If you’re like most business owners and individuals in Suffolk County, taxes probably aren’t on your mind until April. But here’s the truth: by the time you sit down with your accountant in tax season, most of your best opportunities to lower your bill are already gone. The IRS doesn’t care what you meant to do in January it only cares what happened before the calendar flipped to a new year.
The good news is that you still have time to make a real difference in what you own. Below are the moves that tend to matter most, organized so you can quickly find what applies to you.
1. Max Out Your Retirement Contributions
Retirement accounts are one of the few places where saving money and lowering your tax bill happen at the same time.
- 401(k): If your employer offers one, check how close you are to the annual contribution limit. Many payroll systems let you increase your contribution percentage for your last few paychecks of the year to close the gap.
- IRA: Traditional IRA contributions can still be made until the tax filing deadline in April, but if you want the money working for you sooner, funding it now rather than waiting until spring is generally the smarter move.
- SEP IRA or Solo 401(k): If you’re self-employed, these accounts allow significantly higher contribution limits than a traditional IRA, and for a Solo 401(k), the employee-deferral portion specifically needs to be made by December 31.
2. Review Your Business Equipment Purchases
If you’ve been putting off buying a new laptop, work vehicle, or piece of equipment, December is worth a second look. Under current depreciation rules, many qualifying purchases placed into service before year-end can be deducted in full rather than spread out over several years. The key phrase is “placed into service” it’s not enough to order the equipment, it generally needs to be received and usable by December 31.
This is also a good time to review any equipment sitting unused in your business. If it’s no longer useful, disposing of it properly can sometimes generate a deductible loss.
3. Time Your Income and Expenses Strategically
This is one of the simplest and most overlooked strategies, especially for small business owners and freelancers who have some control over when money comes in and goes out.
- If you expect to be in a similar or lower tax bracket next year, consider delaying invoices you’d normally send in late December until January.
- If you have expenses, you know you’ll need to pay soon anyway software subscriptions, insurance premiums, supplies paying them now rather than in January pulls the deduction into the current year.
- Business owners who bill on a cash basis have the most flexibility here, but even accrual-basis businesses have some room to work with.
4. Harvest Investment Losses (and Gains)
If you have investments that have lost value this year, selling them before December 31 lets you use those losses to offset capital gains elsewhere in your portfolio and up to $3,000 of ordinary income if your losses exceed your gains. This strategy, known as tax-loss harvesting, is one of the more underused tools available to individual investors.
Just be careful of the wash-sale rule: if you sell a stock at a loss and buy the same or a substantially identical stock within 30 days, the loss will be disallowed. If you like the position, wait it out or find a similar (but not identical) alternative.
On the flip side, if you’re in a low-income year, it may make sense to realize some gains now while you’re in a lower bracket.
5. Make Charitable Contributions Count
Charitable giving before the end can reduce your taxable income, but only if you itemize deductions and the donation is documented correctly.
- Cash donations to qualified charities are deductible but to get a receipt the IRS wants documentation for anything over $250.
- Donating appreciated stock instead of cash can be even more powerful: you avoid paying capital gains tax on appreciation, and you can typically still deduct the full fair market value.
- If you’re 70½ or older, a Qualified Charitable Distribution (QCD) from an IRA lets you send money directly to a charity and have it count toward your Required Minimum Distribution without it counting as taxable income.
6. Check Your Required Minimum Distributions (RMDs)
If you’re required to take distributions from a retirement account, missing the December 31 deadline comes with a steep penalty the IRS can assess an excise tax on the amount you should have withdrawn but didn’t. If you turned 73 this year or have an inherited IRA, this is worth confirming with your accountant before the year closes out, not after.
7. Review Your Withholding and Estimated Payments
If you’ve had a big income change this year, a bonus, a new business, a spouse who started working check whether you’ve paid enough throughout the year. Underpayment penalties are calculated quarterly, but a fourth quarter estimated payment made by January 15 can still help minimize what you owe. It won’t undo an underpayment penalty from earlier in the year, but it prevents the situation from getting worse.
8. Don’t Wait Until It’s Too Late
Every one of these strategies has one thing in common: they only work if they’re done before the year ends. Once January 1 arrives, most of these doors close for the year, and you’re left working with whatever decisions were already made.
If you’re not sure which of these apply to your situation, or you want a second set of eyes on your numbers before the year closes out, now is the time to have that conversation not in March. A short planning session in December can end up being worth far more than the meeting itself costs.
This article is for general informational purposes and isn’t a substitute for personalized tax advice. Every financial situation is different, and the strategies above may not apply to everyone. If you’d like to review your specific situation before December 31, reach out to schedule a consultation.
