Year-End Tax Moves That Actually Matter

Most of the decisions that affect your tax bill for a given year are irreversible by January. The window to act is the fourth quarter — and for some moves, specifically the last week of December. January is paperwork. The decisions happen before that.

Not all year-end tax moves are worth the effort. Some apply only to specific situations. The ones that matter — maxing retirement accounts, harvesting losses, timing charitable giving, spending down FSA balances — are worth doing deliberately because they produce real dollar outcomes, not marginal ones. The question is knowing which ones apply to you and doing them before the calendar closes.

Max 401k contributions before December 31st

The 401k contribution deadline is December 31st — unlike traditional IRA contributions, which can be made until the April tax filing deadline. If you're not on track to hit the $23,000 annual limit ($30,500 if 50 or older for 2024), increasing your payroll withholding for the last few pay periods of the year is the most straightforward way to reduce taxable income. Every dollar contributed to a traditional 401k reduces your gross income by that dollar for the year.

For someone in the 22% bracket, $5,000 of additional 401k contributions saves $1,100 in federal income tax. For someone in the 24% bracket, the same $5,000 saves $1,200. The higher the marginal rate, the more each pre-tax contribution is worth. If you expect your income to be lower next year — a job change, a planned leave, moving to part-time work — contributing more this year while the rate is higher and less next year when it's lower is straightforward tax arbitrage.

Tax-loss harvesting — selling losers to offset winners

If you have investments in a taxable account that have declined in value, selling them before December 31st lets you realize the loss and use it to offset capital gains you've realized elsewhere. Capital losses offset capital gains dollar for dollar — long-term losses against long-term gains, short-term losses against short-term gains, with some cross-category offsetting allowed. If your losses exceed your gains, up to $3,000 of the excess can be deducted against ordinary income each year, with the remainder carried forward to future years.

The wash sale rule applies: if you sell a security at a loss and buy the same or substantially identical security within 30 days before or after the sale, the loss is disallowed. The practical workaround is buying a similar but not identical fund immediately — selling a total US market ETF and buying a large-cap index fund, for example, maintains market exposure while the 30-day window passes. After 31 days, you can buy back the original holding if you want.

Charitable giving — timing and bunching

Charitable contributions only produce a tax deduction if you itemize — and with the standard deduction at $29,200 for married filers in 2024, most people don't have enough deductions to itemize. Bunching charitable contributions is the strategy that changes this: instead of giving $5,000 per year across two years, you give $10,000 in one year and nothing the next. The year you give $10,000, your itemized deductions exceed the standard deduction and you deduct the full amount. The following year you take the standard deduction. The two-year giving total is the same; the tax result is better.

Donating appreciated securities — stocks or funds that have gained in value — produces a double benefit. You deduct the full fair market value of the donation and avoid paying capital gains tax on the appreciation. If you own stock worth $10,000 that you bought for $3,000, donating it to a qualified charity lets you deduct $10,000 and never pay capital gains tax on the $7,000 gain. Selling the stock first and donating cash costs you the capital gains tax. The distinction matters for anyone sitting on appreciated positions who gives regularly to charity.

FSA balances — use it or lose it

Flexible Spending Account balances for healthcare usually expire at the end of the plan year — often December 31st, though some plans offer a grace period or limited rollover. An unspent FSA balance is money you contributed pre-tax that you get nothing back from. Check your balance in November and spend it down on eligible expenses before the deadline: glasses, contact lenses, dental work, prescription medications, over-the-counter medications, and many other qualifying expenses.

HSA balances are different: they roll over indefinitely and are never forfeited. An HSA doesn't need year-end attention from a use-it-or-lose-it standpoint. If you have both an FSA and an HSA, the FSA is the one to check. Letting FSA money expire is one of the most avoidable financial mistakes of the year.

Business expenses for the self-employed

Self-employed individuals and business owners can accelerate deductible expenses into the current tax year by paying them before December 31st. Software subscriptions, professional memberships, equipment, office supplies, and prepaid business expenses paid by year-end are deductible in the year of payment under cash-basis accounting — the method most small businesses use.

Section 179 expensing allows immediate deduction of qualifying equipment purchases in the year of purchase rather than depreciating them over multiple years. If you're planning to buy equipment or technology for your business, buying it in December rather than January moves the deduction into the current tax year. If you expect a higher income year than usual this year compared to next, accelerating deductions into this year is worth the timing consideration.

Required minimum distributions for retirement account holders

Anyone who turned 73 or older this year must take a Required Minimum Distribution (RMD) from traditional IRAs and 401k accounts before December 31st. Failing to take the RMD triggers a 25% excise tax on the amount that should have been withdrawn. The IRS publishes RMD tables that determine the required withdrawal amount based on account balance and age. This is non-negotiable — there's no extension, no grace period for the annual deadline.

One planning option for people who don't need the RMD income: a Qualified Charitable Distribution (QCD) allows transferring up to $105,000 directly from an IRA to a qualified charity, counting toward the RMD without the amount being included in taxable income. For someone who gives to charity anyway, a QCD eliminates the income tax on the RMD and satisfies the distribution requirement simultaneously.

Most of these moves are one-time annual decisions that take an hour, not an ongoing practice. The FSA check takes five minutes. The 401k adjustment takes a phone call. Tax-loss harvesting takes one trade. What makes them feel complicated is that they all compete for attention in the same compressed window. Doing the list in October or November, before the end-of-year scramble, is the difference between acting and meaning to.