Tag: tax planning

The final stretch of the year gives you a short window to make choices that still count on this year’s paperwork. Many of the best decisions are timing decisions, and they can shape what lands on your return when the calendar closes on December 31st.

A smart approach starts with clearly understanding your options. From there, you are looking for a few clean actions that fit your accounts, your cash flow, and your records;  filing season feels straightforward, and your return reflects choices you made on purpose, not ones you made under pressure. 

The Three Account Buckets That Drive Most Decisions

Year-end decisions get easier when you sort your accounts into three buckets, each with its own rules and tradeoffs:

Tax-deferred accounts

This bucket includes accounts like 401(k)s, 403(b)s, and traditional IRAs. Contributions generally reduce your taxable income in the year you make them, and the money can grow without annual taxation on interest, dividends, or growth while it stays inside the account.

The tradeoff happens at distribution time: money coming out is typically 100% subject to income taxes. Any money coming out before age 59½ can also trigger a 10% early-withdrawal penalty.

Required minimum distributions (RMDs) also apply to this bucket starting at age 73 or 75, depending on your birth year, and there is an exception for someone still working past those ages if they have a 401(k) they are actively contributing to.

Tax-free accounts

Accounts like Roth 401(k)s and Roth IRAs are funded with after-tax dollars, so contributions do not reduce taxable income today. The benefit shows up later: qualified withdrawals can be tax-free, including growth. The same age 59½ guideline can still apply to avoid the 10% penalty on growth, yet these accounts are not subject to RMDs, which means the money can remain invested for life if that fits your plan.

Taxable accounts

Taxable brokerage accounts work more like a bank account, a high-yield savings account, or a CD from a tax standpoint. They are funded with after-tax dollars, and the main benefit is flexibility: you can take money out at any point, for any reason, without the age 59½ restriction. The tradeoff is that interest, dividends, and capital gains are taxable in the year they are earned. 

How Your Tax Return Gets Built

A clear way to think about your year-end choices is to follow the same path the IRS uses on paper:

1. Add up all sources of income: Start by totaling wages, salaries, rental income, dividends, and interest to reach gross income.
2. Subtract “above-the-line” adjustments to reach AGI: Certain items reduce income before you ever decide whether to itemize. Examples may include, but are not limited to, IRA contributions, 401(k) contributions, HSA contributions, and student loan interest. This step gets you to Adjusted Gross Income (AGI), a number that drives many thresholds inside the tax return.
3. Choose your deduction path: Compare itemized totals to the standard deduction, then subtract whichever is higher to arrive at taxable income. This is where many year-end actions either help or don’t help, depending on which route you end up taking.
4. Apply brackets and rates, then credits: Federal brackets range from 10% to 37%, and your final result also depends on your state’s income tax rules. The bracket calculation applies to taxable income, and then credits such as child and education credits reduce the bill dollar-for-dollar. The result is what you owe or what you get back.

Why Itemizing Has Been Harder, and the Updates That Can Change the Math

Itemizing has been harder for many households simply due to how often the standard deduction wins the comparison. That reality changes the way many people experience generosity on their return: you can still give faithfully, yet the giving may not change the tax calculation in years when the standard deduction is larger than the itemized total. This is why timing strategies show up so often at year-end: the goal is to line up deductions in a way that makes itemizing possible in the years it makes sense.

Recent legislative changes have also changed how taxpayers need to weigh their options. One change is a new age-based deduction: individuals over 65 can receive an additional $6,000 deduction (or $12,000 for married couples). The deduction has income-based phaseouts ($75k–$175k for single filers; $150k–$250k for married couples), and it is received in addition to either the standard deduction or itemized deductions.

Another update is the state and local taxes (SALT) cap. The cap increased from $10,000 to $40,000, which can make state tax deduction totals more meaningful for households with larger property taxes and other state and local taxes. That higher cap can increase the odds of itemizing pencils out.

The following will happen starting in 2026:

• For those who do not itemize, an extra $1,000 charitable donation deduction per person, or $2,000 for a couple, as an add-on when taking the standard deduction
• Charitable donation deductions will only be available for the portion above 0.5% of AGI. For example, a $100,000 AGI would mean donations must exceed $500 before any deductible amount begins.

Bunching: One Timing Change That Can Create More Deduction Power

A common year-end idea is simple: move the timing of your donations so that your itemized total clears the hurdle in one year, then take the higher standard deduction the next. This approach does not require you to give more, and it does not require you to change what you support. It focuses on when you write the checks:

Bunching Example 1

A household has about $14,000 each year from other itemized items, and then they give $12,000 each year. That puts them at $26,000 of total itemized deductions in 2024 and $26,000 again in 2025. In the example, both years end up below the standard deduction, so they take the standard deduction twice. Over the two years, their combined deductions total $60,700.

Bunching Example 2

The household keeps the same total generosity across two years, but they change the timing. They give double their normal amount in 2024 (i.e., $12,000 x 2 = $24,000) and $0 in 2025. In 2024, they still have the $14,000 of other deductions, so $14,000 + $24,000 = $38,000, which is high enough to itemize that year. In 2025, they take the standard deduction. The two-year result in this case is $69,500 of total deductions (one year itemizing and one year taking the standard deduction), which is $8,800 more than Example 1, without increasing charitable giving.

Donor-Advised Funds (DAFs): Take the Deduction Now, Give on Your Timeline

A donor-advised fund (DAF) is a charitable account where you contribute, take the deduction in that year if you are itemizing, and then decide later which organizations receive grants. This is a timing tool for charitable contributions when you want more control over when the deduction lands versus when the charities receive the money.

A DAF really helps in a specific situation: you want to bunch deductions into one year, yet you do not want to change the steady monthly or annual support your organizations rely on. A DAF lets you “front-load” the contribution for deduction purposes, then send grants out over time.

Funding a DAF can be done with cash, and it can also be done with appreciated stock. In the example discussion, the account can remain invested while you decide when to distribute grants, which can support year-end planning without forcing you to rush the “where should it go?” decision before the calendar closes.

Donating Appreciated Shares: A Cleaner Way to Give From Taxable Accounts

If you hold shares in a taxable account that have gone up in value, donating those shares can be more tax-efficient than selling the shares and donating cash. The key difference is what happens to the gain. 

When you sell, the gain becomes taxable. When you donate the shares directly, you can often avoid triggering that gain in the first place. This strategy can be a meaningful lever in strong market years, especially when you already plan to give, and you want to keep more dollars working for you instead of turning a donation into an avoidable tax event.

This approach also pairs cleanly with a DAF. You can contribute shares to the DAF, take the deduction in the year you contribute (when itemizing applies), then send grants out later. For many households, this is simply a better use of investments you already own, rather than selling first and creating a taxable gain you did not need to realize.

Qualified Charitable Distributions (QCDs): The IRA-to-Charity Move That Can Lower Taxable Income

A qualified charitable distribution (QCD) is a direct transfer from an IRA to a qualified charity. The amount sent to the charity is excluded from income, which can reduce what shows up as taxable for the year.

A QCD can help in a few ways at once. It can lower taxable income, it may reduce how much of your Social Security becomes taxable, and it can create a tax benefit even in years when you are not itemizing. QCDs also count toward required minimum distributions, so dollars that would have been forced out of your IRA can be directed to charity instead.

The rules have to be followed closely for the transaction to be treated correctly:

• You must be older than 70½ at the time of the transfer
• The distribution must come from an IRA (not a 401(k) or 403(b))
• The money must go directly from the IRA to the charity
• The 2025 limit is $108,000 (indexed for inflation)
• The reporting must be handled correctly so it is not treated as taxable income

For many retirees, this is one of the most practical year-end tools available, and it can create real tax savings when it fits your giving habits and your account structure.

Roth Conversions: A Powerful Lever, With a Real Cost

A Roth conversion is not a “must-do.” It’s a decision that can be great in the right tax situation and completely wrong in another. It involves taking pre-tax money (often from traditional IRAs) and moving some or all of it into a Roth account so the dollars can grow tax-free going forward.

That move matters most when your goal is long-term flexibility in retirement. The tradeoff is that a conversion increases the amount of income you’re recognizing in the conversion year, which can change where you land in a tax bracket and what you pay in total for that year. The same conversion can look cheap in one year and expensive in another.

Roth Conversion Example

Picture a year where your income drops, maybe you retire mid-year, take unpaid time off, or step away for family, yet your spending plan stays the same. You need $12,000 per month in your normal working years, and $7,000 per month during that lower-income year. When your income is higher, and you’re in the 22% bracket, converting $44,000 creates a $9,680 federal tax cost. When your income is lower, and you’re in the 12% bracket, converting the same $44,000 creates a $5,280 cost. Timing is the lever here: doing the conversion in the lower-income year lowers the federal tax cost by $4,400.

Please Note: State taxes can matter too. Converting in a state with no income tax and then moving to a higher-tax state could reduce the state-side bite on the conversion. Sometimes the state side becomes the difference-maker in multi-year planning.

When You Need to Think Twice

Conversions deserve a “whole-picture” check before you commit, especially if any of these are true:

• You expect a better tax window later: Converting in a high-income year can be less appealing if you anticipate lower income and lower rates in a future year.
• You’d be forced to use retirement dollars to pay the tax: Paying the tax from the conversion itself reduces how much ends up in Roth, which can weaken the long-term benefit.
• You plan to use the funds soon: The move often fits best when the converted dollars can remain invested for many years.
• You’re close to, or already in, RMD years: The required distribution generally needs to happen first, and that can narrow your conversion flexibility for the year.
• Other costs move with reported income: Increasing reported income can affect items tied to the tax return, including credit phaseouts, Social Security taxation, Medicare premiums, and marketplace subsidy calculations.

Tax-Loss Harvesting: Using Down Markets Intentionally

Market declines can feel discouraging, but they can also create planning opportunities. Tax-loss harvesting uses losses inside taxable accounts to reduce the tax impact of gains and create flexibility for future years.

The benefit comes from how losses are treated on your return. Realized losses can offset realized gains dollar for dollar. If losses exceed gains, up to $3,000 can be used against other income, and remaining losses can be carried forward into future years. This creates flexibility across multiple tax years, especially when markets move unevenly or when you plan to sell appreciated holdings later.

Please Note: The wash sale rule is the guardrail. Selling at a loss and repurchasing the same or a substantially identical investment within 30 days before or after the sale disqualifies the loss. Staying invested requires careful replacement choices during that window.

Year-End Tax Moves FAQs

1. If I do bunch, should I consider using a donor-advised fund?

A donor-advised fund can support bunching while preserving consistency in giving. You take the deduction in the funding year and decide on grants later.

2. When does a Roth conversion usually not make sense?

Several situations warrant caution: when you’re in a high bracket now and expect a lower bracket later, when you don’t have outside funds to pay the tax, when you’ll need the money soon, or when the added income creates collateral issues (credit phaseouts, Medicare premiums, Social Security taxation, marketplace subsidy impacts, and more).

3. What is the wash sale rule, and why do people trip over it?

The wash sale rule prevents you from claiming a loss if you buy the same or substantially identical security within 30 days before or after the loss sale. That creates a practical 61-day window to watch (i.e., 30 days preceding the sale, 30 days following the sale, and the sale day itself).

4. If my losses are bigger than my gains, do I get any extra benefit?

Yes. After offsetting gains, you can deduct up to $3,000 per year against ordinary income, and remember, you can carry forward additional losses to future years.

5. What does a donor-advised fund actually do?

A donor-advised fund is an account designed to hold your charitable dollars until you decide where and when to grant them. You contribute (cash or even appreciated shares), receive the deduction in the contribution year, and then decide on the giving schedule afterward.

6. If I am subject to required minimum distributions (RMDs), can I use a qualified charitable distribution (QCD)?

Yes, when you meet the age rule, and you’re giving to qualified charities. A QCD is an IRA-to-charity transfer that can count toward your RMD and keep the transferred amount from being included in taxable income. The transfer has to go directly from the IRA to the charity, and it must come from an IRA rather than a workplace plan.

How We Help People Make Smart Year-End Tax Moves

Year-end planning works best when decisions are connected instead of isolated. Bunching, charitable strategies, Roth decisions, and investment-related moves all affect one another, and the order you apply them can matter just as much as the moves themselves.

Our financial advisory team helps you look at the full picture: your accounts, your income timing, your giving goals, and how each decision shows up on your return today and in future years. The focus stays practical, grounded, and tailored to your situation rather than built around generic rules.

If you want help evaluating which year-end moves actually fit your numbers, you can schedule a complimentary consultation call. That conversation is simply about clarity, like what matters now, what can wait, and how to approach the final weeks of the year with confidence.