As the year winds down, it’s easy to focus on holiday shopping, travel plans, and New Year’s resolutions. But before the clock strikes midnight on December 31, there are smart financial moves you can make to lower your tax bill and keep more money in your pocket. Once January 1 arrives, many opportunities to reduce your 2025 tax liability disappear.
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Here are five important steps to consider before year-end:
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1. Max Out Retirement Contributions
Contributing to tax-advantaged accounts like a 401(k) or traditional IRA can significantly reduce your taxable income.
401(k): For 2025, you can contribute up to $23,000 (or $30,500 if you’re age 50 or older).
Traditional IRA: Eligible individuals can contribute up to $7,000 (or $8,000 if age 50+).
These contributions reduce taxable income today while helping you build long-term retirement savings.
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2. Harvest Investment Losses
If you have underperforming investments in your taxable brokerage account, selling them before year-end can help offset capital gains from winners in your portfolio. This strategy, called tax-loss harvesting, lets you use up to $3,000 in net capital losses ($1,500 if married filing separately) to reduce ordinary income if your losses exceed your gains.
Reminder: Avoid the wash-sale rule—you can’t claim the deduction if you buy the same or “substantially identical” investment within 30 days before or after the sale.
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3. Make Charitable Donations
Giving to qualified charities before December 31 can reduce your taxable income if you itemize deductions.
Cash contributions can typically be deducted up to 60% of your adjusted gross income (AGI).
Donating appreciated assets, like stocks, allows you to skip the capital gains tax while still taking a charitable deduction.
Be sure to keep receipts or acknowledgment letters from the organizations for your tax records.
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4. Spend Your FSA Dollars
If you contribute to a Flexible Spending Account (FSA) through your employer, check the balance now. Many FSAs have a “use it or lose it” rule, meaning unused funds may be forfeited after year-end.
Schedule medical, dental, or vision appointments.
Stock up on eligible health supplies, including prescription medications, contact lenses, or even sunscreen.
Some employers allow a small carryover (up to $640 in 2025) or a short grace period, but it’s best to double-check your plan.
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5. Review Your Withholding & Estimated Taxes
Avoid a surprise bill—or a penalty—when you file your 2025 taxes. If you’ve had a major life change this year (marriage, divorce, a new job, or side hustle income), your tax situation may have shifted.
Use the IRS Tax Withholding Estimator to make sure your paycheck withholding is on target.
If you’re self-employed or have investment income, consider making a final estimated payment before December 31.
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Final Thoughts
Proactive tax planning can make a big difference in how much you owe—or get back—when you file your 2025 taxes. By taking action before December 31, you’ll set yourself up for a smoother filing season and possibly a lower tax bill.
Tax Inflation Adjustments 2025
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Questions on this topic?