Smart Year-End Tax Strategies for Individuals: Maximize Your Savings Before December 31st
As the year winds down, most people turn their attention to holidays, travel, and family. But there’s one more item worth checking off your list before December 31st — a year-end tax review. With a few intentional moves, you can still meaningfully reduce your tax bill, set yourself up for a stronger financial year ahead, and avoid surprises come April.
At Connell Tax & Advisory, we help individuals and families make confident, proactive decisions before the year closes. Below are the most impactful, easy-to-understand year-end strategies that can help you keep more of your hard-earned money.
1. Max Out Tax-Advantaged Retirement Contributions
Contributing to retirement accounts is one of the most effective ways to reduce taxable income.
401(k), 403(b), and Employer Plans
2025 employee contribution limit: $23,500
Age 50+ catch-up: additional $7,500
Every dollar you contribute lowers your taxable income today and grows tax-deferred for the future.
Traditional IRA
Contribution limit: $7,000
Age 50+ catch-up: additional $1,000
Depending on your income and employer plan coverage, IRA contributions may be deductible.
If you received a year-end bonus, consider directing part of it toward your retirement plan to reduce your tax burden.
2. Use the “Backdoor Roth” if You’re a High Earner
If your income is above IRS limits for direct Roth IRA contributions, a backdoor Roth IRA can still allow you to build tax-free retirement income.
This involves:
Contributing to a non-deductible IRA
Converting it to a Roth IRA
This strategy can be powerful, but it must be done properly to avoid unexpected tax implications.
3. Harvest Investment Losses to Offset Gains
If you sold investments this year for a profit, you may face capital gains taxes. But you can reduce or eliminate those taxes using tax-loss harvesting:
Sell investments that have dropped in value
Use the loss to offset gains
Offset up to $3,000 of ordinary income if losses exceed gains
Carry forward unused losses indefinitely
This strategy should be approached thoughtfully to avoid the “wash sale rule,” which disallows the loss if you repurchase a substantially identical investment within 30 days. Even passive investors can benefit from harvesting losses periodically — especially in volatile markets.
4. Boost Your HSA or FSA Before It's Too Late
Health Savings Account (HSA)
HSAs offer triple tax benefits:
Deductible contributions
Tax-free growth
Tax-free withdrawals for medical expenses
2025 Contribution limits:
$4,300 for individuals
$8,550 for families
$1,000 catch-up for age 55+
If you’re enrolled in a high-deductible health plan, maxing your HSA is one of the smartest financial decisions you can make.
Flexible Spending Accounts (FSA)
Most FSAs are “use it or lose it.” Check your balance now — glasses, prescriptions, dental work, and other health expenses often qualify.
5. Make Strategic Charitable Donations
If you itemize deductions, year-end giving can significantly reduce your taxable income.
Ways to donate:
Cash donations to qualified charities
Donor-Advised Funds (DAFs) — contribute now, distribute later
Non-cash items such as clothing or household goods
Appreciated stock — avoid capital gains and receive a full-value deduction
Even if you take the standard deduction, there may still be opportunities depending on future tax law changes or bunching strategies.
6. Prepay Certain Expenses to Unlock Deductions Early
For individuals who itemize deductions, prepaying certain expenses before year-end can increase deductions in the current tax year.
Common examples:
State estimated tax payments
Property taxes
Mortgage interest (depending on your lender)
Medical expenses if you’re close to exceeding 7.5% AGI threshold
This strategy is especially helpful if you’re planning a large medical procedure or home tax payment in January — shifting it to December may increase your totals.
7. Review Withholdings and Avoid a Surprise Tax Bill
If you switched jobs, earned bonuses, or had unexpected income, your withholdings may not reflect your total tax liability.
A quick year-end check can:
Prevent underpayment penalties
Help you adjust last paycheck withholdings
Ensure you start the next year on the right foot
Most people wait until filing time — but by then it’s too late to correct a shortfall.
8. Take Advantage of Education Tax Credits
If you or your dependents paid for education this year, explore:
American Opportunity Tax Credit (AOTC): Up to $2,500 per student
Lifetime Learning Credit (LLC): Up to $2,000 per return
Keep receipts for books, tuition, and required materials.
9. Use Your Annual Gift Tax Exclusion
If you’re planning family gifts or supporting younger generations:
You can give up to $19,000 per recipient in 2025
Married couples can gift $38,000 per person
These gifts reduce your taxable estate and help family members without generating any tax burden for either side.
10. Look Ahead: Create a Simple Tax Plan for Next Year
Year-end planning isn’t just about minimizing this year’s taxes — it’s also about starting the next year with clarity. Consider:
How your income will change
Expected bonuses, investments, or life events
Whether to adjust withholdings or estimated payments
Whether you’ll itemize or take the standard deduction
Opportunities to structure income or deductions strategically
Final Thoughts
The best opportunities to lower your tax bill don’t happen in April — they happen right now, before December 31st.
Whether you’re navigating investments, charitable giving, healthcare accounts, or simply want to avoid surprises at tax time, year-end planning gives you control and confidence.
If you’d like personalized recommendations tailored to your income, goals, and tax situation, Connell Tax & Advisory is here to help you start the new year on solid financial ground.
