Preparing for Year-End: Smart Financial Moves to Make Now
Many people only think about their taxes in early spring when filing deadlines loom, but by that point, your options for meaningful financial adjustments are limited. Taking action before December 31 unlocks opportunities that could lower your tax bill and provide a clearer picture of your overall financial health. Whether you’ve experienced changes in employment, earned extra income from side projects, or simply want to avoid tax-related surprises, being proactive can make all the difference. Planning ahead now can help you reduce stress later and start the new year with clarity and confidence.
Review and Adjust Tax Withholdings
When you start a new job, earn extra income, or experience changes in your household, your tax withholdings can be thrown off balance. Failing to adjust can leave you facing an underpayment you never saw coming, or a large, unexpected bill. Taking stock of your current situation before the end of the year means you have time to refine the amount withheld per paycheck, so it better matches your real tax liability.
Assess Changes in Income or Employment
If you were promoted or changed jobs mid-year, there’s a chance you jumped into a new tax bracket or started earning side income from freelance work. Putting your updated numbers into resources like the IRS Withholding Estimator can quickly highlight any shortfalls or overpayments.
Adjust Estimated Tax Payments If Necessary
For anyone self-employed, earning freelance income, or receiving large investment or rental income, quarterly estimated taxes often come into play. It’s easy to overlook—a few invoices might arrive late or a client payment might be larger than anticipated, throwing off your quarterly projections. If you notice a discrepancy, adjusting estimated payments before the year ends could prevent penalties and maintain a manageable flow of cash.
Organize and Track Financial Records
Good record-keeping is key to lowering your tax bill and staying compliant. Set up a physical or digital folder for receipts, invoices, and tax forms as they come in. If you prefer digital, use apps to scan and organize documents. Keeping business and personal expenses separate will also make filing much easier.
Maximize Deductible Expenses
Deductions effectively lower your taxable income, and taking advantage of them often requires planning in advance. By reviewing your spending now, you can make strategic decisions about timing certain expenses to ensure you receive the greatest possible benefit.
Business Expenses
If you run a business or engage in freelance work, your deductible expenses might include office supplies, travel costs, or specialized equipment. Documenting and categorizing these costs can add up to sizable savings. If you know you’ll need certain assets or supplies early next year, consider purchasing them before December 31 so they count toward your current year’s deductions. Always keep detailed, dated receipts or invoices for the items you intend to deduct.
Charitable Donations
Donating to nonprofits is a great way to support causes you value while also potentially lowering your tax bill. If itemizing makes sense for your financial profile, be sure to make donations by December 31. Retain letters from the organizations or receipts, so you have proof of your charitable giving. This is especially relevant if you plan to exceed the standard deduction, making charitable contributions part of an effective year-end strategy.
Explore Available Tax Credits
Tax credits directly reduce what you owe, making them more valuable than deductions. Knowing which ones you qualify for—like the Child Tax Credit, Earned Income Credit, or education and energy-related credits—can lead to significant savings. Adjusting your actions based on eligibility can boost your refund or lower your bill.
Bolster Your Retirement Contributions
Contributions to retirement accounts accomplish two important goals: they build wealth for your future and can have an immediate positive impact on your taxes by lowering your current taxable income. Exploring ways to maximize contributions to your 401(k) or 403(b) can be a wise move. If you haven’t yet reached your plan’s annual limit, consider increasing your deferral percentage in the final months of the year.
For those contributing to a traditional IRA, depositing as much as you can up to the annual limit allows you to benefit from potential tax deductions. And if you’re over 50, you can take advantage of catch-up contributions, giving yourself a bit more breathing room to save late in the year.
Evaluate Your Investment Portfolio
At times, market conditions, shifting risk tolerance, or long-term goals dictate that it’s time to rebalance your investments. Selling an underperforming stock or mutual fund can realize a loss to offset any gains you have from more profitable assets. This “tax-loss harvesting” is a common strategy for minimizing capital gains liability. Carefully consider what to offload, and combine that decision with a broader assessment of your portfolio’s mix of assets, from stocks to bonds to mutual funds. This approach can help you avoid unwelcome surprises during filing season while keeping your future budget top of mind.
Stay Informed on Recent Tax Law Changes
In a constantly evolving legislative environment, tax rules can shift in ways that either open up new deductions or close off old ones. Some changes might prove subtle, while others can significantly impact your tax bracket or eligibility for credits. Even if you usually handle your own finances, periodically consulting official IRS updates or asking a professional can provide clarity. Small details, such as the changing limits for retirement account contributions or the introduction of new energy-related tax incentives, can make a meaningful impact.
Contact HTB: If you’re already thinking ahead about your tax strategy, now’s a great time to build on that momentum. We’re here to help you fine-tune your withholdings, explore potential credits and deductions, and stay aligned with your financial goals through the end of the year.