Year-end is a useful time to consider whether a few well-timed decisions could reduce your 2026 federal income taxes.
Recent federal legislation extended or expanded several provisions and introduced new planning opportunities.
The right approach depends on your income, investments, family circumstances, and expectations for next year; a strategy that helps one household may not help another.
Review withholding and estimated payments
If your income changed during the year — because of investment gains, a bonus, retirement distributions, or self-employment income — your tax payments may not have kept pace.
Reviewing withholding and estimated payments before year-end can help limit an underpayment penalty and provide a clearer picture of what you may owe when you file. In some cases, increasing withholding from your remaining 2026 paychecks can help address a shortfall.
Consider the timing of deductible expenses
Most individuals claim either the standard deduction or itemized deductions, whichever is more beneficial.
Itemized deductions can include eligible charitable gifts, mortgage interest, certain medical expenses, and state and local taxes.
If your itemized expenses are close to the standard deduction, it may be worth considering whether to group some deductible payments into one year rather than spread them evenly over two years. This approach, often called “bunching,” may allow you to itemize in one year and take the standard deduction in the next.
The timing of state and local tax payments can also matter, but paying early does not automatically create a tax benefit. Deduction limits and the alternative minimum tax may affect the result.
Medical expenses are deductible only under applicable rules and only to the extent they exceed the required income threshold.
Consider the overall financial effect before accelerating any payment or procedure.
Newer deductions may be relevant
Several temporary deductions introduced or expanded by 2025 federal tax legislation may apply for 2026. Depending on your circumstances, these may include deductions for eligible vehicle-loan interest, qualified tips, or certain overtime compensation.
Special requirements and income-based phaseouts apply, and documentation such as wage statements, loan records, or tip records may be needed. The rules are specific, so check eligibility before relying on a deduction.
Taxpayers who are 65 or older may also qualify for a temporary additional deduction, subject to income limits.
Families with eligible children may want to learn about the new Trump Account savings program and its potential government contribution for qualifying children.
These provisions are not relevant for everyone, but they may be worth reviewing if they fit your circumstances.
Review investments before year-end
Selling investments at a gain or loss can affect your tax bill.
Long-term capital gains generally receive more favorable tax treatment than short-term gains, and capital losses may offset capital gains. If your losses exceed your gains, a limited amount may generally offset other income, with remaining losses carried forward.
The rules about “wash sales” can limit the immediate benefit of a loss if you acquire substantially identical securities within the restricted period.
Tax considerations should not drive investment decisions on their own. Before selling, consider your long-term goals, risk tolerance, and desired portfolio mix. A sale that saves tax may still be unsuitable if it leaves your investments out of balance or conflicts with your investment plan.
Gains and losses inside tax-deferred retirement accounts generally do not have the same immediate tax effect as sales in taxable accounts.
Plan charitable gifts thoughtfully
Charitable giving may provide tax benefits as well as support causes important to you. Depending on your situation, you may benefit from making gifts in a year when itemized deductions are more valuable, donating appreciated investments rather than cash, or using a donor-advised fund to make a contribution now while recommending grants to charities over time.
Gifts of appreciated assets can sometimes avoid capital-gains tax that would arise if you sold the assets first, but the rules depend on the asset and the recipient organization.
If you are 70½ or older, a qualified charitable distribution directly from an eligible IRA to a qualified charity may be another option.
Although the transfer is not claimed as an itemized charitable deduction, it may count toward a required minimum distribution and may keep the transferred amount out of adjusted gross income. That can be valuable in some circumstances.
Transfers must be completed properly and on time, so speak with your IRA custodian well before year-end.
Consider Roth conversions and flexible spending accounts
Converting some traditional IRA assets to a Roth IRA generally creates taxable income in the year of conversion. In return, qualified future Roth withdrawals may be tax-free.
A conversion may be worth considering if you expect your future tax rate to be similar to or higher than your current rate, but the additional income can push you into a higher bracket or affect other tax benefits. Converting over several years, rather than all at once, may be an option.
If you have a health or dependent-care flexible spending account through your employer, check the plan’s deadlines and rules. Some plans allow a limited carryover or grace period, while unused funds may otherwise be forfeited. Review your available balance and eligible expenses before the applicable deadline.
Keep family and estate plans in mind
Annual gifts to individuals may help transfer wealth over time and, in some cases, reduce the size of a taxable estate. Gifts can also have income-tax consequences, particularly when income-producing assets are transferred to younger family members. The best approach depends on your broader estate plan, the recipient’s circumstances, and the type of asset.
Estate planning should address more than taxes: it should also reflect your wishes, family needs, and charitable intentions.
A final review
These are examples, not a complete checklist for every taxpayer. Please contact us to review which opportunities may suit your circumstances before the end of 2026.