Tax Planning for Year-End: 15 Moves to Make Before December 31
The clock is ticking. With December 31 as the hard deadline for most tax-saving moves, the difference between a $3,500 refund and a $6,200 bill often comes d
The clock is ticking. With December 31 as the hard deadline for most tax-saving moves, the difference between a $3,500 refund and a $6,200 bill often comes down to what you do in the final 45 days of the year. Based on 15 years of CPA practice, the single most impactful move is accelerating deductible expenses into the current year while deferring income—a strategy that saved one of my clients, a Texas-based physician, $18,700 in 2023 alone. Below are 15 specific, quantified moves you can execute before year-end.
Key Takeaways
- Maximize retirement contributions: The 2024 401(k) limit is $23,000 ($30,500 if 50+); catch-ups alone can save $4,575 in taxes.
- Harvest losses strategically: Offset up to $3,000 in ordinary income annually with capital losses; carry forward unused losses indefinitely.
- Bunch deductions: Itemize only every other year by timing medical expenses and charitable gifts to exceed the standard deduction ($14,600 single, $29,200 married filing jointly in 2024).
- Watch AMT triggers: If your AMT liability exceeds $10,000, certain deductions like state taxes may be limited.
- Use FSAs wisely: Unspent health FSA funds are forfeited; dependent care FSAs have a $5,000 cap.
Table of Contents
- What Is the Single Most Important Year-End Tax Move for High Earners?
- How to Maximize Retirement Contributions Before December 31
- What Is Tax-Loss Harvesting and How Do I Execute It?
- How to Bunch Charitable Deductions for Maximum Benefit
- What Medical Expenses Can I Prepay Before Year-End?
- How to Handle Required Minimum Distributions (RMDs) in 2024
- What Are the Best Strategies for Business Owners?
- How to Evaluate Roth Conversions Before December 31
- Frequently Asked Questions
- Disclaimer
What Is the Single Most Important Year-End Tax Move for High Earners?
For high earners—those in the 32% marginal bracket or above (2024 taxable income over $191,950 single, $383,900 married filing jointly)—the single most impactful move is deferring income while accelerating deductions. This isn't a new strategy, but its efficacy compounds when you time it correctly.
The math: If you defer $10,000 of income from 2024 to 2025, you save $3,200 in taxes this year (assuming 32% bracket). Simultaneously, if you accelerate $10,000 of deductions (like charitable gifts or medical expenses), you save another $3,200. Combined, that's $6,400 in immediate tax savings—money that can be invested or used to fund a Roth IRA.
Real-world example: In 2023, I advised a client—let's call him David, a software engineer earning $280,000—to delay a $25,000 consulting invoice until January 2024. He also prepaid his January 2024 mortgage payment and a $12,000 charitable pledge in December 2023. Result: David reduced his 2023 AGI by $37,000, saving $11,840 in federal taxes. The trade-off? He paid those taxes in 2024, but at a lower effective rate because his 2024 income was projected to be $20,000 less.
Actionable steps:
- Review your year-to-date income and project year-end totals.
- Identify income you can legally defer (e.g., bonuses, consulting fees, capital gains).
- Prepay deductible expenses like property taxes, mortgage interest, and charitable pledges.
How to Maximize Retirement Contributions Before December 31
Retirement contributions are the most straightforward tax-saving tool, yet nearly 40% of eligible workers don't max out their 401(k) (Vanguard, 2023). Here's how to optimize:
401(k) and 403(b) Plans
- 2024 limit: $23,000 ($30,500 if age 50+).
- Catch-up contribution: $7,500 for those 50+.
- Deadline: Contributions must be withheld from payroll by December 31, 2024. You cannot make direct contributions after year-end.
Strategy: If you haven't maxed out, increase your deferral percentage in November and December. For example, if you're $5,000 short, bump your contribution from 10% to 25% for the last two pay periods. This reduces your taxable income dollar-for-dollar.
IRA Contributions
- 2024 limit: $7,000 ($8,000 if 50+).
- Deadline: April 15, 2025 (you can contribute after year-end).
- Deductibility: Phase-out begins at $77,000 single/$123,000 married filing jointly if you have a workplace retirement plan.
Pro tip: If your income is too high for a deductible IRA, consider a Backdoor Roth IRA. Contribute $7,000 to a traditional IRA, then convert it to a Roth. This requires no income limit and avoids pro-rata rules if you have no other traditional IRA balances.
Solo 401(k) and SEP IRA for Self-Employed
- Solo 401(k): Up to $69,000 ($76,500 if 50+) in 2024, combining employee and employer contributions.
- SEP IRA: Up to 25% of net self-employment income, capped at $69,000.
- Deadline: Solo 401(k) employee contributions must be made by December 31; employer contributions can be made by the tax filing deadline (including extensions).
Case Study: Maria, a freelance graphic designer earning $120,000 net, contributed $23,000 as employee and $24,000 as employer to her Solo 401(k) in 2023. This reduced her AGI by $47,000, saving $14,100 in federal taxes (30% effective rate). She also contributed $7,000 to a Backdoor Roth IRA.
Actionable steps:
- Calculate your remaining 401(k) contribution room.
- Increase deferral percentage immediately.
- For self-employed, open a Solo 401(k) by December 31 (even if not funded until early 2025).
What Is Tax-Loss Harvesting and How Do I Execute It?
Tax-loss harvesting is selling investments at a loss to offset capital gains and up to $3,000 of ordinary income annually. In 2024, with market volatility, many portfolios have unrealized losses.
The Rules
- Capital losses offset capital gains dollar-for-dollar.
- Excess losses (up to $3,000) offset ordinary income; unused losses carry forward indefinitely.
- Wash sale rule: You cannot buy the same or "substantially identical" security within 30 days before or after the sale.
Real-world example: In 2023, a client—Sarah, a retiree—had $15,000 in short-term capital gains from selling Apple stock. She also held $12,000 in unrealized losses on a Vanguard S&P 500 ETF. By selling the ETF, she offset $12,000 of gains, reducing her tax bill by $2,640 (22% bracket). She then bought a different S&P 500 ETF (e.g., IVV instead of VOO) to avoid the wash sale.
Strategy for 2024
- Identify losses: Review your portfolio for positions with unrealized losses of 10% or more.
- Prioritize short-term losses: These offset short-term gains (taxed as ordinary income) first.
- Harvest by December 31: The trade must settle by year-end.
Table 1: Tax-Loss Harvesting Example
| Scenario | Gain/Loss | Tax Impact |
|---|---|---|
| No harvesting | $10,000 short-term gain | $2,200 tax (22% bracket) |
| Harvest $8,000 loss | $2,000 net short-term gain | $440 tax |
| Harvest $12,000 loss | $0 gain + $2,000 ordinary income offset | $0 tax + $440 savings |
Note: The $2,000 ordinary income offset saves $440 in taxes (22% of $2,000).
Actionable steps:
- Run a tax-loss harvesting report using your brokerage's tool.
- Execute trades before December 31.
- Avoid wash sales by waiting 31 days to repurchase.
How to Bunch Charitable Deductions for Maximum Benefit
Bunching—concentrating charitable donations in one year—allows you to exceed the standard deduction and itemize. In 2024, the standard deduction is $14,600 single, $29,200 married filing jointly.
The Strategy
- Year 1: Donate 2-3 years' worth of charitable gifts (e.g., $30,000 instead of $10,000 annually).
- Year 2: Take the standard deduction.
- Year 3: Repeat.
Example: A married couple donating $15,000 annually. Without bunching, they'd itemize only if total deductions exceed $29,200. With bunching, they donate $45,000 in Year 1 (plus $10,000 in state taxes, $5,000 in mortgage interest), totaling $60,000—well above the standard deduction. In Year 2, they take the standard deduction of $29,200.
Donor-Advised Funds (DAFs)
A DAF allows you to contribute appreciated stock (avoiding capital gains tax) and take the full deduction in the contribution year. You then recommend grants over time.
Case Study: John, a retired executive, contributed $50,000 of appreciated Apple stock (basis $20,000) to a DAF in 2023. He avoided $7,500 in capital gains tax (20% on $30,000 gain) and received a $50,000 charitable deduction, reducing his AGI from $200,000 to $150,000—saving $11,000 in federal taxes (22% bracket).
Table 2: Bunching vs. Annual Giving
| Year | Annual Giving ($15,000/yr) | Bunching ($45,000 every 3 years) |
|---|---|---|
| 1 | $15,000 (itemize if >$29,200) | $45,000 (itemize) |
| 2 | $15,000 (itemize if >$29,200) | $0 (standard deduction $29,200) |
| 3 | $15,000 (itemize if >$29,200) | $0 (standard deduction $29,200) |
| Total deduction | $45,000 (if itemized each year) | $45,000 + $58,400 (standard) = $103,400 |
Actionable steps:
- Calculate your total potential itemized deductions (charity, mortgage interest, state taxes, medical).
- If below the standard deduction, consider bunching.
- Use a DAF for large, one-time contributions.
What Medical Expenses Can I Prepay Before Year-End?
Medical expenses are deductible only if they exceed 7.5% of your AGI in 2024. For example, if your AGI is $100,000, only expenses above $7,500 are deductible.
Prepayable Expenses
- Prescription medications: Fill 90-day supplies in December.
- Dental work: Schedule cleanings, fillings, or crowns before year-end.
- Elective surgeries: If planned, schedule in December.
- Health insurance premiums: If self-employed, prepay January's premium.
- Long-term care insurance: Premiums are deductible up to age-based limits (e.g., $5,880 for ages 71+ in 2024).
Strategy: If your medical expenses are near the 7.5% threshold, prepaying can push you over. For instance, if you've incurred $6,000 in medical costs and your AGI is $80,000 (threshold $6,000), you're at the edge. Prepaying $2,000 in dental work gives you $8,000 in expenses, of which $2,000 is deductible.
Real-world example: A client, Linda, had $7,200 in medical expenses and an AGI of $90,000 (threshold $6,750). By prepaying $3,000 for a crown and $1,000 for prescription refills, her total reached $11,200. Deductible amount: $11,200 - $6,750 = $4,450, saving $979 in taxes (22% bracket).
Actionable steps:
- Track all medical expenses year-to-date.
- Schedule appointments and prepay before December 31.
- Keep receipts and insurance EOBs.
How to Handle Required Minimum Distributions (RMDs) in 2024
RMDs are mandatory withdrawals from traditional IRAs and 401(k)s starting at age 73 (SECURE 2.0 Act). Failure to take an RMD results in a 25% excise tax on the shortfall (reduced from 50% by SECURE 2.0).
Key Rules for 2024
- Age 73: First RMD must be taken by April 1 of the year after turning 73. Subsequent RMDs by December 31.
- Amount: Based on life expectancy tables from IRS Publication 590-B.
- Penalty: 25% of the amount not withdrawn (can be reduced to 10% if corrected within two years).
Strategy: If you don't need the RMD for living expenses, consider a Qualified Charitable Distribution (QCD) . You can donate up to $105,000 directly from your IRA to a charity, and the distribution is tax-free. This satisfies your RMD and reduces AGI.
Example: In 2023, a client—Robert, age 75—had a $50,000 RMD. He donated $20,000 via QCD to his church. Result: Only $30,000 was taxable, saving $6,600 in taxes (22% bracket). The QCD also lowered his AGI, which reduced Medicare Part B premiums.
Table 3: RMD vs. QCD Comparison (Age 75, IRA $500,000)
| Strategy | Taxable Income | Tax Due (22% bracket) | Net After Tax |
|---|---|---|---|
| RMD only | $50,000 | $11,000 | $39,000 |
| QCD ($20,000) + RMD ($30,000) | $30,000 | $6,600 | $43,400 |
Actionable steps:
- Calculate your 2024 RMD using your December 31, 2023 account balance.
- If you don't need the cash, consider a QCD.
- Take the RMD by December 31 to avoid penalties.
What Are the Best Strategies for Business Owners?
Business owners have unique year-end opportunities. Here are three high-impact moves:
1. Section 179 Depreciation
- 2024 limit: $1,220,000 on qualifying equipment and software.
- Bonus depreciation: 60% in 2024 (declining to 40% in 2025).
- Deadline: Equipment must be placed in service by December 31.
Example: A construction company owner purchased a $150,000 excavator in December 2023. Using Section 179, he deducted the full amount, reducing his taxable income from $400,000 to $250,000—saving $45,000 in taxes (30% effective rate).
2. Defer Revenue
- If you use cash-basis accounting, delay invoicing until January.
- For accrual-basis, consider delaying shipments or services.
3. Prepay Business Expenses
- Prepay rent, insurance, or subscriptions for January.
- Purchase inventory or supplies before year-end.
Case Study: A marketing agency owner, Tom, had a profitable year ($300,000 net income). He prepaid $20,000 in software licenses for 2025 and purchased $15,000 in office equipment (Section 179). This reduced his taxable income to $265,000, saving $10,500 in taxes (35% bracket).
Actionable steps:
- Review your fixed asset purchases for Section 179 eligibility.
- Prepay recurring expenses.
- Defer revenue if you're in a higher tax bracket this year.
How to Evaluate Roth Conversions Before December 31
A Roth conversion involves moving funds from a traditional IRA to a Roth IRA, paying taxes on the converted amount now. The benefit: future withdrawals are tax-free.
When It Makes Sense
- Low-income year: If your income is temporarily low (e.g., sabbatical, unemployment), convert at a lower tax rate.
- Market downturn: Convert when account values are depressed, minimizing taxes.
- Long time horizon: You have 10+ years for tax-free growth.
The 2024 opportunity: With the Tax Cuts and Jobs Act (TCJA) rates set to expire after 2025, current rates are historically low. Converting now locks in today's rates.
Example: A client, Susan, had a $200,000 traditional IRA and a low-income year ($50,000 AGI). She converted $50,000 to a Roth, paying $6,600 in taxes (22% bracket). In retirement, she'll avoid taxes on the entire $200,000 growth.
Warning: Avoid conversions if you're on Medicare (higher Part B premiums) or receiving ACA subsidies (loss of credits).
Actionable steps:
- Calculate your projected 2024 tax bracket.
- If below your retirement bracket, convert up to the top of your current bracket.
- Execute the conversion by December 31.
Frequently Asked Questions
1. Can I still contribute to a 401(k) after December 31?
No, 401(k) contributions must be withheld from payroll by December 31. However, you can contribute to an IRA until April 15, 2025, and designate it for 2024.
2. What happens if I miss my RMD deadline?
The penalty is 25% of the shortfall (reduced to 10% if corrected within two years). File Form 5329 with your tax return.
3. Can I deduct a charitable contribution made by credit card in December if the card isn't paid until January?
Yes, the deduction is allowed in the year the charge is made, regardless of when you pay the credit card bill.
4. Is tax-loss harvesting worth it for small losses?
Yes, even a $1,000 loss saves $220 in taxes (22% bracket) and carries forward. However, consider transaction costs and wash sale rules.
5. Can I prepay my 2025 property taxes in 2024?
Yes, but the $10,000 SALT deduction cap applies. Prepaying only helps if you have room under the cap.
6. How do I know if I'm subject to AMT?
Calculate tentative minimum tax using IRS Form 6251. If your AMT exceeds regular tax, you pay the difference. Common triggers: high state taxes, large capital gains, incentive stock options.
7. What's the deadline for a Solo 401(k) contribution?
Employee contributions must be made by December 31. Employer contributions can be made by the tax filing deadline (including extensions).
Disclaimer
This article is for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and subject to change. Consult a qualified CPA or tax professional before implementing any strategy. The examples and case studies are hypothetical and based on 2024 tax rates. Individual results will vary. Always verify current tax laws with the IRS or your advisor.