Preparing for year-end tax planning should begin even before the last quarter of the year. Early fall gives you more time to review your income, evaluate your current tax positions, and identify actions that must be completed by December 31. Many tax-related decisions depend on timing, and waiting until the end of the year may limit your available options.
Starting with Income and Withholding
A practical first step in year-end tax planning is to review the income you've earned so far this year. This includes wages, bonuses, self-employment income, and investment earnings such as interest, dividends, and capital gains. Comparing current income to prior years may help identify whether your overall earnings are higher or lower than expected.
Withholding plays a central role in how taxes are paid throughout the year. The IRS provides a Tax Withholding Estimator to help determine whether the correct amount is being withheld from paychecks¹. If withholding is too low, you may owe additional tax when you file a return. If it is too high, it may result in a larger refund.
Adjustments to withholding are typically made through an employer by updating Form W-4. Because these changes affect future pay periods, reviewing withholding in early fall allows time for adjustments to take effect before the end of the year.
Reviewing Retirement Contributions
Retirement account contributions are another key part of year-end tax planning. Many employer-sponsored plans, like 401(k) accounts, let individuals contribute part of their income on a pre-tax basis. These contributions may lower taxable income for the year in which they are made.
Contribution limits are set by the IRS and are adjusted periodically². Individuals age 50 and older may be eligible to make additional catch-up contributions beyond the standard limit. Reviewing contribution levels in early fall helps determine whether there is still room to contribute before year-end.
For those contributing to individual retirement accounts (IRAs), the contribution deadline is generally next year's tax filing deadline. But evaluating contributions before the end of the year may still support broader tax planning efforts.
Understanding Required Minimum Distributions
Required minimum distributions (RMDs) apply to certain retirement accounts once you are a specified age. Under current IRS rules, many individuals must begin taking RMDs at age 73³. These distributions are generally taxable and must be taken each year by December 31, except the first one may be delayed until April 1 of the following year.
Failing to take an RMD may result in a penalty. The IRS has lowered the penalty in recent years, but it still applies if required distributions are not completed on time. Reviewing account balances and confirming distribution schedules in early fall helps ensure that all requirements are met before year-end.
As noted, for individuals who turned 73 this year, the first RMD may be delayed until April 1 of the following year. But this may result in two distributions occurring in the same tax year, which may affect your overall income reporting. For example, if your RMD is $45,000, and you need to take two RMDs in the calendar year 2027, your RMD income for that year could be $90,000, which could bump you into the next tax bracket. Reviewing these timing considerations in advance helps support your planning decisions.
Evaluating Investment Activity
Investment activity in taxable accounts may affect year-end tax reporting. Gains and losses realized during the year are generally included in taxable income. Reviewing these transactions in early fall gives you a clearer understanding of how investment activity may affect tax outcomes.
Capital gains occur when an asset is sold for more than its purchase price, while capital losses occur when it is sold for less. Losses may be used to offset gains, subject to IRS rules⁴. If losses exceed gains, a limited amount may be used to offset other income, with remaining losses carried forward to future years.
Dividend and interest income should also be considered. These forms of income are typically reported annually and may increase your overall taxable income. Reviewing account statements and projected income in early fall allows time to assess the full picture before year-end.
Managing Flexible Spending Accounts
Flexible Spending Accounts (FSAs) allow you to set aside funds for eligible medical or dependent care expenses. These contributions are often made on a pre-tax basis, which may lower taxable income. Many FSAs operate under a “use-it-or-lose-it” rule, meaning you must use funds by the end of the plan year unless a grace period or limited carryover is allowed⁵. Reviewing your account balances in early fall provides time to plan for eligible expenses before deadlines.
Eligible expenses may include medical treatments, prescriptions, and certain dependent care costs. Understanding plan-specific rules is important, as FSA provisions may vary by employer.
Considering Health Savings Accounts
Health Savings Accounts (HSAs) are another tax-advantaged option for individuals enrolled in eligible high-deductible health plans. Contributions to HSAs may be tax-deductible, and funds may be used for qualified medical expenses.
Contribution limits for HSAs are set annually by the IRS and adjusted for inflation5. Unlike FSAs, unused HSA funds may carry over from year to year. Contributions for a given tax year may generally be made until the tax filing deadline of the following year.
Reviewing your contributions in early fall may help determine whether additional contributions are possible before year-end. It also allows time to confirm eligibility requirements, such as enrollment in a qualifying health plan.
Tracking Charitable Contributions
Charitable contributions may be deductible for taxpayers who itemize deductions. The IRS requires documentation for these contributions, including receipts or written acknowledgments, depending on the amount6. Cash donations are the most common form of giving, but non-cash contributions may also be considered. These may include donated goods or appreciated assets. Each type of contribution has specific documentation and valuation requirements.
Contributions must generally be completed by December 31 to be included in that year’s tax reporting. Reviewing planned donations in early fall allows time to gather documentation and complete contributions before deadlines.
Organizing Records for Tax Reporting
Accurate recordkeeping supports all aspects of year-end tax planning. Early fall is an appropriate time to organize documents related to income, expenses, and account activity. These records may include pay statements, investment summaries, charitable donation receipts, and documentation of medical expenses.
The IRS recommends keeping most tax records for at least three years, although certain circumstances may require longer retention7. Maintaining organized records may also help you respond to any future inquiries or audits.
Coordinating with a Financial Professional
Year-end tax planning may involve multiple factors, including income, investments, and healthcare-related accounts. Coordinating with a financial professional may support a more complete review of these areas.
Scheduling discussions in early fall allows time to evaluate current positions, gather documentation, and address any outstanding items before deadlines approach. This timing may also provide more flexibility in completing required actions.
Conclusion
Prepping for year-end tax planning involves reviewing income, evaluating contributions, understanding required distributions, and organizing records ahead of key deadlines. Early fall provides time to assess current financial activity and prepare for actions that must be completed before December 31.
This process connects with broader year-end planning topics, including charitable giving, healthcare decisions, and estate considerations. Addressing tax planning early supports a more structured approach to the final months of the year and helps align financial activity with current IRS rules and timelines.
Important Disclosures:
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
LPL Tracking #1106553
Sources:
1 Tax Withholding Estimator
https://www.irs.gov/individuals/tax-withholding-estimator
2 Retirement topics - Contributions
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-contributions
3 Retirement topics - Required minimum distributions (RMDs)
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
4 Topic no. 409, Capital gains and losses
https://www.irs.gov/taxtopics/tc409
5 Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
https://www.irs.gov/publications/p969
6 Charitable Contributions
https://www.irs.gov/pub/irs-pdf/p1771.pdf
7 Starting a Business and Keeping Records
https://www.irs.gov/pub/irs-pdf/p583.pdf