Effective tax planning is a year-round process, but the final months of the year offer the last opportunities to adjust your taxable income before files close. Taking proactive steps in November and December can result in significant tax savings.
1. Maximize Retirement Accounts
Contributions to traditional 401(k)s and IRAs directly reduce your adjusted gross income. Ensure you maximize these contributions up to the IRS limits. Married couples and older taxpayers should also check eligibility for catch-up contributions.
2. Tax-Loss Harvesting
If you hold investments in taxable accounts that have declined in value, you can sell them to offset capital gains. If your net capital losses exceed your capital gains, you can use up to $3,000 of the excess loss to offset ordinary income.
3. Charitable Giving & Bundling
Donations to qualifying charities reduce taxable income if you itemize deductions. If you are close to the standard deduction threshold, consider 'bundling' two years of charitable contributions into a single year to exceed the threshold and maximize your deductions.