Smart strategies to minimize your tax burden and maximize wealth heading into 2026

As December winds down, your financial to-do list deserves as much attention as your holiday shopping. Year-end isn't just about celebrations—it's a critical deadline for tax-saving opportunities that vanish once the calendar flips to January. Acting now could mean keeping more money in your pocket, boosting your retirement savings, and avoiding unnecessary penalties.

Here are ten essential moves to consider before midnight on December 31.

1. Maximize Your Retirement Account Contributions

Employer-sponsored plans like 401(k)s and 403(b)s have a firm December 31 deadline. For 2025, the contribution limit stands at $23,500. Those aged 50 and older can add an extra $7,500, while workers between 60 and 63 may qualify for an enhanced catch-up of $11,250 if their plan permits.

While IRAs and HSAs allow contributions until Tax Day (April 15, 2026), contributing before year-end reduces your 2025 taxable income right away. Expecting a year-end bonus? Consider funneling a portion directly into your retirement account.

HSA tip: Contributions made through pre-tax payroll deductions avoid FICA taxes (Social Security and Medicare), while direct contributions do not. To capture these savings for 2025, ensure your desired amounts are withheld from your final paychecks of the year.

2. Complete Your Required Minimum Distributions

If you're 73 or older, the IRS requires you to withdraw a minimum amount from traditional IRAs and most workplace retirement plans by December 31. Miss this deadline, and you could face a penalty of up to 25% on the amount you should have withdrawn.

Looking to reduce the tax hit? A qualified charitable distribution (QCD) lets you transfer up to $105,000 directly from your IRA to a qualified charity. This satisfies your RMD requirement while excluding the amount from your taxable income.

Inherited an IRA from someone other than a spouse? You may also have RMD obligations. If the original owner passed away after reaching RMD age and after 2020, you must take annual distributions and empty the account within 10 years.

3. Evaluate a Roth Conversion

Converting traditional IRA funds to a Roth IRA means paying taxes on the converted amount now, but qualified future withdrawals become completely tax-free. The conversion must be completed by December 31 to count toward your 2025 income.

This strategy proves especially compelling when your investments are down—you pay taxes on a smaller balance while maintaining the same number of shares. Roth IRAs also have no required minimum distributions, giving you greater flexibility in retirement.

4. Harvest Investment Losses

Tax-loss harvesting involves selling investments that have declined in value to offset capital gains. If your losses exceed your gains, you can deduct up to $3,000 against ordinary income, with any excess carrying forward to future years indefinitely.

Be mindful of wash-sale rules: purchasing a substantially identical security within 30 days before or after the sale disqualifies the loss. Cryptocurrency currently operates under different rules, but consult a tax professional as regulations continue to evolve.

5. Lock In Charitable Contributions

Donations to qualified charities must be completed by December 31 to count toward your 2025 deductions. Consider "bunching" multiple years of contributions into a single year to exceed the standard deduction threshold, or use a donor-advised fund for added flexibility.

Donating appreciated securities held for more than one year offers a double benefit: you avoid capital gains taxes on the appreciation while claiming a deduction for the full market value. Changes to charitable giving rules may make accelerating gifts into 2025 particularly advantageous.

6. Spend Down Your FSA Balance

Flexible spending accounts typically operate on a "use it or lose it" basis. Unless your employer offers a grace period or limited rollover, unspent funds disappear at year-end. Review your balance now and schedule any eligible medical expenses, prescription refills, or health-related purchases before the deadline.

7. Fund Education Savings Accounts

Contributions to 529 education savings plans made by December 31 may qualify for state income tax deductions or credits, depending on your state. You might also consider prepaying spring semester tuition before year-end to maximize education tax credits like the American Opportunity Tax Credit.

Planning a substantial gift? You can "superfund" a 529 by contributing up to five years of the annual gift tax exclusion at once—$95,000 individually or $190,000 for married couples splitting gifts—without triggering gift tax. Just remember to file IRS Form 709 to elect this treatment.

8. Make Strategic Gifts

The annual gift tax exclusion allows you to give up to $19,000 per recipient in 2025 without any gift tax implications. Married couples can double this to $38,000 per recipient through gift-splitting. Beyond tax benefits, strategic gifting can reduce your taxable estate while providing meaningful support to family members for education, housing, or other goals.

9. Accelerate Deductible Expenses

If you're close to the medical expense deduction threshold (7.5% of adjusted gross income), consider scheduling and paying for medical treatments, dental work, or prescription costs before December 31.

Other itemizable expenses may also benefit from acceleration. Making your January mortgage payment in December, for example, allows you to include that interest on your 2025 return—just verify with your lender that the payment will be credited in 2025 and confirm the amount appears on your Form 1098.

10. Consider Deferring Income

Self-employed individuals and freelancers may benefit from delaying invoices or billing until January, shifting that income into the next tax year. This approach can help you stay in a lower tax bracket for 2025. However, income timing strategies depend heavily on your individual circumstances—consult a tax professional to ensure this aligns with your overall financial plan.

Final Thoughts

Even if you miss a deadline, opportunities often remain in the new year. But taking action now puts you in the strongest position to reduce your tax liability and start 2026 on solid financial footing.

Tax planning is inherently personal. Consider consulting a financial advisor or tax professional to tailor these strategies to your unique situation and ensure you're making the most of every opportunity.