9 last-minute tax deductions for the end of the year
If you thought tax planning was limited to around the tax deadline, you may want to revisit those plans. In fact, the end of the year is just as important. There are a few last-minute end-of-year tax tips that could save money.
Last-minute tax tips
Here are nine last-minute tax tips to help you understand your options:
1. Remember use-it-or-lose-it money in flexible spending accounts.
You don’t pay taxes on money you put in a flexible spending account (FSA). That tax-free money must be spent on qualified medical expenses before the designated deadline.
“Whatever funds you don’t spend before the end of the year – or grace period, if your company’s plan provides one – is just money left on the table,” said Alison Flores, principal tax research analyst at The Tax Institute at H&R Block.
Instead, you should make sure to use this money for unreimbursed medical expenses, like eyeglasses, prescription medications, medical equipment, or copays. If you still have flexible spending account money to spend in November and December, you could go see your doctors or buy prescription medicine you need.
2. Plan to accelerate or delay payments.
For those who are close to the 2022 standard deduction of $12,950 for single filers and $25,900 for married couples filing jointly, bunching your itemized deductions could help you get over the standard deduction every other year. For example, you may wait until January to make some payments or donate to charity. Delaying those expenses until the next tax year could boost your ability to itemize next year.
Or, if you think you’ll have fewer eligible itemized expenses in this tax year than next, you might be able to accelerate some payments and shift some deductions from next year to this year.
In all these cases, you should remember the most beneficial tax planning occurs over a multi-year horizon and paying an extra amount this year may not be tax advantageous for everyone
3. Estimate income and determine if a tax benefit phaseout could affect the tax return.
Many tax benefits generally phase out, usually as your income increases. At a certain point, the benefit may be eliminated or available only at a small amount. If you are close to a phaseout range of a tax benefit, you could try to lower your adjusted gross income (AGI) so you can claim the tax benefit. One example of how this can be done is contributing more, or as much as possible, to your pre-tax retirement plan, such as a 401(k), 403(b), or a deductible IRA.
4. Contribute to a retirement account to lower adjusted gross income and taxable income.
Lowering AGI and taxable income is always good, even if you are not at risk of getting phased out of a tax benefit; lowering AGI and taxable income also means paying less tax and could reduce the amount of Social Security subject to tax or any net investment income tax.
Contributing to a pre-tax retirement plan lowers both AGI and taxable income. These plans include 401(k)s, 403(b)s, deductible IRAs, SIMPLE IRAs, and SEPs. You have until Dec. 31 to make contributions to 401(k)s and 403(b)s for the current tax year and until the filing deadline of the tax year to make contributions to IRAs and some other retirement plans.
5. Consider a qualified charitable distribution to lower adjusted gross income and taxable income.
If you are at least 70½, you could consider a trustee-to-trustee transfer of some or all of your required minimum distributions to a qualified charity.
“Some retirees may not have enough expenses, like home mortgage interest or out-of-pocket medical expenses, to justify itemizing their deductions. By making a qualified charitable rollover, they can get a tax benefit even if they do not itemize,” Flores said.
6. Lower taxable income through charitable deductions.
If you itemize, you can lower your taxable income through a charitable deduction. You must give to a qualified charity by Dec. 31 and keep the necessary documentation, which will vary depending on the contribution type and amount.
7. Sell certain securities.
If you have a large net capital gain within the tax year, you might want to sell some stock to generate a loss before year end. This strategy, called “tax loss harvesting,” can reduce the amount of capital gains subject to tax. But in any case, you shouldn’t let possible tax savings cause you to make a decision contrary to your overall investment strategy or financial needs.
8. Investigate before buying mutual funds.
If you are planning to invest a large amount in a mutual fund, you should find out when the fund declares and pays its dividend as well as the date of record or ex-dividend date.
“Confirm timing around the fund’s ex-dividend date and the dates the fund typically declares and pays dividends before the end of the year,” Flores said. “If you purchase mutual funds before the ex-dividend date, you’ll receive and pay tax on the dividends. If you purchase mutual funds after the ex-dividend date, you won’t receive a dividend. You’ll increase your income by the amount of any taxable dividend paid in the tax year. This is true even if you reinvest the dividend in new shares. Dividends from a mutual fund are most commonly ordinary dividends subject to ordinary tax rates, just like your wages. But they can also be qualified dividends taxed at lower 0%, 15%, or 20% capital gains rates if you and the mutual fund meet certain holding period requirements.”
You should look for the ex-dividend date and other information at the fund company’s website. The fund should issue you a 1099-DIV showing how much dividend income qualifies for capital gain treatment.
9. Update paycheck withholding.
Withholding changes the balance of the size of your refund and the size of your paychecks. To strike the right balance, you need to update your W-4s with your employers. While it’s too late in the year to meaningfully impact this year’s return, updating your W-4 now means you can start off the next year just how you want. If you still have time this year and haven’t withheld enough taxes, you could consider asking your employer to withhold a one-time sum from one of your last paychecks of the year.
More guidance with year-end tax planning
After you make your final tax moves prior to the new year, you can look forward to filing your return, and then start tax planning for the future year.
Remember: You don’t have to embark on year-end tax planning alone. Let H&R Block guide you. Learn more about the ways to file
If you need help handling an estate, we're here to help. Learn how to file taxes for a deceased loved one with H&R Block.
From retirement account contributions to self-employment expenses, learn more about the five most common tax deductions with the experts at H&R Block.
Getting married? Having a baby? Buying a house? Go through your life events checklist and see how each can affect your tax return with the experts at H&R Block.
Donating household goods to your favorite charity? Learn the ins and outs of deducting noncash charitable contributions on your taxes with the experts at H&R Block.