As year-end approaches, it is a good time to review your tax landscape and implement any relevant strategies to help reduce your tax liability. The One Big Beautiful Bill Act introduced significant changes to the tax law while also enhancing opportunities to use traditional planning tactics, such as deferring income and accelerating deductions. Year-end planning takes these changes into account while considering other opportunities to reduce or defer your tax liability. Below are some planning opportunities to consider:
1. Check Your Withholding and Estimated Payments
- Pay the lesser of 90% of your 2026 tax or 100% of your 2025 tax (110% if 2025 AGI was over $150,000) to avoid underpayment penalties.
- Review your estimated payments for any projected shortfall.
- Consider raising your withholding now to cover any shortfall. Withholding is generally treated as paid evenly throughout the year, even when it is increased at year-end. This may provide greater penalty relief than a late estimated tax payment.
2. Standard Deduction, Itemizing and "Bunching"
- Compare itemizing to increased 2026 standard deductions: $16,100 (single), $24,150 (head of household), $32,200 (joint). This could make it more difficult to itemize.
- Consider bunching deductions (charitable gifts, elective medical costs) into alternating years if you are close to the standard deduction.
- Take advantage of state and local tax (SALT) cap: The OBBBA increased the SALT cap to $40,400 in 2026, making it easier for taxpayers to itemize. However, this increase is phased out for higher earning taxpayers.
3. New Deductions You May Qualify For
- Enhanced Deduction for Seniors: Additional deduction up to $6,000 if 65 or older ($12,000 if both spouses qualify).
- New Vehicle Loan Interest: Taxpayers can deduct to $10,000 of interest per year on an eligible new vehicle.
- Tips: Deduct up to $25,000 of qualified tip income. Overtime: Deduct up to $12,500 ($25,000 joint) of qualified overtime compensation.
- These deductions are available whether the taxpayer itemizes or takes the standard deduction, but are subject to income phaseouts.
4. Plan Your Charitable Giving
- Taking the standard deduction? Non-itemizers can deduct up to $1,000 ($2,000 married filing jointly) in cash contributions to eligible charities in 2026.
- Itemizing deductions? Starting in 2026, the portion of your charitable contributions equal to .5% of AGI is nondeductible.
- Consider bunching multiple years of contributions into one year, possibly through a donor-advised fund. This avoids the same contributions being subject to the .5% floor more than once.
- Age 70½ or older? Consider transferring up to $111,000 to a qualifying charity in 2026. A qualified charitable distribution can satisfy all or part of an applicable RMD without increasing AGI.
5. Review Your Investment Portfolio
- Consider holding investments for more than one year so that any gains will qualify for long-term capital gain treatment.
- Consider selling investments at a loss to offset capital gains. If losses exceed capital gains, losses can offset up to $3,000 (when married filing jointly) of other income with the remainder carrying forward to future tax years.
- Be cautious of the wash-sale rule. If you sell stock or securities at a loss, avoid buying back the same or a substantially identical investment within 30 days before or after the sale. Otherwise, the current deduction for the loss may be disallowed.
6. Retirement Planning
- Roth IRA conversion: pay tax now for tax-free qualified withdrawals later. Consider converting in smaller amounts over several years to avoid increasing taxable income in a single year.
- Maximizing retirement contributions: Consider increasing your 401(k) contributions or deductible traditional IRA contributions to lower your taxable income, subject to contribution limits. A 2026 IRA contribution can generally be made through April 15, 2027, but 401(k) employee deferrals should be made in 2026.
- Required minimum distributions: RMDs generally begin at age 73. Consider not delaying the first RMD to April 1st of the following year so that you don't have two taxable RMDs in the same year. This could push you into a higher tax bracket.
7. Other Year-End Items
- Flexible spending account (FSA): unused funds are generally forfeited at year-end. Check your plan for a carryover (up to $680) or a grace period (up to 2½ months).
- Education credits: Qualified tuition expenses paid in 2026 can qualify for the education credit even if the term starts in 2027, provided that the term begins during the first three months of 2027.
- Educators: Educators can deduct up to $300 of qualified unreimbursed classroom expenses.
- Consider the timing of income and deductions: Where possible, defer income to 2027 if you expect to be at the same or lower marginal rate next year. This will reduce your 2026 tax while taking advantage of the higher inflation-adjusted tax bracket income thresholds in 2027.
8. Gifting, Estate Planning and Trump Accounts
- Taxpayers can gift up to $19,000 per recipient (or $38,000 per recipient for a married couple) in 2026 without using their lifetime exclusion ($15 million per person, $30 million for couples in 2026).
- Trump Accounts: Trump accounts provide tax-deferred savings for children under 18, with a contribution limit of $5,000 per year. Children born from 2025-2028 can receive a one-time $1,000 federal deposit, provided there is a valid Social Security number and an IRS election through Form 4547.
Year-end tax planning is an important part of your overall tax strategy and should not be overlooked. Contact your HLB Gross Collins, P.C. representative to discuss year-end strategies for you.
