year-end can help reduce your taxable income and boost long-term retirement security.

Key Opportunities

• 401(k): Contribute up to the 2025 limit ($23,000, or $30,500 if you’re 50+).
• Traditional IRA: May be deductible depending on your income and workplace plan participation.
• Roth IRA or Roth Conversions: Pay taxes now to enjoy tax-free withdrawals later—especially useful in lower-income years.

Even small increases in contributions can make a noticeable difference over time.

Planning tip: Ask your HR department to increase your 401(k) contributions for the final pay periods of the year. It’s a simple, automated way to maximize savings.

3. Review Investment Gains and Losses

Market fluctuations can create both opportunities and challenges. Tax-loss harvesting allows you to sell underperforming investments to offset gains elsewhere in your portfolio.

Considerations

• Offset short-term gains (taxed at higher ordinary rates) first.
• Avoid the wash-sale rule—don’t repurchase the same or substantially identical investment within 30 days.
• Use this process to rebalance your portfolio, keeping your risk profile aligned with your goals.

Example

If you sold a stock earlier this year for a $10,000 gain, selling another holding at a $10,000 loss can offset the taxable impact. That’s one way to turn market volatility into a strategic advantage.

4. Take Advantage of Charitable Giving

Charitable donations made before December 31 can reduce taxable income if you itemize deductions.

Options to Explore

• Cash Donations: Simple and immediate deduction.
• Appreciated Assets: Donate stocks or mutual funds held for over a year to avoid capital gains tax.
• Donor-Advised Funds: Bundle several years’ worth of giving for a larger single-year deduction.
• Qualified Charitable Distributions (QCDs): If you’re age 70½ or older, donate directly from your IRA to satisfy part (or all) of your RMD—without adding to your taxable income.

Example

A retiree who donates $5,000 directly from their IRA through a QCD could reduce their taxable income by that same amount—while still supporting a cause they care about.

5. Address Required Minimum Distributions (RMDs)

If you’ve reached the required age for RMDs (currently 73 in 2025), you must take your distribution by December 31 to avoid a steep penalty—25% of the amount not withdrawn.

Key Actions

• Confirm the correct RMD amount with your advisor or custodian.
• If you don’t need the funds for living expenses, consider using them strategically—such as for charitable giving or reinvesting in a taxable account.

6. Consider Health Savings Account (HSA) Contributions

If you have a high-deductible health plan, an HSA is one of the most tax-efficient savings tools available.

Contributions are tax-deductible, growth is tax-deferred, and withdrawals for qualified medical expenses are tax-free.

Contribution Limits for 2025

• Individual: $4,300
• Family: $8,550
• Age 55+: Additional $1,000 catch-up contribution

You can make HSA contributions until April 15, 2026—but funding it before year-end helps maximize growth potential.

7. Evaluate Withholding and Estimated Payments

If you’ve experienced changes in income—such as part-time retirement, investment gains, or self-employment—review your withholding and estimated tax payments to avoid surprises.

Adjustments to Consider

• File a new W-4 form with your employer.
• Make a fourth-quarter estimated payment (due January 15, 2026) if needed.

These steps help avoid underpayment penalties and ensure your cash flow aligns with your tax situation.

Bringing It All Together

Tax planning isn’t a one-size-fits-all exercise—it’s about aligning your income, investments, and goals before the year closes. The right strategies can help you keep more of what you’ve earned, reduce unnecessary stress in April, and stay ahead of tax law changes.

Take Action Before December 31

If you or a family member would benefit from professional tax planning guidance, we’re here to help.

Contact us today to discuss your personalized strategy:

• Call (866) 626-3990
• Schedule a no-obligation discovery call

Small moves made today can translate into real savings tomorrow. Let’s make sure your financial plan—and your tax plan—work together.