Tax Planning Strategies: The Year-Round Moves That Actually Lower Your Tax Bill

For W-2 earners, the 2026 employee deferral limit is $24,000 to a 401(k), 403(b), or TSP, with a $7,500 catch-up at age 50+ and a higher Section 414(v)(2)(E) catch-up of $11,250 at ages 60-63 under SECURE 2.0. Solo 401(k) participants can also make profit-sharing contributions, pushing total contributions to $70,000 or more (plus catch-ups).

Backdoor Roth IRA: a non-deductible Traditional IRA contribution ($7,500 limit, $8,500 with catch-up) followed by an immediate Roth conversion. Works cleanly if you have no other Traditional IRA balances (the pro-rata rule under Section 408(d)(2) blends pre-tax and after-tax balances, otherwise).

Mega Backdoor Roth: after-tax contributions to a 401(k) up to the overall $70,000 annual addition limit, with in-plan Roth conversion. Available only when the plan document permits, but for those who do have it, it can shelter another $30,000+ per year.

HSA: $4,300 single / $8,550 family in 2026, plus $1,000 catch-up at 55+. Triple-tax-advantaged (deductible going in, tax-free growth, tax-free out for qualified medical), and post-65 withdrawals for any purpose are taxed like an IRA (no penalty).

Donating appreciated long-term securities (held more than 1 year) avoids the capital gains tax that would have applied on sale and gives a fair-market-value charitable deduction up to 30% of AGI for public charities. On a $50,000 donation of stock with a $10,000 basis, the saver avoids $9,520 in federal long-term capital gains plus NIIT (on a 20% / 3.8% bracket) and gets a $50,000 deduction.

Donor-Advised Funds (Schwab Charitable, Fidelity Charitable, Vanguard Charitable) accept the donation in one year, generate the deduction in that year, and let the donor recommend grants to charities over future years. Combined with charitable bunching, this lets a taxpayer take the standard deduction in non-bunch years and itemize a stacked DAF contribution in bunch years.

Qualified Charitable Distributions (QCDs) from an IRA at age 70.5+ (up to $108,000 in 2026) go directly to a public charity, satisfy required minimum distributions if applicable, and are excluded from AGI. Often more efficient than taking the RMD and donating, because it lowers AGI for IRMAA, Social Security taxation, and other AGI-driven thresholds.

IRC Section 199A allows a deduction of up to 20% of qualified business income for owners of pass-through entities (sole proprietors, S-Corps, partnerships, LLCs taxed as such). For taxpayers below the income threshold ($241,950 single / $483,900 joint in 2026), the deduction is straightforward: 20% of QBI.

Above the threshold, two phaseouts apply. Specified Service Trades or Businesses (SSTBs: law, health, accounting, consulting, financial services, athletics, performing arts, brokerage) lose the deduction entirely above the upper threshold. Non-SSTB businesses are limited to the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of unadjusted basis in qualified property.

This makes QBI planning interlocking with S-Corp wage decisions, real estate basis, and sometimes business restructuring. For an S-Corp at the threshold, raising the wage may sacrifice payroll-tax savings to unlock more QBI; the math depends on your specific numbers.

A Roth conversion moves Traditional IRA / 401(k) money into a Roth IRA, paying ordinary income tax on the converted amount in the conversion year. Done in low-income years (post-retirement, pre-Social-Security and pre-RMD), the conversion locks in a low effective tax rate on the converted amount and eliminates future RMDs and tax on growth.

A multi-year Roth conversion ladder is a common strategy in early retirement: convert just enough each year to fill up the 12% or 22% bracket, then withdraw the converted principal tax-free after the 5-year season. Combined with deferred Social Security claiming, this can reduce lifetime federal tax by six figures.

Watch the IRMAA cliff (Medicare premium surcharges based on AGI from 2 years prior), the Social Security taxation thresholds, and net investment income tax (NIIT) brackets. Conversions can push AGI through these in ways that erase the planning benefit.

Tax-loss harvesting sells losing positions to realize capital losses that offset capital gains and up to $3,000 of ordinary income per year (excess carries forward indefinitely). The wash sale rule under IRC Section 1091 disallows the loss if a substantially identical security is purchased within 30 days before or after the sale.

Tax-gain harvesting is the inverse: realizing long-term capital gains in a year where the taxpayer is in the 0% capital gains bracket (taxable income under $48,350 single / $96,700 joint in 2026). Selling and immediately rebuying steps up the basis tax-free, locking in gains at zero tax. Useful in low-income years, including for retirees pre-Social Security.

Specific lot identification (rather than default FIFO) is a critical part of harvesting. Most brokerages let you specify which lots to sell, and high-cost lots are typically chosen when harvesting losses, low-cost lots when harvesting gains.

In December, key levers include: maximizing 401(k) and HSA contributions for the year, harvesting losses, executing Roth conversions before year-end, making charitable contributions (especially to DAFs), and evaluating Section 179 / bonus depreciation for business equipment placed in service by year-end.

For business owners, December is also the time to evaluate retirement plan contributions for the prior year (defined benefit plan deadlines extend to the tax filing deadline), accelerate or defer billing to manage current-year income, and confirm that estimated taxes are paid to avoid underpayment penalties.

Estate-planning year-end moves include using the annual gift exclusion ($19,000 per recipient in 2026), funding 529 plans (with five-year forward gift acceleration if appropriate), and evaluating intra-family loans at the AFR.