Year-End Tax Planning Strategies

The year’s second half is the time to reevaluate how your tax strategy supports your goals. Acting now, not deep into November or December, gives you the runway to reduce liabilities, optimize deductions, and manage investment gains.

While the strategies discussed are general in nature, please consult with your service team to check that they’re right for you.

1. Deductions and credits

Charitable Contributions

Donate long‑term appreciated assets – such as stock or mutual funds – directly to a public charity to avoid capital gains tax and deduct the security’s fair market value. AGI limits may impact your eligibility.

A donor-advised fund (DAF) provides an immediate tax deduction in the contribution year, even if grants to nonprofits are distributed in later years. Then there is the long play. Contributions can also be invested and grow tax-free, making DAFs a strategic option during high-income years or when planning for long-term giving. (NOTE: DAFs are subject to specific IRS rules and may not be appropriate in all cases.)

For individuals subject to Required Minimum Distributions (RMDs), donating directly from your IRA to a qualified charity fulfills your RMD and excludes the amount from taxable income.

Standard vs. itemized deductions

If your itemized deductions are close to the standard deduction, “bunch” deductible expenses into one year. This can include prepaying state taxes, accelerating mortgage points, or concentrating charitable contributions.

Home improvement credits

Certain energy-efficient home improvements qualify for federal tax credits. Check for applicable upgrades and their eligibility.

2. Investment gains

A strong year in investments can drive up your tax liability, but following the strategies below can reduce its impact.

• Tax-loss harvesting: You may offset realized gains by selling underperforming investments. For example, offset a $50,000 gain with a $20,000 loss, lowering your taxable gain to $30,000. If losses exceed gains, apply up to $3,000 against other income, with additional losses carried forward.
• Rebalancing for Tax Efficiency: Consider rebalancing your portfolio to avoid triggering year-end capital gains distributions from actively managed funds. Redirect funds into tax-efficient investments, such as index funds or ETFs, to reduce future tax liabilities.
• Like-Kind Real Estate Exchanges: For substantial gains from stock or property sales, consider a 1031 exchange to defer taxes by reinvesting in another like-kind property or a passive investment. (NOTE: 1031 exchanges are subject to strict IRS rules and deadlines.)
• Tax-Exempt Investments: Municipal bonds offer tax-free income, making them an attractive option for those in higher tax brackets, especially if you reside in the bond’s issuing state.

3. Tax-deferred and tax-advantaged accounts

Contributing to tax-advantaged accounts can reduce your current tax bill while securing long-term financial growth.

• Health Savings Account (HSA): HSAs offer a triple tax advantage: pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. While contributions can be made until April 15, contributing via payroll maximizes your benefits for the current year. (NOTE: HSAs are only available to those with high-deductible health plans (HDHPs).
• 401(k) and IRA Contributions: You may contribute the maximum allowed to your 401(k) by December 31 to reduce taxable income. IRA contributions can be made until tax filing, typically April 15 of the following year.
• Education Savings Accounts (529s): You may contribute to 529 plans to grow savings tax-free and withdraw tax-free for education expenses. Many states also offer tax deductions for 529 contributions, making them an excellent strategy for long-term education savings and reducing state tax burdens.

4. Deferred income

Deferring income—such as year-end bonuses or deferred compensation—can reduce your tax liability, especially if you expect a lower tax bracket in the following year.

• Deferring Year-End Bonuses: If you expect to have less taxable income next year (for example, because you plan on retiring), consider asking your employer to pay the bonus into the next year so you’ll pay a lower tax rate.
• Using Deferred Compensation Plans: High earners may benefit from deferring income through employer-sponsored deferred compensation plans, reducing current taxable income while allowing the deferred amount to grow tax-deferred. However, these plans often have risks, such as potential forfeiture if the employer faces financial difficulties.

5. Withholdings and estimated tax payments

Before year-end, review your withholdings and estimated tax payments to avoid penalties and ensure a smooth filing process.

• Running a year-end tax projection: Estimate your total tax liability to identify any shortfalls in withholding or estimated payments. If you’ve had a financial windfall, like a stock sale or bonus, timing matters to avoid penalties.
• Adjust Withholdings Strategically: If you expect to owe more taxes, consider increasing withholding on year-end paychecks or bonuses. Unlike estimated payments, withholding counts as if you paid it evenly throughout the year, helping reduce or eliminate penalties.

6. Estate and gift tax exclusions

Year-end is a great time to use federal gift and estate tax exclusions, helping you reduce your taxable estate and efficiently transfer wealth.

• Annual gift exclusion: In 2025, you can gift up to $19,000 per recipient without triggering federal gift taxes. Married couples can combine exclusions for up to $38,000 per recipient. Be sure to make these gifts by December 31.
• Trusts and estate planning: If your wealth has grown or you’ve received an inheritance, consider reviewing and updating your estate plan. Modifying trusts and updating beneficiary designations can help secure tax-efficient wealth transfer and preserve your legacy.

By making strategic decisions before December 31 — or April 15 for certain contributions — you can align your finances with your long-term goals, optimize tax efficiency, and enter the new year on firmer financial footing.

This content is for informational and educational purposes only and should not be construed as individualized advice or a recommendation for any specific product, strategy, or course of action. Brighton Jones, its affiliates, and employees do not provide personalized investment, financial, tax, or legal advice through this communication. This material is not intended to, and does not, create a fiduciary relationship under ERISA or any other applicable law. For individualized advice tailored to your specific circumstances, please consult with your adviser.