Year-End Tax Planning Ideas

Six Financial Issues to Review Before Year-End

Now is the time for year-end tax planning. Too often, individuals make financial mistakes without realizing it—sometimes until it is too late. Here are six key financial issues to review before year-end, along with an overview of the One Big Beautiful Bill Act (OBBBA).

Roth IRA Conversions

Roth IRA conversions can be an effective long-term tax-planning strategy. By converting traditional IRA assets to a Roth IRA, you pay taxes today in exchange for the potential for tax-free qualified distributions in retirement. This can be particularly valuable if you expect your tax rate in retirement to be higher than it is today. Surprisingly, this impacts many more people than you would think.

Remember, a Roth conversion generally creates taxable income in the year of the conversion, so the amount converted should be considered carefully.

Maximizing Retirement Contributions

For 2026, the employee contribution limit for 401(k) and 403(b) plans is $24,500. Employees age 50 and older can generally contribute an additional $8,000 catch-up contribution. For individuals age 60 through 63, a higher “super catch-up” contribution of $11,250 is available.

Review your pay stubs and retirement contributions to make sure you are on track. Also, check your employer’s plan rules for any additional limitations.

Don’t Forego Matching Contributions

Many employers match a portion of their employees’ 401(k) contributions, but people sometimes unknowingly lose this valuable benefit by reaching their contribution limit too early or simply not contributing enough.

Understand how your company’s matching program works, including whether it provides a year-end “true-up.” After all, you don’t want to miss out on money your employer is willing to contribute on your behalf. That’s free money!

Tax-Loss Harvesting

Tax-loss harvesting involves selling investments in a taxable account at a loss to offset capital gains. If your losses exceed your gains, you can generally deduct up to $3,000 per year against ordinary income, with unused losses carried forward.

Be aware of the wash-sale rule. If you sell an investment at a loss and purchase substantially identical securities within 30 days before or after the sale, the loss may be disallowed. Also consider Pennsylvania rules that do NOT allow losses against your income or carryover losses.

Withholding Enough Taxes

The federal tax system is generally pay-as-you-go. If you have taxable income from rental properties, IRA distributions, capital gains, business income, or other sources, your paycheck withholding may not be enough.

Generally, taxpayers can avoid an estimated-tax penalty by paying at least 90% of their current-year tax liability or 100% of their prior-year liability, whichever is less. For higher-income taxpayers, the prior-year safe harbor is generally 110%.

If your withholding is insufficient, consider increasing paycheck withholding or making estimated tax payments. Nobody likes a surprise in April when they have to write a large check to the IRS. There are other “tricks” that can be used to avoid penalties, but they go beyond the scope of this article.

Business Deductions

Business owners should review opportunities to accelerate or defer income and expenses. If income is unusually low this year compared with what you expect next year, deferring deductions may make sense. Conversely, accelerating legitimate deductions may be beneficial in a high-income year.

The OBBBA also made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025, subject to applicable requirements.

Additional Tax Deductions

Signed into law on July 4, 2025, the OBBBA added other potential deductions for taxpayers.

• Taxpayers age 65 and older may qualify for a new additional deduction of up to $6,000 per eligible individual for 2025 through 2028, subject to income limitations.
• The SALT (State and Local Tax) deduction limit increased to $40,000 for 2025, subject to an income-based phaseout. 
• Eligible taxpayers may also deduct up to $25,000 of qualified tips and up to $12,500 of qualified overtime compensation for individuals ($25,000 for married couples filing jointly) for 2025 through 2028, subject to income limitations and other requirements.

The OBBBA contains many additional provisions. A year-end review with your tax professional can help determine which changes apply to you and identify planning opportunities before December 31.

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies may be suitable for you, consult the appropriate qualified professional prior to making a decision. Menninger & Associates Financial Planning and LPL Financial do not offer tax advice or services. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of a conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.