Stop reacting to tax deadlines. Start planning for them. The end of the year isn’t just about holidays; it’s the final, crucial window to significantly impact your tax outcome. Proactive planning before December 31st is the key to maximizing deductions and minimizing your tax liability for the entire year.
1. Maximize Retirement Contributions
Contributing the maximum allowable amount to your retirement accounts (401(k), IRA, SEP-IRA, etc.) is one of the most effective ways to reduce your Adjusted Gross Income (AGI). If you haven’t hit the annual limit, December is the time to make that final lump-sum contribution. For business owners, funding a SEP-IRA or Solo 401(k) before year-end can yield substantial tax savings..
2. Leverage the Timing of Major Purchases.
Businesses operating on a cash basis can often manage their taxable income by timing when they incur and pay expenses. Consider prepaying eligible business expenses (like office supplies, rent for the first month of the next year, or software subscriptions) before December 31st. This moves the deduction into the current year, effectively lowering your taxable income when you need it most.
3. Donate Smarter, Not Just More.
While all charitable giving is commendable, the timing is key for tax purposes. To claim the deduction this year, the funds must be transferred by December 31st. Furthermore, consider donating appreciated stock instead of cash. By donating stock you’ve held for over a year, you generally avoid paying capital gains tax on the appreciation and you get a deduction for the fair market value. This is a powerful, innovative strategy.
December 31st is rapidly approaching, and your opportunity for strategic tax reduction is closing. Don’t leave money on the table. Our certified professionals specialize in these proactive, year-end strategies.
