As a CPA, I've seen countless clients overpay on their taxes simply because they waited until April to think about tax strategy. The biggest mistake? Treating tax planning like tax preparation. Smart taxpayers know that the real savings happen throughout the year, with strategic moves made before December 31st.

Most people approach taxes reactively - gathering documents, finding deductions, and hoping for the best. But here's what I tell every client: your tax return should never contain surprises. By the time you're filing, every deduction should be maximized, every strategy implemented, and every dollar of tax savings captured.

The difference between proactive tax planning and reactive tax preparation can easily mean thousands of dollars in your pocket instead of the government's. I've helped clients save anywhere from $3,000 to $25,000+ annually using the strategies in this checklist.

If you're ready to start saving and you want help navigating these strategies, contact us for a free consultation at www.lindyparkercpa.com

The Strategic Approach to Tax Planning

Before diving into specific tactics, understand this fundamental principle: tax planning is about timing and optimization. You're not avoiding taxes illegally - you're arranging your financial affairs to pay the least amount required by law.

Every tax strategy falls into one of four categories:

• Timing income (when you recognize it)

• Timing deductions (when you claim them)

• Income shifting (who receives the income)

• Deduction maximization (claiming everything legally available)

The key is implementing these strategies before the tax year ends, not after.

Income Timing Strategies

1. Defer Income to Next Year

If you expect to be in a lower tax bracket next year, delay invoicing clients or defer year-end bonuses until January. This is particularly powerful for business owners and independent contractors who control their billing timing.

Pro Tip: This strategy works well if you're planning to retire, take unpaid leave, or expect a significant income decrease in the next year.

2. Accelerate Income This Year

Conversely, if you expect higher income next year, accelerate payments. Send invoices early, collect on outstanding receivables, or take bonuses before year-end.

Action Step: Review your expected income for both years and calculate the tax impact of shifting $10,000+ to the current year.

3. Convert Traditional IRA to Roth IRA

In low-income years, converting traditional IRA funds to a Roth IRA can be incredibly powerful. You'll pay taxes now at your current (lower) rate, but all future growth becomes tax-free.

Sweet Spot: Consider conversions when your taxable income is at the bottom of the 12% or 22% tax brackets. You can fill a whole bracket with converted funds without increasing you tax rate.

4. Realize Capital Gains Strategically

If you're in the 0% capital gains bracket (taxable income under $48,350 for single filers and $96,700 for married couples filing jointly in 2025), consider selling appreciated investments to reset your cost basis without paying federal capital gains tax. If you are in a higher capital gains bracket, you can still use this tip strategically if you anticipate significant increases in income in the future.

Advanced Move: Immediately repurchase the same investments (no wash sale rules for gains) to step up your basis for future sales.

Business Expense Management

5. Purchase Business Equipment Before Year-End

Section 179 generally allows you to deduct up to $1,160,000 in equipment purchases in the year of purchase, rather than depreciating over several years. Other options like bonus depreciation can also help you accelerate the expensing of capital purchases. This will help decrease your income and tax in the year of purchase.

Qualifying Items: Computers, software, office furniture, vehicles, and most tangible business property.

6. Pay Outstanding Business Expenses

Similarly, you can accelerate other expenses if you prepay rent, insurance, professional services, or other legitimate business expenses due in early next year. As long as you are a cash-based taxpayer or the expense benefits your business for 12 months or less, it's deductible this year.

Cash Flow Benefit: This strategy works especially well if you have strong cash flow and want to reduce current-year taxes.

7. Stock Up on Business Supplies

You can also accelerate expenses by purchasing office supplies, inventory (if applicable), or other business necessities you'll need anyway. The key is buying items you'll actually use in your business.

Documentation: Keep receipts and ensure purchases are clearly business-related to avoid audit issues.

8. Maximize Business Meal Deductions

Business meals are generally 50% deductible, but there are exceptions. Take advantage of business holiday parties, team building activities, meals provided to employees for your convenience, or meals and beverages provided for free to the public (such as for promotional events or advertising) are all 100% deductible.

Record Keeping: Document as much information as you can about the circumstances of any meal that you would like to deduct in full.

Retirement and Investment Moves

9. Max Out 401(k) Contributions

For 2025, you can contribute up to $23,500 to your 401(k), plus an additional $7,500 if you're over 50. Each dollar reduces your taxable income dollar-for-dollar.

Last-Minute Strategy: Increase your contribution percentage for remaining paychecks to reach the maximum.

10. Contribute to Traditional IRA

Even if you have a 401(k), you may still be able to deduct IRA contributions. The deduction phases out at higher income levels, but deductions phase out rather than disappearing completely. If you are eligible, up to $7,000 (for 2025) can be contributed to the account and deducted from your income.

Deadline Advantage: Unlike most strategies, IRA contributions can be made until April 15th of the following year.

11. Open and Fund an HSA

Health Savings Accounts offer triple tax benefits: deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses. For 2025, if you are a participant in a high deductible health plan, you can contribute up to $4,300 for individuals or $8,550 for families.

Long-term Strategy: Treat your HSA like a retirement account by paying medical expenses out-of-pocket and letting the account grow.

12. Implement Tax-Loss Harvesting

Sell investments trading at a loss to offset capital gains. If you have more capital losses than capital gains, you can use up to $3,000 in excess losses to offset ordinary income, carrying forward any remaining losses to future years.

Wash Sale Warning: Don't repurchase the same or "substantially identical" security within 30 days of the sale, or the loss will be disallowed.

13. Bunch Investment Expenses

While miscellaneous itemized deductions are suspended through 2025, investment expenses in taxable accounts can still be valuable. Consider bunching advisory fees, investment publications, and other investment-related expenses.

Charitable Giving Strategies

14. Bunch Charitable Contributions

If your total itemized deductions are close to the standard deduction, consider "bunching" multiple years of charitable giving into one year to exceed the standard deduction threshold.

Example: Instead of giving $5,000 annually, give $15,000 every three years to maximize the tax benefit.

15. Donate Appreciated Securities

Instead of donating cash, donate stocks or other securities that have appreciated in value. You'll get a deduction for the full fair market value while avoiding capital gains tax on the appreciation.

Double Benefit: This strategy provides a larger deduction than selling the stock and donating the proceeds.

16. Consider a Donor-Advised Fund

If you want to make a large charitable contribution but haven't decided on specific charities, a donor-advised fund allows you to claim the deduction immediately while distributing the funds over time.

Flexibility: You maintain advisory privileges over how the funds are ultimately distributed to qualified charities.

17. Donate Required Minimum Distributions

If you're over 70½, you can donate up to $100,000 directly from your IRA to charity. This counts toward your required minimum distribution but isn't included in your taxable income.

Tax Efficiency: This strategy is beneficial because you don't need to itemize to realize the benefits of the charitable deduction.

Family and Dependent Strategies

18. Time Medical Expenses

If you're close to exceeding the 7.5% of income threshold for medical expense deductions, consider timing elective procedures or bunching expenses into one year.

Planning Opportunity: Schedule routine procedures, dental work, or elective treatments before year-end if it helps you exceed the threshold or delay them until after year-end if you anticipate higher medical expenses in the next year.

19. Maximize Dependent Care Benefits

If it is available to you, use your full $5,000 annual dependent care FSA contribution for qualifying child care expenses. This reduces both income and payroll taxes.

Possible Pitfall: The childcare expenses are only deductible if the primary reason for the childcare is to allow you and your spouse to work or actively look for work. If you are married, both spouses must have earned income in excess of $5,000 for the year.

20. Plan Education Expenses Strategically

Time tuition payments to maximize education credits. The American Opportunity Credit provides up to $2,500 per student for the first four years of college.

Timing Tip: Paying spring semester tuition in December rather than January can accelerate the credit to the current tax year.

Advanced Strategies

21. Establish a Solo 401(k)

If you have self-employment income, a Solo 401(k) allows much higher contribution limits than traditional IRAs. You can contribute both as an employee and employer.

Maximum Benefit: Total contributions can reach $69,000 for 2024 ($76,500 if over 50), significantly more than other retirement account options.

22. Use a Backdoor Roth IRA

If your income is too high for direct Roth IRA contributions, contribute to a non-deductible traditional IRA and immediately convert to a Roth IRA.

Income Limits: This strategy works regardless of your income level, as long as you don't have other traditional IRA balances complicating the conversion.

23. Optimize State Tax Planning

If you live in a high-tax state and are considering relocating, timing your move can have significant tax implications. Some states don't tax retirement income, while others have no income tax at all.

Snowbird Strategy: Establish residency in a low-tax state if you split time between multiple locations.

24. Implement Income Shifting

Pay family members reasonable wages for legitimate work in your business. This shifts income from your higher tax bracket to their lower bracket while creating business deductions.

Documentation Required: Ensure work is legitimate, wages are reasonable, and proper payroll procedures are followed.

25. Bundle Business Formation

If you're considering forming an LLC or corporation, timing the formation and initial expenses can provide immediate tax benefits while setting up future tax planning opportunities.

First-Year Benefits: Organizational costs, initial equipment purchases, and startup expenses can often be deducted or amortized beginning in the first year.

Implementation Timeline

November: Review your current tax situation and identify which strategies apply to your circumstances.

Early December: Implement strategies requiring advance planning, such as retirement account contributions, equipment purchases, and charitable giving.

Mid-December: Execute investment strategies like tax-loss harvesting and Roth conversions.

Late December: Complete final expense payments, income timing adjustments, and any remaining strategies.

Important: Many of these strategies require actions before December 31st. Unlike tax preparation, tax planning can't be done retroactively.

Working with a Professional

While this guide provides an overview, tax planning becomes increasingly complex as your financial situation grows. Consider working with a CPA or tax professional who can:

• Quantify the tax savings for each strategy

• Ensure compliance with all regulations

• Coordinate tax planning with your overall financial plan

• Identify additional strategies specific to your situation

  
  

The cost of professional tax planning advice is often a fraction of the taxes saved through proper implementation of these strategies.

Your Next Steps

Tax planning isn't a once-per-year activity - it's an ongoing process that requires attention throughout the year. Start by identifying 3-5 strategies from this list that apply to your situation and implement them before year-end.

Remember: the best tax strategy is the one you actually implement. Don't let perfect be the enemy of good, and don't let another year pass without taking control of your tax situation.

The information provided is for educational purposes and shouldn't replace personalized advice from a qualified tax professional. Tax laws change frequently, and individual circumstances vary significantly.