Year-End Tax Planning Checklist: 10 Tax Moves to Review Before December 31
Year-end tax planning is most useful when it happens before the year is actually over. By the time your tax return is prepared, most of the year's income has already been earned, investments have been bought and sold, charitable gifts have been made, and many planning deadlines have passed. At that point, your CPA is largely reporting what already happened.
Before December 31, there is still an opportunity to make decisions.
That might mean harvesting an investment loss, increasing a retirement-plan contribution, donating appreciated stock instead of cash, adjusting withholding, timing a business purchase, or simply discovering that a large bonus or stock vesting event has created a tax bill you were not expecting.
The right year-end tax moves depend on your circumstances, which is why I generally start in the same place with clients every year: a tax projection.
From there, we can decide which strategies are actually worth considering.
1. Start With a Year-End Tax Projection
Before making year-end tax moves, estimate what your tax return is likely to look like.
A useful projection should incorporate expected wages, bonuses, business income, investment income, realized capital gains, retirement contributions, deductions, withholding, and estimated tax payments.
From there, you can answer several important questions:
What is your approximate federal and California taxable income?
What marginal tax rates are relevant to your decisions?
Are additional surtaxes or income limitations coming into play?
Have you already paid enough through withholding and estimated payments?
Would accelerating a deduction actually help this year?
Would recognizing additional income create a problem or potentially make sense?
This is why I generally do not like beginning year-end planning with a generic list of deductions.
A deduction is most valuable when you understand the tax environment in which you are taking it.
Someone experiencing an unusually high-income year may make very different decisions from someone whose income temporarily dropped because of a sabbatical, job transition, business loss, or retirement.
The tax projection creates the context for everything that follows.
2. Review Retirement Plan and HSA Contributions
Retirement accounts can provide some of the most valuable year-end planning opportunities, but the rules depend heavily on the type of account.
For employees, this may include reviewing contributions to a 401(k), 403(b), or other employer-sponsored retirement plan and determining whether there is room to increase contributions before the final payrolls of the year.
Business owners may have additional options, including SEP IRAs, Solo 401(k)s, profit-sharing arrangements, or other employer retirement plans depending on the business structure and plan design.
Health Savings Accounts are also worth reviewing for eligible individuals. HSAs can offer a particularly valuable combination of potential tax-deductible contributions, tax-deferred growth, and tax-free distributions when used for qualified medical expenses.
Not every contribution has a December 31 deadline. For example, eligible HSA contributions can generally be made for a tax year through the unextended federal income-tax filing deadline for that year.
Employer salary deferrals and other plan contributions, however, can have different deadlines.
The practical year-end question is therefore not simply, "Have I maxed everything out?"
It is: Which contribution opportunities are still available to me, when are the deadlines, and which ones make sense given my projected taxes and cash flow?
3. Evaluate Roth and Backdoor Roth Opportunities
Roth planning deserves its own analysis because contributing to a Roth account does not generally reduce current taxable income.
For higher-income taxpayers who cannot make a direct Roth IRA contribution, a nondeductible traditional IRA contribution followed by a Roth conversion is commonly referred to as a "backdoor Roth."
The strategy can be useful, but it is not as simple as putting money into one account and moving it into another.
Existing pretax traditional, SEP, and SIMPLE IRA balances can affect how much of a Roth conversion is taxable under the IRA aggregation and pro-rata rules. Roth conversions themselves can also create taxable income to the extent pretax funds are converted.
That is why I want to see the entire IRA picture before automatically recommending a backdoor Roth strategy.
Year-end can also be a useful time to evaluate whether a larger Roth conversion makes sense for someone experiencing an unusually low-income year, although the decision should be modeled carefully because the conversion increases taxable income.
4. Review Capital Gains and Tax-Loss Harvesting Opportunities
Investment portfolios create another important year-end planning opportunity.
Start by reviewing realized gains and losses for the year.
If you have already realized meaningful capital gains, there may be investments currently trading below their tax basis that could be sold to recognize losses and offset some of those gains.
This is commonly called tax-loss harvesting.
The investment decision still matters. I generally do not recommend selling a good investment solely to generate a tax loss without considering what should replace it and how the transaction fits into the portfolio.
You also need to consider the wash-sale rules before repurchasing the same or a substantially identical security.
The opposite strategy can sometimes make sense too.
Someone in an unusually low-income year may have an opportunity to intentionally recognize gains at a relatively favorable tax rate. That decision is highly dependent on the person's income, the type of gain, and the rest of the tax return.
Year-end investment planning should therefore answer two questions at once:
What does the portfolio need?
And:
What are the tax consequences of making that change now?
5. Review RSUs, ESPPs, and Stock Options Before Year-End
Equity compensation can create some of the largest unexpected tax bills I see with high-income professionals.
Before year-end, I want to understand exactly what happened during the year.
For RSUs, that means reviewing what vested and how much income was included in wages. It also means looking at the stock that remains after vesting and determining whether continuing to hold it creates unnecessary concentration risk.
For nonqualified stock options, the timing of an exercise can affect taxable compensation.
For incentive stock options, exercising and holding the shares can create alternative minimum tax considerations.
Employee Stock Purchase Plan shares require another analysis because the tax treatment can depend on how long the shares were held and whether the eventual sale qualifies for favorable disposition treatment.
The mistake is evaluating each transaction in isolation.
A large vesting event, bonus, stock sale, or option exercise can change the tax environment for every other decision made that year.
6. Decide Whether Charitable Giving Can Be More Tax-Efficient
If charitable giving is already part of your financial plan, year-end is a good time to review how you are giving.
One of the simplest opportunities is donating appreciated securities rather than cash.
For someone holding highly appreciated investments, donating shares directly to an eligible charity or donor-advised fund may allow the charity to receive the full value of the asset while helping the donor avoid realizing the embedded capital gain, subject to the applicable tax rules and deduction limitations.
A donor-advised fund can also be useful when someone wants to make a larger deductible charitable contribution during a high-income year but distribute the money to individual charities over time.
This is sometimes called bunching charitable deductions.
The strategy is most useful when it solves an actual planning problem, not simply because a tax deduction is available.
If you were going to give the money anyway, however, the asset you choose to donate can make a meaningful difference.
7. Check Estimated Taxes and Withholding Before the Year Ends
Do not wait until April to discover that withholding or estimated payments were insufficient.
For federal purposes, taxpayers can generally avoid an underpayment penalty by paying enough during the year based on the applicable current-year or prior-year safe-harbor rules.
For many taxpayers, that means paying at least 90% of current-year tax or 100% of the prior year's tax. Certain higher-income taxpayers use 110% of prior-year tax instead.
California has its own rules and an unusual estimated-payment schedule. For taxpayers required to make estimates, the standard installment pattern is generally 30% of the required annual payment in the first installment, 40% in the second, no required third installment, and the remaining 30% in the fourth installment.
There are exceptions and special rules, so I would not treat those percentages as a substitute for a projection.
Another valuable year-end tool is withholding.
Federal income-tax withholding is generally treated as having been paid throughout the year for estimated-tax purposes, which can make a late-year withholding adjustment useful in certain situations where estimated payments were missed earlier.
That is exactly the kind of issue worth identifying before the final payroll of the year rather than during tax preparation.
8. Review Business Income, Deductions, and Retirement Planning
Business owners usually have more year-end levers than W-2 employees, but that also creates more opportunities to make poor decisions in the name of saving taxes.
Start with projected business income.
From there, review the timing of legitimate expenses, major equipment purchases, retirement-plan contributions, payroll, owner compensation, and any significant transactions expected before year-end.
Section 179 deductions and bonus depreciation can potentially accelerate deductions for qualifying property, although the correct treatment depends on the type of asset, business use, taxable income, and current law.
S corporation owners should also review reasonable compensation rather than treating salary and distributions as an arbitrary year-end tax lever.
Depending on the business, other issues may include accountable-plan reimbursements, home-office expenses, health insurance, retirement-plan design, and the timing of income or expenses.
The objective should not be to spend $1 simply to save a fraction of that amount in taxes.
A good business deduction is an expense the business actually needs, with tax efficiency layered on top of a sound business decision.
9. Review FSA Balances and Employer Benefits
Some of the easiest year-end opportunities have nothing to do with sophisticated tax planning.
Review your Flexible Spending Account balance and your employer's plan rules. Traditional health FSAs generally involve use-it-or-lose-it restrictions, although employers may offer certain carryover or grace-period provisions.
Also review dependent-care benefits, commuter benefits, insurance elections, and other employer programs during open enrollment.
Do not confuse an FSA with an HSA.
An HSA belongs to the account owner and unused funds generally remain available in future years. An FSA is employer-sponsored and is subject to different rules.
This is a small distinction, but it prevents the surprisingly common December scramble to spend HSA money that never needed to be spent.
10. Review Major Life Changes Before December 31
Some of the most important year-end tax planning has nothing to do with deductions.
Life changes can alter filing status, withholding, deductions, investment strategy, and long-term financial planning.
Pay particular attention if you experienced or expect:
Marriage or divorce
A job change or significant bonus
Retirement
A move to another state
A large stock vesting event
A business sale
The purchase or sale of real estate
A significant inheritance
A major charitable gift
A liquidity event
A move between states is particularly important because residency and sourcing rules can become complex when income, business interests, or equity compensation span multiple jurisdictions.
Divorce can also affect filing status, dependents, withholding, investment ownership, and estimated payments.
When a major life event occurs, I generally want to revisit the financial plan as well as the tax projection. The tax return is only one piece of the change.
What Actually Has to Be Done by December 31?
Not every year-end tax strategy has the same deadline.
This is worth emphasizing because "year-end tax planning" can create the impression that everything disappears at midnight on December 31.
Some actions generally do require year-end attention, including many investment sales, charitable gifts intended for the current year, Roth conversions, and employee salary deferrals through the final payroll.
Other contributions, including certain IRA and HSA contributions, may generally be made after December 31 and still count for the prior tax year if completed by the applicable deadline.
Business retirement-plan deadlines can vary depending on the plan and contribution type.
The better approach is to create a personalized deadline list rather than assuming every tax-saving strategy has to be completed on the same date.
Frequently Asked Questions About Year-End Tax Planning
What is the most important year-end tax planning step?
Start with a tax projection. A projection estimates your income, deductions, investment gains, withholding, estimated payments, and expected tax liability so you can determine which year-end strategies are actually relevant.
When should I start year-end tax planning?
Ideally, begin reviewing your tax situation in the fall, while there is still time to make investment, charitable, retirement, payroll, and business decisions. More complicated situations may benefit from planning throughout the year rather than waiting until November or December.
How can I reduce my taxes before December 31?
Depending on your circumstances, strategies may include increasing eligible retirement-plan contributions, harvesting investment losses, donating appreciated securities, completing a Roth conversion, adjusting withholding, or accelerating legitimate business expenses. The right strategy depends on your projected tax situation.
Does tax-loss harvesting actually reduce taxes?
Tax-loss harvesting can reduce current taxes when realized investment losses offset realized capital gains and potentially a limited amount of other income under federal rules. The investment implications and wash-sale rules should also be considered before selling.
Should I sell losing stocks before year-end?
Possibly, but taxes should not be the only reason to sell an investment. If an investment no longer belongs in the portfolio and realizing a loss also produces a tax benefit, year-end can be a useful time to make the change.
Do HSA contributions have to be made by December 31?
Generally, no. Eligible taxpayers can generally make HSA contributions for a tax year through the unextended federal income-tax filing deadline for that year. Payroll-based contributions and employer plan procedures may have different practical deadlines.
Do 401(k) contributions have to be made before December 31?
Employee salary deferrals generally must be made through payroll during the applicable calendar year. Employer contributions and contributions to certain self-employed retirement plans can have different deadlines depending on the plan.
What is the federal estimated-tax safe harbor?
Generally, taxpayers can avoid the federal underpayment penalty by paying enough through withholding and estimated payments based on either the applicable percentage of current-year tax or prior-year tax. The prior-year threshold is higher for certain higher-income taxpayers, and other requirements and exceptions can apply.
Why is year-end tax planning especially important for high-income earners?
Higher-income taxpayers often have more moving pieces, including bonuses, equity compensation, investment gains, charitable giving, multiple account types, business income, and additional tax provisions. Coordinating those decisions before the year closes can be more valuable than evaluating each one independently.
Is year-end tax planning the same as tax preparation?
No. Tax preparation reports transactions that have already occurred. Tax planning looks forward and evaluates actions you may still be able to take before relevant deadlines. The greatest planning value usually comes before the tax year is closed.
Summary: Year-End Tax Planning Checklist
Start with a tax projection before implementing individual year-end tax strategies.
Review retirement-plan, IRA, Roth, and HSA opportunities along with their actual deadlines.
Evaluate realized gains, investment losses, and concentrated positions before completing year-end trades.
Coordinate RSUs, stock options, ESPPs, bonuses, and other equity compensation with your overall tax projection.
Consider appreciated securities and donor-advised funds when charitable giving is already part of your plan.
Confirm federal and California withholding and estimated payments before discovering a shortfall during tax season.
Business owners should review income, deductions, compensation, depreciation, and retirement planning together.
Check FSAs and employer benefits, but remember that HSA balances generally do not need to be spent by year-end.
Revisit tax planning after major life changes such as divorce, retirement, moving states, selling a business, or receiving a large liquidity event.
Separate true December 31 deadlines from strategies that may still be completed after year-end.
Year-end planning works best when tax decisions are coordinated with the rest of your financial life. If you want help reviewing your projected taxes and identifying which year-end strategies actually apply to your situation, you can request an introductory call with KCL Wealth Management.
Author Bio
Katherine Leonard, CPA, CFP®, is the founder of KCL Wealth Management, a fee-only wealth management firm serving clients in Newport Beach, Orange County, and throughout California. She specializes in tax-efficient financial planning and investment management, helping clients coordinate tax decisions with investments, retirement planning, business ownership, and major financial transitions.
This article is for educational purposes only and does not constitute individualized tax, investment, legal, or financial advice. Tax rules and contribution limits can change, and the appropriate strategy depends on individual circumstances.