The end of the year is quickly approaching and that means the clock for making many 2026 tax decisions is running out. Follow our points below and consult with your tax preparer to take advantage of the items that make sense in your situation.
Evaluate your income for next year
You may be planning on changing careers, going for a promotion, selling your house, or something else that makes a significant shift to your income next year versus this year. This could be something that makes your income significantly higher or significantly lower next year.
This provides an opportunity to take advantage of the difference. You may benefit by pursuing a strategy like bunching multiple years of charitable donations into a single year or converting traditional IRA money into a Roth IRA. There are many different strategies you can pursue when you find yourself in this situation so contact an advisor at American Money Management for more detailed guidance.
Take IRA distributions
Make sure you withdraw at least your full Required Minimum Distribution (RMD) by the end of the calendar year, December 31st, to avoid penalties. If you turned 73 this year your deadline for taking your RMD from a traditional 401(k), IRA, SEP IRA, or SIMPLE IRA is actually April 1st, 2027. If you decide to delay your first RMD to early next year you bunch two taxable distributions into the same tax year so this may not be wise for everyone. This rule does not apply to inherited IRAs and RMDs are not required for 401ks tied to existing employment, if still working at RMD age.
If you make annual charitable contributions, and you are at least 70.5 by the end of the year, you can make them directly out of your IRA by making a Qualified Charitable Distribution, or QCD. QCDs are excluded from gross income which reduces your AGI for the year. This can be more beneficial than itemizing your charitable donations as AGI impacts other deductions and expenses, like Medicare’s IRMAA, and avoids the new limitations on itemized charitable deductions.
For more information on Qualified Charitable Distributions, read our article “Donating Your RMD to Charity”.
Charitable contributions and Donor-Advised Funds
The end of the year is often a time for donating to charities and many organizations run matching campaigns this time of year. Donations can increase your itemized deductions but even if you do not itemize, beginning this year you can deduct up to $1,000 ($2,000 if filing jointly) of charitable cash contributions.
You can supercharge your charitable contributions by opening a Donor-Advised Fund (DAF) which allows you to bunch multiple years of your normal donations into a single tax year. You get the benefit of the larger donation in one year and can distribute the funds over multiple years to a number of different charities. Donating highly appreciated stock to a DAF may give you the most tax benefit. Once you contribute to a DAF there is no way to get it back out – the funds must be sent to charity now or in the future.
Roth conversions
Converting money from a traditional IRA, SEP/SIMPLE IRA, or traditional 401(k) to a Roth IRA can help you save money in the long term while increasing your taxable income this year. General wisdom holds that if you are in a lower tax bracket this year than you expect to be in during your retirement years, converting pre-tax money into Roth accounts can pay off. Roth accounts allow for untaxed growth as long as you follow the rules for qualified withdrawals.
Check your withholding
The IRS offers a calculator online to check if you are on track to overpay or underpay your taxes through withholding here: https://www.irs.gov/individuals/tax-withholding-estimator. You will need your most recent paystub for your job, pension, or annuity and estimates of deductions and credits you will claim this year. The estimator will tell you how to adjust your federal tax withholding if you are under- or over-withholding.
A note to those making estimated payments: withholding is treated as paid evenly throughout the year, while estimated payments are not. A qualified December IRA distribution with heavy withholding can fix an underpayment problem retroactively.
Tax-loss harvest
Realizing taxable losses will help offset capital gains realized this year and if you have more realized losses than realized gains, you can use up to $3,000 of losses to offset ordinary income. If you pursue this strategy be aware of the wash sale restriction which means that if you sell an investment at a loss and repurchase it within 30 days (before or after the date of the sale), that loss is deferred and instead credited to the repurchased investment.
Annual gifting limit
Federal law allows individuals to gift up to $19,000 (2026 numbers) per recipient per year without eating into your lifetime estate tax exemption. Married couples who elect gift-splitting can gift up to $38,000 per recipient. This can be used to make contributions to a 529, fund an UTMA, or simply as a direct gift.
Max out contributions
This is a great time to check how close you are to maxing out your retirement contributions for the year. If you expect to be paid a bonus before the end of the calendar year, you can contribute most or all of it to your retirement plan if you are falling short of maxing out.
In 2026, those under 50 can contribute up to $24,500 to a 401(k). Those ages 50-59 and 64+ can contribute up to $32,500 and those ages 60-63 can contribute up to $35,750.
Beginning in 2026, these catch-up contributions to employer-sponsored plans for those ages 50+ must be made on an after-tax (Roth) basis if the employee earned more than $150,000 in FICA wages in the prior year.
To see the age-dependent limits for other types of retirement accounts, read our article “New Retirement Plan Catch-Up Contribution Rules”.
Use up FSAs
Flexible Spending Accounts (FSAs) may not roll their balances over from one year to the next or may only allow for a partial balance to rollover unlike Health Savings Accounts (HSAs). You have some time now to use any remaining balance to schedule a year-end doctor’s appointment, replace prescription glasses, and stock up on over-the-counter items like aspirin or bandages. Always check to make sure your expenses are covered before using your FSA funds to avoid penalties.
Note on contributions to Roth IRAs, traditional IRAs, HSAs
Contributions to traditional IRAs, Roth IRAs, and HSAs can be made up until the filing date of your tax return (not including extensions) which lets you contribute for 2026 into the first part of 2027.
If you have questions about your specific tax circumstances, call an advisor at American Money Management today.