There are a number of different tax planning moves you can make before December 31 to reduce your owed taxes. But how can you know which ones are available to you? Here are five year-end tax planning questions you may want to ask your financial professional soon.
#1: Is There Room Left in My Retirement Accounts?
For the 2026 tax year, most taxpayers who have earned income can contribute up to $24,500 to a 401(k) and $7,500 to a traditional or Roth IRA. Depending on your tax bracket and taxable income, contributing money to a pre-tax account like a 401(k) or traditional IRA could save you a significant amount in taxes. If you haven't already maxed out your contributions to one or both of these accounts, doing so could pay off at tax time.i
Each time you contribute to your 401(k) using pre-tax dollars from your paycheck, your taxable income decreases for the current year.
#2: Should I Sell Investments?
If you have some stagnant or "loser" investments, you may be able to sell them at a loss in order to offset investment gains. This strategy, known as "tax-loss harvesting," can allow you to free up funds for more lucrative investments while balancing your capital gains taxes.
But because the rules around buying and selling taxable securities can be complicated, this is a strategy you'll definitely want to discuss with your financial professional before finalizing any transactions.
#3: Are Any Other Tax Deductions Available?
Some last-minute tax deductions may work to lower your bill. Talk to your tax professional about whether these deductions may be available:
- Charitable contributions
- Medical expenses
- Student loan interest (depending on your income level)
- Gambling losses (up to your gambling income amount)
- Home office expenses
#4: Can I Defer Any Income?
Another way to reduce your taxes is to defer some income into the next year. Though you may not be able to do this with a traditional W-2 paycheck, deferring contract or freelance income, a bonus, or capital gains into next January instead of December will mean that this income is taxed on next year's taxes, not this past year's.
However, deferring income may only make sense if you expect to be in the same tax bracket, or a lower one, next year. You don't want to defer income that will launch you into a higher bracket. Talk to your financial professional to see whether it makes sense to defer any income and, if so, how to make it happen.
#5: Do I Need to Spend FSA Funds?
Unlike a Health Savings Account (HSA), which allows you to carry over funds from year to year, a Flexible Spending Account (FSA) is generally "use it or lose it." If you've contributed to an FSA for 2026, it's a good time to take stock of how much is left and what you can spend it on.
Also, be on the lookout for any grace periods. You might find that you have until March 15, 2027, to spend your unspent 2026 FSA funds and until March 31, 2027, to file a claim for those purchases.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59½ may result in a 10% IRS penalty tax in addition to current income tax.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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Sources
- 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 | Internal Revenue Service