Maximize Your Tax Savings Before December 31
As the end of the year approaches, it’s the perfect time to make strategic tax moves that can lower your bill and increase your refund. Whether you’re an individual, business owner, or investor, taking action before December 31 can help you maximize deductions, credits, and savings before tax season.
This guide covers the best tax strategies to implement before year-end to keep more of your hard-earned money.
1. Max Out Retirement Contributions for Tax Savings
📌 One of the best ways to lower your taxable income is to contribute to a retirement plan before year-end.
✅ Contribution Limits for 2025:
✔ 401(k): Up to $23,000 (or $30,500 if 50+).
✔ Traditional IRA: Up to $7,000 (or $8,000 if 50+).
✔ SEP IRA (for self-employed): Up to $69,000 or 25% of net earnings.
✔ Solo 401(k) (for self-employed): Up to $69,000 (or $76,500 if 50+).
📌 How This Helps:
- Contributions to a Traditional 401(k) or IRA reduce taxable income for the year.
- Employer contributions to 401(k)s or SEP IRAs are also tax-deductible.
💡 Tip: If your employer offers a 401(k) match, contribute enough to get the full match—it’s free money!
2. Harvest Capital Losses to Offset Investment Gains
📌 If you sold investments at a gain, you may owe capital gains tax—but tax-loss harvesting can help.
✅ How to Use Tax-Loss Harvesting:
✔ Sell underperforming stocks to offset capital gains.
✔ If capital losses exceed gains, deduct up to $3,000 per year from ordinary income.
✔ Carry forward unused losses to future tax years.
📌 Example:
- You sold Stock A for a $10,000 gain.
- You sell Stock B for a $6,000 loss.
- Your taxable gain is now only $4,000, reducing your capital gains tax.
💡 Tip: If you sell a stock and buy it back within 30 days, the IRS disallows the loss under the wash-sale rule.
3. Make Charitable Contributions for a Tax Deduction
📌 Donating to qualified charities before December 31 can lower your taxable income.
✅ Ways to Donate for Tax Savings:
✔ Give cash donations (up to 60% of AGI).
✔ Donate appreciated stocks to avoid capital gains tax.
✔ Contribute to a Donor-Advised Fund (DAF) for multi-year tax benefits.
📌 Example:
- If you donate $5,000 and you’re in the 24% tax bracket, you reduce your tax bill by $1,200.
💡 Tip: Always get a receipt for donations and confirm the charity is IRS-approved (501(c)(3)).
4. Use Your Flexible Spending Account (FSA) Funds
📌 FSAs operate under a “use-it-or-lose-it” rule—use your funds before they expire.
✅ FSA Rules:
✔ You can contribute up to $3,200 in 2025.
✔ Some employers allow a grace period until March 15, but others don’t roll over funds.
✔ Use FSA funds for medical expenses, eyeglasses, dental work, and prescriptions.
💡 Tip: Check with your employer to see if they offer a carryover option or grace period.
5. Prepay Certain Tax-Deductible Expenses
📌 Some expenses can be prepaid before December 31 to increase deductions for the current tax year.
✅ What You Can Prepay for a Deduction:
✔ Mortgage Interest – Make an extra mortgage payment to increase your mortgage interest deduction.
✔ Property Taxes – Pay next year’s property tax bill early (if not subject to the $10,000 SALT cap).
✔ Medical Bills – If you expect high medical expenses, prepay bills to exceed the 7.5% AGI threshold for deduction.
💡 Tip: If you plan to itemize deductions, prepaying expenses before year-end can increase your total deductions.
6. Defer Income to Next Year (If Possible)
📌 If you expect lower taxes next year, delay receiving taxable income until 2026.
✅ Ways to Defer Income:
✔ Business owners can delay invoicing clients until January.
✔ If expecting a year-end bonus, ask your employer to pay it in January instead.
✔ Postpone selling investments at a gain until next year.
📌 Why? Deferring income reduces your taxable income for the current year, lowering your tax liability.
💡 Tip: This strategy is best if you expect to be in a lower tax bracket next year.
7. Maximize the Saver’s Credit (Up to $2,000)
📌 Low- to moderate-income earners can claim a tax credit for contributing to retirement accounts.
✅ Who Qualifies for the Saver’s Credit?
✔ Single: AGI under $36,500.
✔ Married Filing Jointly: AGI under $73,000.
✔ Head of Household: AGI under $54,750.
📌 Credit Amounts:
| Filing Status | Credit % | Maximum Credit |
|---|---|---|
| Low-Income (0-50% of limit) | 50% of contributions | $2,000 |
| Moderate-Income (51-100% of limit) | 20-10% of contributions | $400 – $1,000 |
💡 Tip: If eligible, contribute to an IRA or 401(k) before December 31 to qualify.
8. Convert a Traditional IRA to a Roth IRA
📌 A Roth conversion lets you pay taxes now and enjoy tax-free withdrawals later.
✅ Why Convert?
✔ Lock in lower tax rates today before they increase.
✔ Tax-free withdrawals in retirement (Roth IRAs don’t require RMDs).
✔ Best if you expect to be in a higher tax bracket in the future.
📌 Example:
- If you convert $20,000 from a Traditional IRA to a Roth IRA in 2025, you’ll owe taxes now, but all future withdrawals will be tax-free.
💡 Tip: Consider partial conversions each year to minimize the tax impact.
9. Give Tax-Free Gifts (Up to $18,000 Per Person)
📌 You can gift money tax-free to family and friends before year-end.
✅ Gift Tax Rules for 2025:
✔ Give up to $18,000 per person without filing a gift tax return.
✔ Married couples can give $36,000 per recipient tax-free.
✔ Gifts to pay tuition or medical expenses directly are not taxable.
💡 Tip: Gifting is a great way to reduce your taxable estate if you’re planning long-term wealth transfers.
10. Review Your Withholdings & Adjust for Next Year
📌 If you owed a large tax bill last year or received a big refund, adjust your withholdings for 2026.
✅ How to Adjust Withholdings:
✔ Use the IRS Withholding Estimator to check if you’re withholding the right amount.
✔ Submit a new W-4 form to your employer if needed.
✔ If self-employed, adjust quarterly estimated tax payments for next year.
💡 Tip: The goal is to break even—avoid a large refund or tax bill!
Lower Your Tax Bill Before December 31
📌 To maximize tax savings before year-end:
✔ Max out retirement contributions.
✔ Harvest capital losses to offset gains.
✔ Donate to charities for deductions.
✔ Defer income & accelerate deductions if needed.
📌 Need expert tax planning? Contact First Union Tax for personalized tax strategies and end-of-year planning!
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