Every year, taxpayers leave valuable savings on the table simply because they act too late. With a proactive approach to year-end tax planning, you can help change that.

As the calendar winds down, taxpayers are presented with a critical window to evaluate their financial picture and implement strategies that can meaningfully reduce tax liability. Unlike tax filing season, year-end tax planning is forward looking and action oriented. It allows individuals, families and business owners to take control of outcomes before they’re locked in.

Below are several strategies to consider before December 31 to ensure you’re making the most of available opportunities.

1. Maximize Retirement Contributions

Retirement contributions not only help secure your future, but they are also a cornerstone of tax reduction and/or optimization.

• Increase pre-tax contributions to your employer 401(k) or 403(b) plans to reduce taxable income.
• Consider funding an individual retirement account (IRA) or Roth IRA, depending on income eligibility.
• For business owners, retirement vehicles like SEP IRAs or Solo 401(k)s offer significant contribution limits.

Traditional 401(k) contributions must be processed through payroll deductions by December 31 to reduce your current year taxable income. Traditional and Roth IRA contributions can generally be executed right up until the tax filing deadline in April.

If you believe your tax bracket will be higher during retirement than it is today, executing a Roth IRA conversion before the end of the year may be highly advantageous. A Roth conversion involves moving pre-tax funds from a traditional IRA or 401(k) into a post-tax Roth account. You must pay ordinary income tax on the converted amount in the current tax year, but the funds thereafter grow tax-free and may be withdrawn tax-free in retirement.

2. Harvest Investment Losses

Tax-loss harvesting involves selling investments at a loss to offset gains realized elsewhere in your portfolio. If you hold underperforming equities, mutual funds or digital assets in taxable brokerage accounts, selling them at a loss before December 31 allows you to realize the losses.

• Losses can offset capital gains dollar-for-dollar.
• If losses exceed gains, up to $3,000 can offset ordinary income annually.

When harvesting losses, you must strictly avoid the IRS’s wash-sale rule. This rule disallows the tax deduction if you purchase the same or a “substantially identical” security within 30 days before or after the sale. A thoughtful approach to this strategy can help rebalance your portfolio while improving after-tax performance.

Additionally, long-term capital gains tax rates are determined entirely by your ordinary income tax brackets. Deferring the sale of appreciated assets by January 1 can minimize the overall tax hit, if you anticipate a significantly lower income bracket next year. However, if you are expecting your income to increase significantly next year, selling your highly appreciated securities this year before December 31 could be the smarter move.

3. Leverage Charitable Giving and Gifting Strategies

Charitable contributions offer both financial and societal benefits. Beyond cash donations, consider more tax-efficient giving methods:

• Donor-Advised Funds (DAFs): Allow you to take an immediate tax deduction in the year the contribution is made, even though the funds can be distributed to charities over time.
• Appreciated Assets: Donating securities instead of cash can help avoid realizing capital gains on the appreciation, while still receiving a deduction for the full fair market value.
• Qualified Charitable Distributions: For individuals age 70½ or older, direct IRA transfers to charities can satisfy required minimum distributions while excluding the amount from taxable income.

At the same time, gifting strategies can help reduce your taxable estate and shift wealth efficiently:

• Utilize the annual gift exclusion to transfer assets to family members without triggering gift tax.
• Contribute to 529 college savings plans, which may offer state tax benefits and allow for accelerated gifting.

 College savings plans, such as the 529, are typically state-sponsored and may allow for some state income tax deductions, but not federal income tax deductions. The federal gift tax may apply for contributions that exceed $19,000 per individual giving the gift and per beneficiary.

4. Optimize Income Timing

One of the most powerful levers in tax planning is controlling when income is recognized. Depending on current and expected future tax brackets, you may benefit from either accelerating or deferring income.

• If you anticipate being in a lower tax bracket next year, consider deferring bonuses, consulting income or invoicing until January.
• Conversely, if this year presents a lower income opportunity, it may make sense to accelerate income now while rates are more favorable.

This strategy is effective for self-employed professionals, business owners or those with variable compensation structures.

By taking a proactive approach in the final weeks of the year, taxpayers can better manage their financial outcomes and avoid missed opportunities. Acting before December 31 is critical to capturing these benefits.

The team at Busey Wealth Management is here to help you build a successful roadmap for your financial future—today and for the years to come. To learn more about our tailored solutions, visit busey.com/wealth-management.

This material is provided for informational and educational purposes only and should not be construed as legal, tax, accounting, investment, or other professional advice. The information presented is general in nature and does not take into consideration the specific objectives, financial circumstances, tax situation, or needs of any individual or entity.

Any discussion of U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties under applicable law. Clients should consult their own legal, tax, accounting, and financial advisors regarding their specific circumstances.

This material is not an offer to sell or a solicitation to purchase any security, investment product, or service.