Heading into Year-End
With the leaves falling and the weather getting cooler, I am always reminded that year-end is approaching. This tends to be a very busy time for all of us as the holiday calendar and related responsibilities ramp up. However, as financial planners, this time of year also tends to be our professional “busy season.” We are not only trying to satisfy our clients’ ongoing needs, but we are also focusing on many of the tax deadlines that come with December 31st.
You see, most people think of April 15th as the important tax deadline. However, as planners focused on the future, we look for opportunities to put our clients in a better position over the long term by making tax planning adjustments before year-end. We want to highlight some of the more common strategies that may be applicable to you and help improve your long-term financial future.
For background, the United States uses a progressive income tax system, meaning those earning higher incomes generally pay a higher percentage of their income in taxes. Federal income tax rates range from 10% to 37%, while long-term capital gains are taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income and filing status. The U.S. tax code is very complex, and there are many nuances to it, but we will focus this article on a high-level overview to introduce some of these concepts.
The following table, from www.taxfoundation.org, shows the 2026 Federal Income Tax Rates, depending on filing status:
Tax Rate | For Single Filers | For Married Individuals Filing Joint Returns | For Heads of Households |
10% | $0 to $12,400 | $0 to $24,800 | $0 to $17,700 |
12% | $12,401 to $50,400 | $24,801 to $100,800 | $17,701 to $67,450 |
22% | $50,401 to $105,700 | $100,801 to $211,400 | $67,451 to $105,700 |
24% | $105,701 to $201,775 | $211,401 to $403,550 | $105,701 to $201,750 |
32% | $201,776 to $256,225 | $403,551 to $512,450 | $201,751 to $256,200 |
35% | $256,226 to $640,600 | $512,451 to $768,700 | $256,201 to $640,600 |
37% | $640,601 or more | $768,701 or more | $640,601 or more |
Source: Internal Revenue Service, “Revenue Procedure 2025-32.”
The following table, also from www.taxfoundation.org, shows the 2026 Long-Term Capital Gains Tax Rates, depending on filing status:
Tax Rate | For Unmarried Individuals, Taxable Income Over | For Married Individuals Filing Joint Returns, Taxable Income Over | For Heads of Households, Taxable Income Over |
0% | $0 | $0 | $0 |
15% | $49,450 | $98,900 | $66,200 |
20% | $545,500 | $613,700 | $579,600 |
Source: Internal Revenue Service, “Revenue Procedure 2025-32.”
We must remember that the main focus of tax planning is NOT tax avoidance. There are instances when taxes may be avoided altogether (see the 0% capital gains rate above), but our focus is on working within the tax rules. Tax planning involves taking advantage of the structure of our graduated tax system, available deductions, and other provisions to minimize taxes over time while remaining compliant with the rules.
Opportunities in tax planning often arise from the structure of the tax brackets themselves, with different levels of income being subject to different tax rates. Take, for example, contributing $10,000 to a Traditional 401(k) plan. Keep in mind that Traditional 401(k) contributions generally lower your taxable income dollar for dollar, but those funds are taxable as ordinary income when distributed from the plan.
If you are in the 22% tax bracket today and expect to remain in that same bracket when you eventually withdraw the funds, there may be little or no tax-rate advantage to making the contribution. However, if you are a high earner in the 37% tax bracket, the $10,000 contribution effectively saves you from paying taxes at that rate today. If you withdraw that $10,000 in retirement when you are in the 22% bracket, you have effectively saved 15% points in taxes. This is a simplified example, but it illustrates how tax planning can reduce your overall tax burden over time.
Please know that we are continually monitoring the accounts we manage on your behalf for tax planning opportunities. Some of the strategies we may consider include the following:
Tax-Loss Harvesting – Selling investments with unrealized capital losses to offset realized capital gains, potentially lowering your overall tax liability. Any unused losses may also be carried forward to future tax years, subject to applicable rules.
Tax-Gain Harvesting – Selling investments with unrealized capital gains when you may qualify for a lower (or even 0%) long-term capital gains tax rate. This can allow you to recognize gains at a lower tax rate and potentially reset your cost basis.
Roth IRA Conversions – Converting pre-tax retirement assets to a Roth IRA and paying the resulting income taxes with funds outside the retirement account. This may be beneficial when you are currently in a lower tax bracket than you expect to face in the future.
Qualified Charitable Distributions (QCDs) – Individuals age 70½ or older can make charitable contributions directly from an eligible IRA, subject to annual limits. For 2026, the limit is $111,000 per individual. If you have charitable intentions, this can be an excellent way to support your chosen 501(c)(3) organizations while potentially reducing your taxable income.
Donor-Advised Funds – Making charitable contributions to a donor-advised fund during a year when you experience an unusually high level of income, potentially putting you in a higher tax bracket. This may allow you to take a charitable deduction in the year of the contribution while deciding later which qualified charities will ultimately receive the funds.
Scenario Analysis in the event of a spousal death – Many of these strategies may or may not make sense with married couples, but if one spouse passes, tax brackets change and can affect strategies going forward.
As always, tax planning is not a one-size-fits-all exercise. What makes sense for one individual or family may not be appropriate for another. Our goal is to look beyond the current tax year and help you make decisions that improve your financial position over time. As we approach December 31st, please reach out to us if you have questions about any of these strategies or would like to discuss opportunities that may be applicable to your situation.
Tax planning is about managing taxes over your lifetime, not simply minimizing taxes in a single year.
