Tax Planning
Your 2026 tax return isn’t due for months, but actions to reduce your tax liability generally must be taken by December 31. Here are eight tax planning ideas to consider before the calendar turns to 2027.
1. Sell losing investments to offset capital gains
Review taxable accounts for investments you could sell at a loss to offset 2026 capital gains you’ve recognized. If losses for the year exceed gains, up to $3,000 can offset ordinary income ($1,500 for separate filers), with the remainder carried forward.
But watch out for the wash sale rule: A current loss generally isn’t allowed if you buy substantially identical securities within 30 days before or after the sale. Purchases in your IRA and automatic dividend reinvestments also can also trigger the wash sale rule. Review transactions across accounts before selling an investment with the goal of recognizing a current loss.
2. Increase pretax or tax-deductible retirement contributions
Contributing more to a workplace retirement plan, traditional IRA or self-employed retirement plan may reduce your 2026 taxable income. Eligibility and contribution limits vary. Traditional IRA deductions, for example, may be limited based on income if you or your spouse is covered by a workplace plan. Roth contributions don’t reduce current taxable income.
Check the deadlines now. To reduce 2026 taxable income, contributions to workplace plans generally must come from 2026 pay (and may need to be elected well before December 31), but 2026 IRA contributions can be made until April 15, 2027. Some self-employed plan contributions can be made as late as your tax return’s extended due date, but earlier plan setup or election deadlines may apply.
3. Consider a partial Roth conversion
Converting part of a traditional IRA to a Roth IRA won’t reduce your 2026 taxes, but it may make sense if your current tax rate is lower than the rate you expect to pay when you take distributions. The untaxed portion of the conversion increases your current taxable income, but future qualified Roth withdrawals will be tax-free.
Choose the amount carefully to avoid pushing income into a higher bracket or triggering income-based phaseouts that reduce or eliminate certain tax breaks. Calculate the tax cost before converting: A completed conversion can’t be reversed.
4. Bunch deductible expenses
If your itemized deductions are close to the standard deduction, consider bunching certain payments into this year and taking the standard deduction the next. For 2026, the basic standard deduction is $16,100 for single and separate filers, $24,150 for heads of household and $32,200 for joint filers. Higher amounts apply if you’re 65 or older or blind.
Charitable gifts, qualifying medical expenses and assessed property taxes may be candidates for bunching. But consider deduction limits: The state and local tax deduction cap is $40,400 ($20,200 for married couples filing separately), with reductions at higher income levels. Beginning in 2026, only charitable contributions exceeding 0.5% of adjusted gross income (AGI) are deductible when itemizing. Taxpayers in the 37% bracket also face a new limit on the tax benefit of itemized deductions.
5. Donate appreciated investments instead of cash
If you itemize, consider donating publicly traded securities held for more than one year to a public charity. You avoid tax on the appreciation and can base your deduction on the securities’ fair market value, subject to applicable deduction limits.
If you don’t itemize, qualifying cash gifts to eligible charities may generate a 2026 deduction of up to $1,000, or $2,000 for joint filers. But securities don’t qualify for this deduction. However, you can still avoid the tax on the appreciation if you donate them.
6. Make charitable gifts directly from your IRA
If you’re age 70½ or older, consider a qualified charitable distribution (QCD) from an eligible IRA. For 2026, you generally can transfer up to $111,000 directly to eligible charities without including it in taxable income. A QCD also can satisfy all or part of your required minimum distribution (if applicable).
You can’t claim a charitable deduction for the same gift. But excluding the distribution from income may provide a greater benefit than taking a taxable withdrawal and donating the proceeds. Why? It can reduce your AGI and modified AGI (MAGI), which are triggers for various tax break phaseouts and additional taxes. Arrange the transfer early enough to complete it by December 31.
7. Prepay eligible tuition
Paying qualified tuition by December 31 for an academic period beginning in January, February or March 2027 may qualify you for a 2026 education credit. The American Opportunity credit is worth up to $2,500 per eligible student; the Lifetime Learning credit is worth up to $2,000 per return.
Both credits phase out over MAGI of $80,000 to $90,000 for single and head-of-household filers and $160,000 to $180,000 for married couples filing jointly. Other eligibility requirements apply. Coordinate payments with scholarships and tax-free 529 plan withdrawals: You can’t use the same expenses for multiple tax benefits.
8. Increase withholding if you’re at risk for underpayment penalties
Compare your projected 2026 tax liability with your withholding and estimated payments, especially after a large gain, bonus or Roth conversion. If you’re falling short, consider increasing withholding from your remaining paychecks, pension payments or retirement plan distributions.
Withholding is treated as paid evenly throughout the year for underpayment-penalty purposes. Increasing it late in the year therefore may help address earlier shortfalls. A larger fourth-quarter estimated payment, by contrast, generally won’t eliminate penalties attributable to earlier quarters.
Coordinating year-end tax decisions
Before implementing any of these ideas, consider how they work together and whether they could increase your exposure to the alternative minimum tax. The best strategies for 2026 also depend on your expected tax situation in 2027. Contact us to review your specific circumstances while there’s still time to act. We can run projections for various scenarios and compare the alternatives to help identify which strategies are right for you.