As the year winds down, it’s the perfect time to pause, look at your financial picture, and make some smart tax moves that could save you money. Whether you’re a small business owner in rural Tennessee, a professional in Mississippi, or someone managing a family estate, these strategies are especially useful when applied before December 31.
The key to effective tax planning is not waiting until it’s too late. These year-end actions can reduce your current tax bill and help you start the new year in a stronger financial position.
Max Out Retirement Contributions
One of the most straightforward ways to lower your taxable income is to contribute to tax-advantaged retirement accounts. If you have access to a 401(k), try to max it out by the end of the year. The contribution limits for 2025 are expected to remain high, so take full advantage if you can.
If you’re self-employed or running a family business, consider a SEP IRA or solo 401(k). Contributions to these accounts are deductible and can make a meaningful difference in your tax burden.
Make Charitable Donations
Giving to charity before December 31 not only supports causes you care about, but it can also lower your taxable income. Be sure to keep records of your gifts and check that the organization is a qualified nonprofit.
You can donate cash, appreciated assets, or even set up a donor-advised fund for larger giving plans. Charitable giving is especially strategic if you’re in a higher tax bracket or planning a significant financial move before the end of the year.
Review Your Business Expenses
If you own a business, now is the time to go through your profit and loss statements. Look for legitimate expenses that can be paid before year-end. This might include equipment, office supplies, employee bonuses, or marketing services.
Spending on your business now may reduce your taxable income for this year, and it could also give you a head start on operations for the new year.
If you’re located in Tennessee or Mississippi and your business operates on a cash basis, you might also benefit from deferring income into next year while accelerating deductible expenses into this one.
Use Your FSA or HSA Funds
If you have a Flexible Spending Account (FSA), check your balance. Many plans have a “use it or lose it” rule that applies at the end of the year. Consider scheduling last-minute doctor visits, buying prescription glasses, or filling medical prescriptions.
If you have a Health Savings Account (HSA), you can contribute up to the maximum allowed amount by the end of the year. Contributions are tax deductible, and distributions used for qualified medical expenses are tax-free.
Take Required Minimum Distributions
If you’re 73 or older, make sure you’ve taken your required minimum distribution (RMD) from retirement accounts. Failing to do so can result in steep penalties.
Some retirees opt to donate their RMDs directly to charity, which is called a Qualified Charitable Distribution (QCD). This can satisfy your RMD and lower your taxable income at the same time.
Offset Gains with Tax-Loss Harvesting
If you sold stocks or investments this year at a profit, consider selling underperforming assets to offset those gains. This strategy, known as tax-loss harvesting, can help minimize your capital gains tax and rebalance your investment portfolio.
Just be mindful of the IRS wash-sale rule, which disallows the deduction if you repurchase the same or a “substantially identical” investment within 30 days.
Consider a Roth Conversion
If this was a lower-income year for you, it might be a good time to convert some of your traditional IRA funds into a Roth IRA. You’ll pay taxes on the conversion now, but the money grows tax-free and is not taxed when withdrawn in retirement.
This strategy is especially useful for families and retirees who expect to be in a higher tax bracket in the future.
Update Your Estate Plan
The end of the year is also a great time to check in on your estate plan. Have your family’s needs changed? Have your assets grown? Are your documents still aligned with your wishes?
If you’ve made large gifts this year or plan to gift before December 31, those amounts need to be documented. Tennessee residents, in particular, should review how property is titled and whether gifting strategies have been implemented properly with the help of an estate planning attorney.
Review Tax Law Changes
Each year, the IRS updates tax brackets, deduction limits, and other key numbers. Stay informed about what’s changing so you can adjust your strategy accordingly. Your CPA or attorney can help you plan for changes in standard deductions, child tax credits, and other items that might impact your return.
For businesses, be sure to review how any new rules affect pass-through entities, depreciation, or business meal deductions.
Meet With Your Advisor
The final step is to connect with your financial advisor, CPA, or attorney before the end of the year. An experienced professional will help ensure your actions align with your long-term goals and that nothing is overlooked.
If you haven’t worked with an advisor before, now is a great time to start. You don’t need to be ultra-wealthy to benefit from smart tax planning, especially if you own land, run a small business, or have dependents to support.
As you close out the year, don’t miss the opportunity to take proactive steps that could significantly reduce your taxes and support your financial goals. A few simple moves now can make a big difference in April (and far beyond).
If you live in Tennessee or Mississippi and want help with tax planning, business strategy, or estate planning, our team at Lancaster Law Firm is ready to guide you through the process.
