As the end of the year approaches, it’s easy to get caught up in the holiday season and push financial planning aside. But according to John Geantasio, CPA, this is the perfect time to make smart moves that can lower your tax bill and help you start the next year on stronger financial ground.
Many people think tax planning only happens during tax season. In reality, the best time to plan is before the year ends. That way, you still have time to take advantage of key strategies, claim deductions, and avoid unpleasant surprises in April.
Why Start Tax Planning Before December 31
Once the clock strikes midnight on December 31, many tax-saving options disappear. By reviewing your finances in the last few months of the year, you give yourself a chance to make smart adjustments. Planning now means you can still make contributions, finalize purchases, and prepare documents with time to spare.
Know Where You Stand Financially
John recommends starting with a clear picture of how much income you’ve earned so far. That includes your salary, any side income, investment gains, or bonuses. Knowing your year-to-date income helps you estimate how much tax you might owe. If your income is higher than usual, you might need to take extra steps to avoid underpayment penalties.
John’s Tip: Keep a running total of your earnings throughout the year, especially if your income fluctuates.
Make Sure You’re Withholding Enough
If you haven’t paid enough taxes through paycheck withholding or estimated payments, you could owe a large balance or face penalties. But there’s still time to fix this. You can increase withholding on your final paychecks or send in an estimated payment to the IRS before January 15.
John’s Tip: Use the IRS withholding calculator to check if you’re on track. Don’t wait until tax season to discover a shortfall.
Max Out Retirement Contributions
One of the most effective ways to lower your taxable income is by contributing to retirement accounts. If you have a 401(k) through your job, the deadline to contribute is December 31. For IRAs, you have until the April tax deadline, but it’s better to plan ahead.
John’s Tip: If you’re age 50 or older, take advantage of catch-up contributions to save even more.
Use Up Your FSA or Contribute to Your HSA
If you have a Flexible Spending Account (FSA), check your balance. Many FSA plans require you to spend your funds by the end of the year or risk losing them. Health Savings Accounts (HSAs) offer more flexibility and are great for saving on taxes while planning for medical expenses.
John’s Tip: Schedule medical appointments and stock up on eligible supplies before December 31 to avoid wasting FSA funds.
Give to Charity
Charitable donations made before the end of the year can help reduce your taxable income if you itemize deductions. Whether you donate money, clothes, or household items, make sure to keep receipts and work with qualified organizations.
John’s Tip: Bunching several years of donations into one year may help you cross the threshold to itemize instead of taking the standard deduction.
Review Investments for Tax Savings
If you have investment accounts, consider selling losing investments to offset gains. This strategy, called tax-loss harvesting, can reduce the amount of tax you owe on capital gains.
John’s Tip: Be careful not to violate the wash sale rule, which can cancel out the benefit if you buy the same investment too soon.
Compare Itemized vs. Standard Deduction
The IRS offers a standard deduction, but if your deductible expenses are higher, you may save more by itemizing. This includes things like mortgage interest, property taxes, medical expenses, and charitable donations.
John’s Tip: If your deductions are close to the standard amount, plan big expenses (like medical procedures or donations) in the same year to boost your total.
For Business Owners: Start With Accurate Books
Business owners have more ways to save, but also more responsibilities. John says the first step is to make sure your bookkeeping is accurate. You need clean, updated records to spot missed deductions and prepare for tax filing.
John’s Tip: Reconcile your accounts and review reports before the end of the year so you’re not rushing in January.
Think About Timing: Accelerate Expenses, Delay Income
If your business operates on a cash basis, you can control when income and expenses hit your books. You may want to pay bills early to increase deductions or delay sending invoices to shift income to next year.
John’s Tip: Talk to your CPA before making these decisions. They should fit with your broader tax strategy and expected income next year.
Buy Equipment Before Year-End
If your business needs equipment or software, now might be the time to buy. Under Section 179, you can deduct the full cost of qualifying purchases placed in service by December 31.
John’s Tip: Don’t buy just to get a deduction. Make sure it’s something your business truly needs.
Consider Year-End Bonuses
Paying bonuses before December 31 can reduce your business’s taxable income. Just make sure the bonuses are processed through payroll and that taxes are properly withheld.
John’s Tip: Review payroll early to make sure everything is correct and compliant.
Look Into Retirement Plans for Business Owners
Business owners can set up SEP IRAs or Solo 401(k)s, which allow large contributions and tax savings. Some plans must be created by year-end, so don’t delay if you want to benefit.
John’s Tip: Even if you can fund these plans later, starting the paperwork now ensures you don’t miss key deadlines.
Evaluate Your Business Structure
Your current business type might not be the best fit anymore. Some sole proprietors can save on self-employment taxes by switching to an S-Corp. But changes like this take time and should be made with a full understanding of the pros and cons.
John’s Tip: Use year-end as a checkpoint to review your business structure and plan ahead for any changes.
Prepare for 1099s and Reporting Requirements
If you paid contractors $600 or more during the year, you must send them Form 1099-NEC by January 31. This means collecting W-9 forms now and making sure your records are complete.
John’s Tip: Don’t wait until January. Handle this in December to stay compliant and avoid penalties.
Run a Tax Projection Before It’s Too Late
One of the best things you can do is work with a CPA to estimate your tax liability. This gives you a clear idea of what you’ll owe and lets you make smart moves before the year ends.
John’s Tip: A tax projection in Q4 gives you time to take action. It’s one of the most valuable services a CPA can provide.
Pay Attention to Deadlines
Most tax-saving strategies must be completed by December 31. That includes retirement contributions, charitable giving, and business purchases. Some estimated payments and filings have January deadlines.
John’s Tip: Mark your calendar and don’t assume you can fix things in April. Planning now is key.
Think Long-Term, Not Just Year-End
John reminds clients that tax planning is an ongoing process. What you do now affects not only this year’s taxes but your financial picture going forward. Make time to review your goals and talk to your CPA regularly, not just at year-end.
Schedule Your Planning Session Now
John Geantasio, CPA, is helping individuals and business owners finish the year strong. Don’t wait until it’s too late. A year-end tax planning session can help you save money, reduce stress, and start the new year in control.
Contact John today to schedule your appointment and get the most out of your year-end planning. Your financial future will thank you.