As the year draws to a close, it’s not just about holiday plans and family gatherings: it’s about taking advantage of smart financial strategies that can reduce your tax bill and strengthen your long-term wealth. The weeks leading up to December 31 offer powerful opportunities to take control of your financial story and make moves that could save you thousands come tax season.
Max Out Your Retirement Contributions
If you have a 401(k), 403(b), or IRA, now is the time to review your year-to-date contributions. The IRS allows you to contribute significant amounts pre-tax, effectively lowering your taxable income.
For 2025, contribution limits are $23,000 for 401(k) and 403(b) plans and $7,000 for IRAs. If you’re age 50 or older, you can contribute an additional $7,500 and $1,000, respectively.
Even if you can’t reach the maximum, adding a few extra contributions before year-end can make a meaningful difference in your tax picture.
Harvest Tax Losses Strategically
If some of your investments have underperformed this year, consider tax-loss harvesting by selling those positions to offset gains elsewhere in your portfolio. This can help balance your tax liability while keeping your long-term investment strategy intact.
Just remember the wash-sale rule: you cannot buy the same or a “substantially identical” security within 30 days before or after the sale if you want to claim the loss.
Review Your Dividends and Distributions
If you rely on dividends for income, pay attention to the timing of year-end payouts and capital gains distributions. Reinvesting dividends or making small adjustments before distributions hit can help minimize unexpected tax consequences in April.
For investors following dividend-based strategies, it’s worth reviewing how these distributions fit within your overall income plan and tax strategy.
Charitable Giving with Purpose
Charitable giving is one of the most effective ways to reduce taxes while making an impact. Instead of donating cash, consider gifting appreciated stocks. You’ll avoid capital gains tax on the appreciation and still receive a deduction for the fair market value.
If you’re over 70½, Qualified Charitable Distributions (QCDs) from IRAs can satisfy your Required Minimum Distributions (RMDs) tax-free, an excellent strategy for retirees looking to give back efficiently.
Take Your Required Minimum Distributions
If you’re age 73 or older, make sure you’ve taken your RMDs from retirement accounts before December 31 to avoid substantial IRS penalties. Your financial advisor or custodian can help you calculate exactly how much needs to be withdrawn.
Missing an RMD can lead to a 25% excise tax on the amount not taken, so this is one task you definitely don’t want to overlook.
Review Your Overall Plan
Year-end is the perfect time to sit down with your advisor and review your base financial plan. Make sure your investments, income strategy, and tax planning are all aligned with your goals for the upcoming year. Consider rebalancing your portfolio or adjusting the mix between secure “below ground” assets and growth-focused “above ground” investments to keep your plan on track.
Final Thoughts
Taxes are one of the few areas in life where a little proactive planning can create significant freedom later. Don’t wait until spring to find out what you could have done; take action now. Review your accounts, and if you find an error, refer to this guide on how to file an amended tax return with the IRS, talk with your advisor, and use these strategies to make your money work smarter before December 31.
At Planning Made Simple, we believe in empowering investors to take control of their story. Because when it comes to your financial life, the buck stops here.