As the calendar year winds down, it’s the perfect time to implement smart tax strategies that can significantly increase your refund or reduce your tax liability. The key to unlocking these benefits lies in taking proactive steps before December 31—the cutoff date for most tax-saving moves. Whether you’re a salaried employee, a freelancer, or a small business owner, these refund-boosting tips can help you keep more of your money when tax season arrives.
1. Max Out Retirement Contributions
One of the most powerful year-end moves is contributing to retirement accounts like a traditional 401(k) or a traditional IRA. Contributions to these accounts can reduce your taxable income, leading to a lower tax bill or a bigger refund.
- 401(k) contribution limit (2025): $23,000 (or $30,500 if age 50 or older)
- Traditional IRA contribution limit: $7,000 (or $8,000 if age 50 or older)
While you can contribute to an IRA up until the tax filing deadline, 401(k) contributions must be made by December 31 to count for the current year.
2. Harvest Capital Losses
If your investment portfolio took a hit, you can sell losing stocks or mutual funds before the end of the year to offset capital gains from winning investments. This strategy, known as tax-loss harvesting, allows you to reduce your taxable income by up to $3,000 annually in capital losses.
Be mindful of the wash sale rule—if you buy a substantially identical security within 30 days, the loss will be disallowed.
3. Make Charitable Donations
Donating cash or goods to qualified charitable organizations can lower your tax liability. Contributions made by December 31 are deductible for the current tax year if you itemize deductions.
Examples of deductible charitable giving include:
- Cash donations to registered nonprofits
- Donations of clothing, electronics, or furniture to thrift stores
- Vehicle donations
- Charitable mileage (14 cents per mile driven for charitable purposes)
Always keep receipts or acknowledgement letters from the charity for tax documentation.
4. Prepay Deductible Expenses
If you’re close to the threshold for itemizing deductions, consider prepaying deductible expenses such as:
- Property taxes
- Mortgage interest
- State and local income taxes (be aware of the SALT deduction cap)
- Medical expenses (if exceeding 7.5% of AGI)
By bunching deductions into one tax year, you may surpass the standard deduction and unlock itemized deduction benefits.
5. Contribute to a Health Savings Account (HSA)
HSAs offer triple tax benefits—contributions are deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free. If you’re enrolled in a high-deductible health plan (HDHP), consider maxing out your HSA contribution before year-end.
- 2025 HSA limits: $4,150 for individuals, $8,300 for families (+$1,000 catch-up if 55+)
Contributions to an HSA can still be made up to the tax deadline, but the earlier you contribute, the sooner your money grows tax-free.
6. Review Your Withholding and Make Adjustments
If you received a large refund last year or owed the IRS, use the IRS Tax Withholding Estimator to check if your current withholding is accurate. If necessary, submit an updated Form W-4 to your employer before year-end to adjust your withholding for the remainder of the year.
Proper withholding helps avoid underpayment penalties and smooths your cash flow.
7. Defer Income (If Self-Employed)
If you’re self-employed or a freelancer, consider delaying income until January. For example, hold off on invoicing a client until after December 31. This reduces your current year taxable income and postpones taxes until the following year.
Conversely, if you expect higher income next year, it may make sense to accelerate income into the current year to take advantage of a lower tax bracket now.
8. Pay Estimated Taxes or Make Catch-Up Payments
If you’ve earned income not subject to withholding—like gig work, rental income, or investment gains—ensure your estimated taxes are up to date. Use Form 1040-ES to make a final quarterly payment due by January 15 of the following year.
Late-year payments can help reduce or avoid underpayment penalties.
9. Use the Flexible Spending Account (FSA) Grace Period
If you have an FSA through your employer, check how much money remains unused. Many FSAs follow a “use it or lose it” rule, requiring you to spend the funds by December 31.
Some plans allow a grace period or a limited rollover, but it’s wise to spend the funds now on eligible expenses like:
- Eyeglasses
- Dental work
- Medical supplies
- Chiropractic care
10. Finalize Education-Related Payments
If you or your dependents are pursuing higher education, be sure to pay qualifying expenses before year-end to claim education credits like the American Opportunity Tax Credit or the Lifetime Learning Credit.
Save Form 1098-T (issued by educational institutions) and receipts for tuition, fees, and required course materials.
11. Consider Roth IRA Conversions
A Roth IRA conversion allows you to convert pre-tax traditional IRA funds into a Roth IRA. While the conversion amount is taxable, it sets up tax-free withdrawals in retirement. Converting before year-end can be strategic if your income is unusually low in the current year.
Work with a tax advisor to calculate the tax impact before proceeding.
12. Make Annual Gifting for Estate Tax Planning
You can give up to $18,000 per recipient in 2025 without incurring federal gift tax or using your lifetime exclusion. Gifting before year-end can reduce the size of your taxable estate and help loved ones financially.
Conclusion
Taking smart steps before December 31 can make a big difference in your tax outcome. From retirement and health savings contributions to charitable giving and income planning, these strategies can increase your refund, reduce taxes owed, and position you for financial success in the coming year. As always, consult with a tax professional to tailor these tips to your specific financial situation, and don’t wait until the last minute—early action yields the best results.
