Tax Moves to Make Before December 31

The tax code gives you a specific window each year to reduce what you owe — it closes on December 31. Not April 15, when returns are due. December 31, when the tax year ends. Most of the moves that lower your bill require action before that date. By the time you're sitting with a tax professional in February, almost all of them are off the table.

None of the actions below require a CPA or a complex financial situation. Most take under an hour. Together they can meaningfully reduce your tax bill for the year and permanently lower the taxes you'll pay on decades of investment growth.

1. Max Your 401k Contribution

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The 2025 employee 401k contribution limit is $23,500. Every dollar you contribute reduces your taxable income by that same dollar. If you're in the 22% bracket and you can get to the full limit, you've reduced your tax bill by $5,170. If you can't reach the full limit, get as close as you can — every $1,000 in additional contributions saves $220 in federal taxes at that bracket.

Check your current contribution rate in your employer's benefits portal. If you have paychecks remaining before year-end and you're not on track to hit your target, increase the percentage now. Most plan administrators require a few days to process changes, so don't wait until December 28.

If your employer offers both traditional and Roth 401k options: traditional contributions reduce this year's taxable income. Roth contributions don't, but the money grows tax-free forever. For most people in their 20s and 30s, leaning toward Roth makes sense. For high earners in peak earning years, the traditional deduction is often more valuable.

2. Max Your HSA

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If you have a high-deductible health plan, your Health Savings Account contribution is triple tax-advantaged: the contribution is pre-tax, the growth is tax-free, and qualified medical withdrawals are tax-free. After 65, you can withdraw for anything and pay only ordinary income tax — making it function like a traditional IRA.

The 2025 limits: $4,300 for individual coverage, $8,550 for family. Contributions can be made up until the tax filing deadline (April 15, 2026) for the 2025 tax year, so this isn't a hard December 31 deadline — but if your employer contributes to your HSA or if you want the funds available to invest before year-end, contributing before December 31 is cleaner.

If your HSA balance is sitting in the default cash position, move it into index funds. The HSA investment option is one of the most underused features in personal finance. A cash balance earns almost nothing. Invested in VOO over 20 years, the same balance compounds tax-free at market rates.

3. Harvest Tax Losses

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If you hold investments in a taxable brokerage account that are currently worth less than what you paid for them, you can sell those positions before December 31 to realize the loss. That loss offsets capital gains you've realized elsewhere — and if losses exceed gains, up to $3,000 of the excess can offset ordinary income this year. Remaining losses carry forward to future years.

The mechanics: sell the losing position, realize the loss, and reinvest the proceeds in something similar but not identical. The IRS wash-sale rule prohibits buying back the same or a substantially identical security within 30 days before or after the sale — but you can immediately buy a comparable ETF. Selling VOO at a loss and immediately buying VTI is a valid tax-loss harvest. Selling VOO at a loss and buying it back the next day isn't.

This move only applies to taxable accounts. Losses inside a Roth IRA, 401k, or HSA don't generate deductible losses and don't need to be managed this way.

4. Consider a Roth Conversion

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If this is a lower-income year than usual — a career transition, a period of self-employment, a year with significant deductions — the gap between your current taxable income and the top of your current bracket is an opportunity to convert traditional IRA or 401k funds to Roth at a low rate.

The math: if you're in the 22% bracket and have $20,000 of room before hitting the 24% bracket, converting $20,000 of pre-tax retirement funds to Roth costs $4,400 in federal taxes this year. That money then compounds tax-free forever, and you'll never pay taxes on it again. If your future income will put you in a higher bracket, the conversion arbitrage is real.

Roth conversions must be completed by December 31 to count for the tax year. Talk to a tax professional before executing a large conversion — the interaction with state taxes, capital gains, and other income can be complex.

5. Front-Load Charitable Donations (or Start a DAF)

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If you donate to charity and you itemize deductions, bunching multiple years of donations into a single tax year can push you over the standard deduction threshold ($15,000 single / $30,000 married filing jointly in 2025) and create a deductible amount you otherwise wouldn't have.

A Donor-Advised Fund (DAF) makes this practical: you contribute a lump sum to the DAF before December 31, take the full charitable deduction this year, and then distribute the money to specific charities on your own timeline over multiple years. Fidelity Charitable, Schwab Charitable, and Vanguard Charitable all offer DAFs with no minimum contribution. Contributing appreciated stock directly to a DAF avoids capital gains tax on the appreciation entirely.

6. Spend Your FSA Balance

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If you have a Flexible Spending Account through your employer, your balance is typically use-it-or-lose-it by December 31 (some plans offer a grace period or limited rollover — check your plan documents). Eligible expenses include prescription eyeglasses, contact lenses, dental work, over-the-counter medications, and hundreds of other items. If you have an FSA balance and haven't scheduled any eligible expenses, do it before year-end. The money is already gone from your paycheck — spending it on eligible purchases is a direct recovery.

7. Self-Employment Income: Accelerate Deductions, Defer Income

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If you have any freelance, consulting, or side business income, you have flexibility over which tax year expenses and income fall into. Prepaying legitimate business expenses before December 31 — software subscriptions, equipment, professional development, home office supplies — pulls those deductions into the current year. Invoicing clients in late December with net-30 terms means the income arrives in January, which pushes it into next year's return.

This isn't avoidance — it's using the timing flexibility the tax code provides. The same strategy applies to opening a Solo 401k: the plan must be established by December 31 of the year you want to contribute for. If you have self-employment income and don't have a Solo 401k, opening one before year-end preserves contribution capacity at up to $70,000 annually.

The 10-Minute Year-End Checklist

Before December 31: check your 401k contribution rate and increase if possible, verify your HSA is invested rather than sitting in cash, review your taxable brokerage for any positions with losses worth harvesting, confirm your FSA balance and schedule any remaining eligible expenses, and note any lower-than-normal income years as Roth conversion candidates.

None of these require a financial advisor. They require checking accounts you already have and making decisions before a calendar date. The window closes every year on the same day.