Year End Tax Planning for Individuals

Lesson 1

You Have Two Deadlines, Not One

Almost every article about year end tax planning treats December 31 as the finish line. For individuals that is only half right, and the half that is wrong costs people money in both directions. Some moves genuinely end at midnight. Others stay open until you file. Knowing which is which tells you what to handle in December and what you can stop worrying about.

These generally close on December 31:

• Selling investments to realize a gain or a loss
• Taking a required distribution from a retirement account, if one applies to you
• Roth conversions
• Charitable contributions
• Qualified charitable distributions from an IRA
• Gifts to family under the annual exclusion
• Spending down a health flexible spending account, depending on your plan
• Contributions to a 529 plan, if you are claiming a state deduction for them
• Buying a rental property and placing it in service, if you want the depreciation to start this year
• Your marital status, which determines which filing statuses are available to you

These generally stay open past year end:

• Traditional and Roth IRA contributions, which run to the filing deadline in April
• Health savings account contributions, which run to the same deadline
• If you have self employment income, SEP contributions, which generally remain open through the filing deadline including extensions. Solo 401(k) deadlines depend on the contribution type and whether the plan already exists, so some of those decisions may need to be made earlier
• The cost segregation study itself on a property you placed in service this year, along with the depreciation elections that go with it
• The decision to itemize or take the standard deduction, which is made on the return itself
• For married couples, the choice between filing jointly and filing separately, also made on the return

Not all April deadlines are the same April deadline. IRA and health savings account contributions are due by the filing deadline without extensions, so extending your return does not extend them. SEP contributions generally run to the filing deadline including extensions, which can mean months of additional room. Solo 401(k) election and establishment deadlines can apply earlier even where funding is permitted later, and a SIMPLE plan generally has to exist months before year end, so it belongs on the closed list. If you have employees, plan choices carry requirements well beyond any deadline, and our companion course on year end planning for closely held businesses covers that side.

So a December scramble should focus on the first list. The second can wait, and often should, because by spring you will know your actual income rather than an estimate.

Two items need more than a line.

Rental property, and what placing it in service means. The wording matters here, and it is where people lose a year. A rental is generally placed in service when it is ready and available to rent, not when a tenant signs or when money first arrives. A house you closed on in November that is still mid renovation on December 31 has not been placed in service, and the depreciation clock has not started. A finished unit that was listed and available in December generally has, even if it sat empty.

Notice that the cost segregation study sits on the other list. That pairing is the thing to remember: the placed in service date is a hard December 31 deadline, the study itself is not. A property finished and available to rent in December can have its study done the following spring, reported on that year’s return. So what you hurry in December is getting the property genuinely finished, legally occupiable, and ready and available for rent, not the study itself.

Older rentals that were never studied are not a closed door either. In many cases missed depreciation can be caught up in the current year through an accounting method change rather than by amending each prior return. Our courses on cost segregation and on material participation cover what a study finds and whether you can actually use the result.

Filing status splits the same way. Your marital status on December 31 governs the entire year. Marry on December 30 and you are married for all twelve months; finalize a divorce on December 30 and you are unmarried for all twelve. Nothing about the other 364 days changes that, and the effect can run in either direction depending on the two incomes involved, which is why some couples have real reasons to move a date across the line.

What stays open is the choice that follows. Joint or separate is decided on the return, so that comparison can wait until the numbers are in front of you.

There is a third category, and it is the one this course spends the most time on: things that are already decided by December in ways people do not realize. A loss you sold in November may not be deductible because of something you bought in early December. A Roth conversion cannot be undone once made. Those are covered as they come up.

Lesson 2

Investment Moves and the Trap Underneath Them

If you hold investments in a regular taxable account, this is where most December planning happens. Gains and losses inside a retirement account are not taxed as they occur, so there is nothing to harvest there. But do not tune them out entirely: as you will see below, what you buy inside an IRA can affect a loss you took in a taxable account.

Harvesting losses. Selling an investment worth less than you paid produces a capital loss. It first offsets your capital gains for the year. If losses exceed gains, a limited amount offsets ordinary income such as wages, and the rest carries forward indefinitely. That carryforward is genuinely useful, so a large loss year is not wasted even if you cannot use all of it now.

The trap. You cannot sell an investment at a loss and buy the same thing right back. If you acquire a substantially identical investment within 30 days before or 30 days after the sale, the loss is disallowed for now. Instead of a deduction, the disallowed amount gets added to the cost of the new position.

Three things about this rule catch people:

• The window runs both directions. Thirty days before the sale as well as after. A purchase you made in late November can disallow a loss you take in early December.
• It reaches across your accounts. A repurchase in a different brokerage account, or in your spouse’s account, can trigger it. A repurchase inside your IRA is worse: the loss is disallowed and, unlike an ordinary wash sale, it is not added back to anything you can eventually use.
• Automatic reinvestment counts. Dividend reinvestment quietly buys shares on a schedule. If that happens inside the window, it can disallow part of your loss without anyone deciding anything.

Crypto sits outside this rule, for now. The wash sale rule covers stock and securities, and the IRS treats cryptocurrency as property. So as things stand you can sell a coin at a loss, buy it back the same day, and still claim the loss. That is one of the few places digital assets get better treatment than traditional investments.

Four things to keep straight before relying on it:

• This is current law, not settled law. Extending the rule to digital assets has been proposed repeatedly. Nothing has passed so far, but the direction of travel is clear enough that we would not build a multi year strategy around the gap staying open. Confirm the position for the specific year you are filing.
• Crypto ETFs and crypto related stocks are securities. If your exposure is through a fund or a public company rather than the coin itself, you are on the securities side and the 30 day rule applies normally. People hold both and forget the boundary.
• The sale still has to be real. Not applying the wash sale rule is not the same as anything goes. There has to be an actual disposition, priced at market, with records behind it.
• Reporting has caught up. Digital asset broker reporting is now in place, so these transactions are visible in a way they were not a few years ago. Whatever you claim should match what gets reported.

Timing gains. The reverse move is worth knowing too. If your income is unusually low this year, realizing gains deliberately can be a good idea rather than a bad one, because long term capital gains are taxed in brackets and the lowest bracket is zero for taxpayers under an income threshold. A year between jobs, a first year of retirement before distributions begin, or a year with a large business loss can all be years where taking gains costs little or nothing.

One more layer to be aware of when timing gains: above certain income levels an additional tax applies to investment income, on top of the capital gain rate itself. It is worth knowing whether a planned sale pushes you over that line, because the marginal cost of the last dollar of gain can be higher than the headline rate suggests.

That is the general shape of good planning here: it is not always about paying less this year. It is about paying at the lowest rate across years.

Lesson 3

Retirement Accounts and the Two Different Clocks

Retirement accounts have both kinds of deadlines, which is exactly why they get confused.

Contributions run past year end. You generally have until the filing deadline in April to make a traditional or Roth IRA contribution for the prior year. There is no extension of that date even if you extend your return. This is genuinely good news: you can make the contribution once you know your actual income. That matters because income and workplace retirement plan coverage can both affect whether a traditional IRA contribution is deductible, while income affects whether a Roth contribution can be made directly.

Required distributions do not. Traditional IRAs generally become subject to required distributions once you reach the applicable age, and the annual deadline is December 31. Workplace retirement plans can follow different starting rules, particularly if you are still employed, so do not assume an old 401(k) and a current one behave the same way. For an IRA, the first required distribution can generally be delayed into the following year, though doing so means taking two distributions in that year, which can push you into a higher bracket. That is a decision to make deliberately rather than by drift.

Roth conversions close on December 31, and they do not come back. Converting money from a traditional account to a Roth means paying tax now so that future growth comes out tax free. It can be an excellent move in a low income year. The important thing to understand is that it is permanent. The ability to reverse a conversion was eliminated years ago, so if you convert in December and your income turns out higher than you projected, you are stuck with the result.

That argues for doing conversions with a real income estimate in hand, late enough in the year to know where you stand but early enough to execute. Late November into early December is the usual window.

One practical point that changes the math. Paying the tax on a conversion out of separate savings rather than out of the converted amount leaves more inside the Roth to grow, and it avoids shrinking the very balance you converted in order to grow tax free. If the only way to pay the tax is from the account itself, that is worth weighing carefully, particularly if you are under the age where withdrawals are penalty free.

Lesson 4

Charitable Giving, Done Deliberately

Charitable giving is where timing produces the largest difference between people who plan and people who do not, and for 2026 there are two structural facts rather than one.

The first is familiar: giving only reduces your taxes through itemizing if your total itemized deductions exceed the standard deduction. For many households they do not, so a generous gift can produce no itemized benefit at all.

That calculation moved in 2026, and in your favor. The cap on deducting state and local taxes rose substantially, to roughly $40,000, subject to a phaseout at higher incomes and scheduled to drop back later this decade unless extended. For anyone paying meaningful state income or property tax, that single change can push total itemized deductions past the standard deduction on its own. So a household that has taken the standard deduction for years and assumed charitable giving does nothing for them should actually rerun that comparison before concluding anything.

The second is new for 2026. Even if you do itemize, the first slice of your giving each year no longer counts: itemized charitable deductions are reduced by a small percentage of your income before the deduction applies to the rest. A modest, spread out giving habit therefore loses a bit of its benefit every single year, which is exactly what bunching is built to fix.

There is also a new, separate benefit for people who do not itemize at all. A limited deduction for cash gifts is now available even if you take the standard deduction, up to a few thousand dollars depending on your filing status. It will not replace real itemized giving for a large donor, but it means a household that gives modestly and takes the standard deduction is no longer getting nothing.

Two limits on that one. It applies to cash only, so donating appreciated shares does not qualify for it. And gifts to a donor advised fund or most private foundations are excluded. That matters for the bunching strategy below, because the fund route and this deduction do not combine.

Three approaches address the itemizing side of this, plus the new nonitemizer allowance.

• Bunching. Concentrate two or three years of giving into one. You itemize in the year you give and take the standard deduction in the others. The 2026 floor makes this more valuable than before, not less, because you absorb the floor once against a large gift rather than every year against a small one. The charity can still receive a steady stream if you route the gift through a fund that distributes over time.
• If you are in the top bracket, the value of the deduction itself is now capped. Beginning in 2026, itemized deductions for taxpayers in the highest bracket produce benefit at a rate slightly below their actual marginal rate. It is a modest haircut rather than a disallowance, but for a large gift it is real money, and it is one more reason for high earners to model timing across years rather than giving on autopilot.
• Giving appreciated investments instead of cash. If you have held an investment more than a year and it has gained value, donating the shares directly to a public charity generally lets you deduct the current value while never paying tax on the gain. Selling first and donating the cash produces a worse result, because you pay tax on the gain. Different percentage of income limits apply to appreciated property than to cash, which is worth checking if the gift is large relative to your income.
• Qualified charitable distributions, if you are old enough. You can direct money straight from an IRA to a charity. The amount is excluded from income rather than deducted, so it sidesteps both the standard deduction question and the new floor, and it can count toward a required distribution. The transfer has to go directly from the account to the charity; taking the money out and writing a check does not qualify.
• The nonitemizer deduction, if bunching is not realistic for you. Not everyone can concentrate several years of giving into one. If you expect to take the standard deduction every year regardless, the new limited cash deduction is worth claiming on its own even though it will not replicate the benefit of itemizing.

One procedural thing that ruins otherwise good gifts. A contribution of $250 or more requires a written acknowledgment from the charity, and you must have it in hand by the time you file. This is a documentation requirement rather than a judgment call, and it is not something that can be fixed later if the organization has stopped responding. Collect receipts as you give.

Lesson 5

Health Accounts, Education, and Family Gifts

This lesson is a set of smaller items that share one feature: several of them expire completely at year end rather than carrying forward.

Flexible spending accounts. Money in a health flexible spending account is generally forfeited if unspent. Some plans allow a short grace period into the new year, and some allow a limited carryover, but plans differ and many allow neither. This is worth checking in November, when there is still time to use the money, rather than in January when there is not.

Health savings accounts work the opposite way. If you are eligible, contributions generally run to the filing deadline in April, balances carry forward indefinitely, and there is no use it or lose it feature. Eligibility usually starts with qualifying health coverage, but it does not end there: other health coverage, Medicare enrollment, and being eligible to be claimed as someone’s dependent can each affect whether you are allowed to contribute at all. The account is one of the few that offers a deduction going in and tax free withdrawals for qualifying expenses coming out. If you are eligible and have not funded it, that is a spring decision rather than a December emergency.

529 education accounts. There is no federal deduction for these contributions, but many states offer a deduction or credit for residents. Most tie that benefit to the calendar year, so the contribution needs to happen by December 31 to count. A handful of states are more generous and allow contributions up to the filing deadline for the prior year, so it is worth checking your own state rather than assuming either way. And if you live in a state with no individual income tax, such as Tennessee, there is no state deduction to chase, which takes the December pressure off entirely.

Gifts to family. You can give a certain amount per person per year without using any of your lifetime exemption. The important feature is that it does not carry over. An amount you do not give this year is simply gone as an opportunity; you cannot double it next year and catch up. For families doing multi year gifting, that makes the December deadline real. The annual amount is adjusted for inflation, so confirm the current figure.

One caveat before assuming no paperwork is involved: staying inside the annual amount usually means no gift tax return. But if spouses want to treat a gift from one of them as coming half from each, that election is made on a return, so one gets filed even though no tax is owed.

These two topics connect. A 529 contribution is itself a gift to the beneficiary, using the same annual exclusion as cash handed to that person. A special election also lets you front load several years of exclusions into one contribution. That is a useful tool for grandparents funding education, and it is a December decision with a return filing attached, so raise it before the money moves.

Lesson 6

Withholding, Penalties, and What Cannot Be Fixed

The one December move most people do not know about. If you are going to owe more than expected, how you pay it matters. Estimated payments are credited when you make them, so a large payment in January does not fix a shortfall from April. Withholding is treated differently: amounts withheld during the year are generally treated as paid evenly across it, regardless of when they were actually withheld.

So increasing withholding late in the year, from a paycheck or a retirement distribution, can cure an underpayment that arose months earlier in a way that writing a check in December cannot. If you had a big capital gain in the spring and have been underpaid ever since, this is the tool.

Safe harbors. You can generally avoid an underpayment penalty by hitting either of two targets: 90% of what you actually owe this year, or 100% of what you owed last year. You only have to clear one.

The prior year target is the useful one when income is rising, because it is a number you already know. Pay it in four timely installments and you cannot be penalized, no matter how much larger this year turns out to be.

One detail decides which version of that target applies, and it is easy to get backwards. The required percentage of last year’s tax rises to 110% if last year’s income was above a threshold. It is the prior year that determines this, not the current one. If last year was modest, 100% of last year’s tax protects you even if this year is enormous. If last year was the big one, you need 110%, and paying exactly 100% leaves you short.

Two more things worth knowing. There is a small dollar threshold below which no penalty applies at all, so a minor shortfall may not matter. And if your income arrived unevenly, such as a large gain late in the year, there is a method that calculates the penalty based on when you actually earned the money rather than assuming it came in evenly. That can reduce or eliminate a penalty that looks unavoidable on the standard calculation, and it is worth asking about rather than simply paying.

What cannot be fixed after December 31:

• A missed required distribution. The deadline itself cannot be undone, but take the distribution as soon as you realize. The penalty may be reduced or, in the right circumstances, waived entirely if the failure is corrected and the requirements for relief are met. This is worth raising quickly rather than quietly.
• A Roth conversion. Permanent once made.
• A wash sale already triggered. The purchase that disallowed the loss has already happened. What you can do is understand the effect and plan the next sale accordingly.
• Forfeited flexible spending funds. Gone once the plan year and any grace period close.
• An unused annual gift exclusion. No carryover.
• A joint return, once the deadline passes. The two directions are not symmetrical. A couple who filed separately can generally amend to a joint return well after the fact, within about three years of the original due date. Going the other way, from joint to separate, generally has to happen by the original due date, and an extension does not buy you more time for this one. A few narrow exceptions exist, including where a spouse died or a marriage was annulled. Worth knowing before you file, not after.
• A missing charitable acknowledgment. You can request it, but you must have it before filing, and organizations do not always cooperate on a timeline that suits you.

If you also own a business, several of these decisions interact with choices on the business return, particularly owner compensation, retirement plan selection, and the timing of business income. Our companion course on year end planning for closely held businesses covers that side, and the two are worth reading together if both apply to you.

Sources

Where This Comes From

The parenthetical references throughout point to published guidance available free from IRS.gov and eCFR.gov:

• Publication 17, Your Federal Income Tax. The general reference for individual returns.
• Publication 501, Dependents, Standard Deduction, and Filing Information. Filing status rules.
• Publication 550, Investment Income and Expenses. Capital gains and losses, and the wash sale rules.
• Publication 590-A and 590-B, Individual Retirement Arrangements. Contributions, distributions, conversions, and qualified charitable distributions.
• Public Law 119-21, sections 70424 to 70426, the 2026 charitable contribution changes.
• Publication 526, Charitable Contributions. Including substantiation requirements.
• Publication 505, Tax Withholding and Estimated Tax. Safe harbors and the withholding timing rule.
• Publication 969, Health Savings Accounts and Other Tax Favored Health Plans.
• Publication 560, Retirement Plans for Small Business. SEP, SIMPLE, and qualified plan deadlines for the self employed.
• Publication 559 and the Instructions for Form 709, for annual exclusion gifts.
• Revenue Ruling 2008-5, on wash sales involving an IRA.
• Notice 2014-21, treatment of virtual currency as property.