Tax savings to consider heading into this holiday season

As we approach the end of another year, it’s important to take stock not only of our blessings heading into the holiday season, but also of our taxes. Below are five tax-related items every wealthy family should review before December 31st:

1. Update your tax estimates

2. Gift highly appreciated stock to charity

3. Harvest losses (or gains) across your portfolio

4. Reviewing gifting of assets to your children

5. Maximize retirement plan contributions

We elaborate on each one below.

1. Estimated taxes

The goal here is not to avoid having a tax bill in April, but rather to pay just enough to avoid a costly penalty. 

For those who are self-employed, receiving large year-end bonuses, or earning sizable non-W-2 income, it is essential to update your tax estimates before the January 15th estimated tax deadline to avoid potential underpayment penalties. If you’ve already overpaid, you may want to stop the final estimated payment and let more of your money grow ahead of April’s tax deadline.

For employees who receive a W-2, if you have a large taxable event outside of your primary job, you may want to update your tax withholding with HR to avoid a surprise bill in April. 

2. Charitable giving

A key part of any charitable giving strategy is doing so as tax efficiently as possible. After the rise in stock markets over the past three years, most of us hold highly appreciated stock. This makes it an ideal time to donate appreciated stock, either directly to charity or to a donor advised fund (DAF). Doing so provides an immediate tax deduction while also eliminating the future capital gains tax on the stock.

This year’s new tax laws around charitable giving make DAFs even more attractive. A DAF allows you to take a large tax deduction for the current year and then spread out your giving over multiple years. We wrote about this in a previous post about the new tax law: Charitable planning under recently updated tax law.

One final strategy to consider for individuals over age 70½  is a qualified charitable deduction (or QCD) directly from your retirement account. Such donations of up to $108,000 this year can satisfy your required minimum distribution (RMD) and reduce your adjusted gross income (MAGI) reported on your tax return, potentially lowering your tax rate elsewhere. 

3. Tax loss (or gain) harvesting

In years when you have large realized gains, it can be beneficial to identify losses to offset those gains and help defer your tax bill. If you plan to buy back a losing position, be mindful of the 30-day Wash Sale rule, which can disallow the loss for tax purposes. And don’t forget about loss carryforwards from prior years.

Alternatively, in years when your income is abnormally low, it may be advantageous to realize gains in your portfolio at a potentially lower capital gains rate than normal. These low-income years also present an opportunistic time for Roth IRA conversions. 

4. Estate planning and gifting to kids

One way to gift money out of your estate is to take advantage of the annual gift tax exclusion. Each individual, both you and your spouse, can give up to $19,000/person without having to file a gift tax return or reducing your lifetime exemption, which is rising to $15M in 2026. These gifts can be made to children or any other beneficiaries.

For larger gifts out of your estate, strategies often involve irrevocable trusts or a family partnership. Just beware of the higher tax rates incurred by trusts compared to our personal rates. 

5. Maximizing retirement plan contributions

Last but not least, for high-income individuals, the goal is often to max out every available qualified retirement plan. This includes checking the status of 401k, 403b, and 457 plans, and maximizing any available Mega Backdoor Roth options. 

Additionally, non-employed spouses can make Spousal IRA contributions and immediately convert them to Roth (but beware of the pro-rata rule if your spouse has existing pre-tax IRA assets). 

In summary, hopefully the end of each year is a joyous time with friends and family. But this time of year also presents deadlines for tax savings and long-term strategic estate planning. When done well, lower income and estate tax bills should give a little extra to cheer about over the holidays.

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