As the 2025 tax year draws to a close, it’s essential to start planning ahead to potentially lower your tax bill and boost your savings for 2026. According to David Kelly, Chief strategist at JPMorgan Asset Management, taxpayers may pay more upfront in 2025 but could receive a larger refund in 2026. The estimated average refund could be $3,743, representing a more than 17% increase from 2025.
To maximize your potential savings, it’s crucial to prepare strategically. Fidelity suggests considering five tax-saving moves as we approach the end of the year. One key date to keep in mind is December 31, which serves as the deadline for contributions to workplace retirement plans, college savings accounts, and more. For 2025, you can contribute up to $23,500 to 401(k) or 403(b) plans, with an additional $7,500 catch-up contribution available for those aged 50 or older.
Contributing to a 401(k) plan can lower your taxable income by the same amount of your contribution, potentially saving you around $4,400 in federal taxes if you fall into the 22% tax bracket. Additionally, December 31 is the last day for individuals aged 73 or older to take required minimum distributions to avoid penalties.
Another strategy to consider is tax-loss harvesting, where you can sell underperforming assets to offset capital gains from other investments. This can help lower your tax bill by up to $3,000 of remaining losses applied toward ordinary income each year, with any additional losses carried forward to future tax years.
For those who itemize deductions, it can be beneficial if your deductions exceed the standard deduction of $15,750 for single filers and $31,500 for married couples in 2025. Common itemized deductions include medical expenses, mortgage interest, state and local taxes (SALT), and charitable donations.
Under the One Big Beautiful Bill (OBBB), there are temporary changes to deductions such as the SALT deduction cap being raised to $40,000 through 2029 for eligible filers. Taxpayers age 65 and older can claim an extra $6,000 deduction at certain income levels.
Furthermore, a Roth IRA conversion allows you to move money from a traditional IRA into a Roth IRA, paying taxes now for tax-free withdrawals later. This strategy can be advantageous if you anticipate a rise in income or tax rate in the future.
In conclusion, taking proactive steps before the end of the year can help you maximize your tax savings and financial goals for 2026. By considering these strategies and deadlines, you can potentially lower your tax bill and secure a stronger financial future.
