Year-End Tax Planning Strategies and Financial Planning
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Year-End Tax Planning Strategies and Financial Planning
Prepared by Michael Menninger, CFP®
In many cases, individuals make unintended financial mistakes and don't realize it until it's too late. Year-end tax planning provides an opportunity to review your financial situation, identify potential tax-saving strategies, and make informed decisions before December 31.
As 2026 draws to a close, there are several financial issues worth reviewing, from Roth IRA conversions and retirement plan contributions to investment losses, tax withholding, and business deductions. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, also introduced tax provisions that may affect your year-end planning strategy.
If you have questions about year-end tax planning strategies and financial planning ideas, the Certified Financial Planners at Menninger & Associates can help you evaluate your financial goals and identify areas to discuss with your tax professional.
Why Year-End Tax Planning Matters?
Year-end tax planning is not merely a routine task; it's a proactive approach to making the most of available opportunities to optimize your tax situation. By reviewing your income, investments, retirement contributions, and potential deductions before the end of the year, you may be able to reduce your tax liability, maximize eligible deductions, and prepare for future financial needs.
Tax laws and individual circumstances change, making it important to review your financial plan regularly. A strategy that made sense last year may not be appropriate this year, particularly if your income, retirement plans, investments, or business activities have changed.
The following six financial issues can help you prepare for a more informed year-end financial review.
Watch Year-End Tax Planning Explained
Roth IRA Conversions
Roth IRA conversions can be an effective long-term tax planning strategy. By converting assets from a traditional IRA to a Roth IRA, you generally pay income taxes on the taxable amount converted in the year of the conversion in exchange for the potential for tax-free qualified distributions in retirement.
This strategy may be particularly beneficial if you expect your tax rate in retirement to be higher than it is today. A Roth conversion can also provide greater flexibility in retirement by giving you another source of funds that may be withdrawn tax-free when applicable requirements are met.
However, a Roth conversion is not automatically the right choice for everyone. The amount converted generally increases your taxable income for the year and could affect your overall tax situation. Before making a conversion, consider your current income, anticipated retirement income, tax bracket, and long-term financial goals.
Traditional IRA account owners should also consider Roth IRA withdrawal limitations and the rules governing future contributions. If you are required to take a required minimum distribution (RMD) in the year you convert, you must take that distribution before converting eligible assets to a Roth IRA.
Reviewing a potential Roth conversion with your financial planner and tax professional before year-end can help you determine whether the strategy is appropriate for your circumstances.
Watch Year-End Tax Planning with a CPA
Maximizing 2026 Retirement Plan Contribution Limits
Maximizing retirement plan contributions is another important year-end financial planning strategy. Contributions to eligible workplace retirement plans can help you build retirement savings and, depending on the contribution type, potentially reduce your current taxable income.
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 as a catch-up contribution. Individuals ages 60 through 63 may be eligible for a higher catch-up contribution of $11,250 under the applicable rules.
To determine whether you are on track to maximize your retirement plan contributions, review your pay stubs and year-to-date contributions. If you are contributing less than you intended, consider whether you can increase your contributions for the remainder of the year.
Remember that other retirement plans may have different contribution limits and eligibility requirements. Your employer's plan rules may also impose additional restrictions.
A year-end review can help you identify whether adjustments are appropriate before the calendar year ends.
Watch Part 2 of Year End Tax Planning - Financial Planning Explained
Foregoing Matching Contributions
Many companies match a portion of their employees' 401(k) contributions, but employees sometimes unknowingly miss out on some of this valuable benefit.
This can happen when an employee reaches the annual contribution limit too early, does not contribute enough to receive the full match, or misunderstands how the company's matching program works. Some employers may also have specific rules regarding catch-up contributions.
Review your employer's matching program and determine how contributions are calculated throughout the year. It is also worth asking whether your plan offers a year-end "true-up" contribution that may make up for missed matching contributions, subject to the plan's rules.
Understanding your company's policies can help you avoid missing out on retirement benefits available to you. An employer match can be a valuable addition to your retirement savings, so make sure you understand the requirements for receiving the full amount.
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Tax Loss Harvesting
Many investors hold investments in taxable accounts that may generate taxable interest, dividends, and capital gains. Tax-loss harvesting is a strategy that investors can use to help manage the tax consequences of investment activity.
Tax-loss harvesting involves selling investments in a taxable account at a loss to offset capital gains. If your capital losses exceed your capital gains, you can generally deduct up to $3,000 of net capital losses per year against ordinary income, subject to applicable rules. Unused losses may generally be carried forward to future tax years.
This strategy is often reviewed near the end of the year to determine whether realizing investment losses may help offset capital gains and reduce taxes.
It is important to understand 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 for tax purposes.
Pennsylvania taxpayers should also be aware that state tax treatment differs from federal rules. Pennsylvania does NOT allow capital losses to offset other income or carry forward losses in the same manner as federal tax law.
Before selling investments to realize losses, consider your overall investment strategy, portfolio allocation, and long-term financial objectives. Tax-loss harvesting should be coordinated with your financial plan rather than pursued solely for a potential tax benefit.
Withholding Enough Taxes
The federal income tax system generally operates on a pay-as-you-go basis. Taxes are typically collected throughout the year through paycheck withholding and estimated tax payments.
However, individuals who receive taxable income from other sources may find that their withholding is insufficient to cover their total tax liability. These sources can include rental properties, IRA distributions, capital gains, business income, and other income outside regular employment.
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 tax liability, whichever is less. For higher-income taxpayers, the prior-year safe harbor is generally 110%. Specific eligibility requirements and exceptions may apply.
Before year-end, review your income, federal tax withholding, and estimated tax payments to determine whether you are on track. If your payments may be insufficient, consider increasing your paycheck withholding or making additional estimated tax payments, as appropriate.
Planning ahead can help reduce the risk of underpayment penalties and avoid an unexpected tax bill when you file your return in April.
Certified Financial Planning: Year-End Tax Strategists
Business Deductions and New Tax Law Opportunities
Business owners should review their income, expenses, and potential deductions before year-end. Depending on their circumstances, accelerating or deferring income and expenses may help align their tax strategy with their expected financial situation.
For example, if your income is unusually low this year compared with what you expect next year, deferring certain deductions may be worth considering. Conversely, accelerating legitimate deductions may be beneficial in a higher-income year.
These decisions depend on your accounting method, business cash flow, anticipated income, and applicable tax rules. Business owners should work with their tax professionals to evaluate the potential impact before making year-end decisions.
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, also introduced changes that may create additional planning opportunities for eligible taxpayers.
One Big Beautiful Bill Act (OBBBA): Additional Tax Deductions
The OBBBA includes several provisions that may affect individuals, retirees, and business owners. Understanding the eligibility requirements and timing of these provisions is an important part of year-end tax planning.
100% bonus depreciation for qualifying business property
The OBBBA made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025, subject to applicable requirements. Eligible business owners should review whether qualifying property purchases may benefit from these rules and discuss the potential tax implications with their tax professional.
Additional deduction for eligible taxpayers age 65 and older
For tax years 2025 through 2028, taxpayers age 65 and older may qualify for a new additional deduction of up to $6,000 per eligible individual, subject to income limitations and other requirements.
Eligible taxpayers should review whether they qualify and how the deduction may affect their overall tax situation.
Increased state and local tax (SALT) deduction limit
The OBBBA increased the state and local tax deduction limit to $40,000 for 2025, subject to an income-based phaseout. Taxpayers who itemize deductions should review the applicable rules and tax-year provisions with their tax professional to determine how the change affects their federal return.
Deductions for qualified tips and overtime compensation
Eligible taxpayers may qualify for deductions for certain qualified tip income and overtime compensation for tax years 2025 through 2028, subject to income limitations and other requirements.
The provisions described in the OBBBA include deductions of up to $25,000 for qualified tips and up to $12,500 for qualified overtime compensation for individuals, with a $25,000 limit for qualified overtime compensation for married couples filing jointly.
Eligibility, qualifying income, deduction limits, and other requirements may affect the amount an individual can claim. Consult your tax professional to determine which provisions apply to your situation.
The OBBBA contains additional provisions that may affect individuals and businesses. Reviewing these changes before year-end can help you identify potential planning opportunities and understand how the new rules fit into your broader financial plan.
Seeking Professional Guidance from a Certified Financial Planner
Year-end tax planning is a nuanced process, and seeking guidance from a Certified Financial Planner can provide valuable insight into how your financial decisions fit together.
Reviewing your retirement savings, investment portfolio, income, tax withholding, and potential deductions can help you identify areas that deserve attention before the end of the year. Coordinating these decisions with your tax professional can also help ensure that tax considerations are evaluated alongside your broader financial goals.
Every individual's situation is different, and no single tax strategy is appropriate for everyone. Your income, assets, retirement plans, business activities, and future financial objectives all play a role in determining which strategies may be suitable.
If you have questions about year-end tax planning strategies, Roth IRA conversions, retirement planning, or your overall financial picture, contact the Certified Financial Planners at Menninger & Associates Financial Planning to discuss your needs.
About the Author: Michael Menninger, CFP®️Michael Menninger is the founder and president of Menninger & Associates Financial Planning. With 20+ years of financial planning experience, Michael helps his clients pursue their financial goals through a hardworking, common-sense and detail-oriented approach to financial planning. He provides personalized service, builds lasting relationships, and maintains a disciplined, long-term outlook. He uses his experience and wide-ranging business and educational background as a basis for creating financial plans unique to each client's goals and aspirations.
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.
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