Key Takeaways
- Fall tax planning provides a review of current year tax status with time left to make needed changes.
- A pro-forma tax calculation projects current year income, tax liability, and tax withholding accuracy.
- Older adults receive one or two more tax deductions beyond the regular standard deduction.
- Bunching tax deductions, especially charitable gifts, can enable taxpayers to occasionally itemize.
- The IRS safe harbor rules can help taxpayers avoid owing an underwithholding tax penalty.
- An end-of year tax harvesting strategy (gain or loss) can help reduce current and future income taxes.
Fall is a great time to project current year (2026) taxes that are due next April (2027). Why? Because a pretty good estimate of income and tax deductions can usually be made by the 4th quarter and there is still time to make adjustments (e.g., increase or decrease tax withholding).
A key goal of tax planning is to decrease taxes to the lowest possible legal amount by taking advantage of tax-saving opportunities including tax-deferred savings accounts and tax credits and deductions. This article discusses over a dozen year-end tax-planning strategies. It is organized around three key topics: tax planning, investing, and philanthropy.
Tax Planning
Pro Forma Tax Calculation
A pro forma tax analysis uses current tax year numbers and projections. Taxpayers can use their previous year tax return as a template or, better still, the Tax Forecasting Worksheet (see page 16) developed by the American Association of Individual Investors.
Review last year’s return and create a “dummy” 2026 return that incorporates lifestyle (e.g., widowhood or retirement) or tax law (non-itemizers’ charitable donation or the start of required minimum distributions; a.k.a., RMDs) changes. Compare tax withholding to date with the estimated tax due.
Long-Term Capital Gains Planning
Long-term capital gain tax planning involves managing the timing and amount of investment gains to reduce taxes. Investors must hold assets for more than one year to qualify for favorable long-term capital gains tax rates of 0%, 15%, or 20%, based on taxable income. Strategically selling appreciated investments is key; for example, in a year with reduced income or high itemized deductions. Aim for a 0% LTCG rate, if possible.
Standard Deduction Review
The standard deduction reduces the amount of income subject to federal income tax. Taxpayers age 65+ receive an additional standard deduction beyond the regular amount. This amounts to $16,000 + $2,050 = $18,150 for singles (2026) and $32,200 + $1,650 + 1,650 = $35,500 for a married couple filing jointly (mfj) who are both 65+.
In addition, a limited time (through 2028) senior deduction is available to income-qualified older adults. A $6,000 deduction phases out from $75,000 to $175,000 for singles and a $12,000 deduction from $150,000 to $250,000 (mfj).
Bunching Deductions
Bunching is the grouping of qualified itemized deductions into a single tax year to exceed the standard deduction thresholds (see above). It is often done in high-earning years as taxpayers alternate between occasionally itemizing and otherwise taking the standard deduction.
Deductible expenses include unreimbursed medical and dental expenses, state and local taxes, mortgage interest, and charitable contributions, which, when large enough, can often enable taxpayers to itemize.
Estimated Tax Payments
A key part of tax planning is determining if estimated tax payments are needed to cover income for which there is no withholding (e.g., investment interest, dividends, and capital gains, rent, and self-employment income). Four not-exactly quarterly payments are due April 15, June 15, September 15, and January 15 of the following year. Information on how to calculate and pay estimated taxes is available in Form 1040-ES.
Safe Harbor Rules
A key concern of older taxpayers with multiple streams of income (e.g., Social Security, pension, annuity, investment income, and RMDs) is adequate tax withholding to avoid the IRS underwithholding penalty.
Under IRS safe harbor rules, the IRS will not charge a penalty if you withhold and/or estimate at least 90% of tax owed for the current year or 100% of your prior year’s tax liability (110% if your adjusted gross income (AGI) exceeded $150,000). The easiest strategy, because you already have known information to plan, is the safe harbor of 100% or 110% of last year’s tax bill.
Avoiding Tax Traps
Tax planning also includes trying to avoid common tax traps than ensnare older adults. These include tax on Social Security, which is hard to avoid nowadays because the “trigger” incomes ($25,000 for single filers and $32,000 for mfj) have not been indexed for inflation in over 40 years.
Also, the IRMAA Medicare premium surcharge (Parts B and D) for high-earning beneficiaries and the net investment income tax (NIIT) for singles and mfj with modified adjusted gross incomes of $200,000 and $250,000, respectively.
Investments
Tax-Free Investing
One way to reduce taxes is to purchase tax-free (exempt) investments including municipal bonds (and muni bond mutual funds and exchange-traded funds) and Roth accounts (e.g., IRAs) funded with after-tax dollars. Tax-free investments are especially valuable in higher tax brackets.
The formula to determine the taxable equivalent yield of a tax-free investment is: tax-free yield ÷ (100 – marginal tax bracket). Example: 4% tax-free yield ÷ (100 – 32%) = 4 ÷ 68 = 5.88% taxable yield.
Tax Diversification
There are three types of investments: 1. taxable (brokerage) accounts outside of retirement savings plans, 2. tax-free accounts, and 3. tax-deferred accounts (e.g., traditional IRAs and qualified employer plans such as 401(k)s). Each account type is taxed differently: taxable accounts in the year income is received and when a capital gain is taken and tax-deferred accounts at a future date.
As noted above, no taxes are due on earnings in tax-free accounts. Ideally, investors should have investments in all three categories for greater control over their taxable income.
Tax Harvesting
Tax loss harvesting involves selling investments that have decreased in value to offset capital gains on other investments. Investors can also offset up to $3,000 of other income annually with remaining losses carried over to future years.
The “wash sale rule” must be followed, however. Investors cannot deduct a loss on the sale of a security if they buy a similar security within 30 days before or after the sale.
Tax gain harvesting is the strategic selling of appreciated assets. It is often done in low-earning years or when someone wants to fill the 0% LTCG tax bracket.
Retirement Plan Contributions
Pre-tax retirement account deposits can reduce income taxes. For employer plans in 2026, the contribution limit is $24,500 and, for IRAs, $8,000. At age 50, workers become eligible for catch-up contributions. In 2026, older workers can contribute an additional $8,000 ($32,500 total) to an employer plan and an additional $1,100 to an IRA ($9,100 total).
Workers age 60 through 63 can access a “super catch-up” savings contribution for workplace retirement savings accounts. In 2026, it is $11,250 beyond the $24,500 standard contribution limit ($35,750 total). At age 64, they revert to the standard age 50+ catch-up limit.
Roth Conversions
Roth conversions transfer money from traditional (pre-tax dollar) accounts into after-tax dollar Roth accounts (e.g., IRA). While the converted amount is taxable as ordinary income in the year of conversion, future qualified Roth withdrawals are tax-free and RMD rules no longer apply.
Roth conversions are especially useful when investors expect their tax rate to be higher in the future. Online calculators like this one can help “do the math.” When a large amount is targeted for conversion, it is often tax-efficient to spread converted amounts over multiple tax years.
Philanthropy
Donor Advised Funds
A donor-advised fund (DAF) is a charitable giving account set up at investment companies like Fidelity, Vanguard, and Schwab. Donors make a charitable contribution to the DAF, receive an immediate tax deduction, and then recommend grants to qualified charities over time.
Contributions are generally irrevocable, and the sponsoring organization maintains legal control of the assets. DAFs are often established as part of a bunching strategy to itemize deductions.
Qualified Charitable Distributions
A Qualified Charitable Distribution (QCD) allows individuals age 70½ or older to transfer money directly from a traditional IRA to a qualified charity via their account custodian. QCDs can count toward RMDs and are excluded from taxable income, thereby reducing AGI. This can help avoid IRMAA premiums and the NIIT.
QCDs can also transfer IRA assets to a charity before RMD age in the years between age 70½ and 73 or 75 (depending on birth year). Annual limits apply ($111,000 in 2026) and are adjusted for inflation. QCDs help donors reduce the size of their taxable portfolio.
Donating Appreciated Securities
Donating appreciated securities, such as stocks or mutual funds held for more than one year, can provide valuable tax benefits. When donated directly to a qualified charity, donors avoid capital gains taxes on the appreciation while claiming a charitable deduction for their fair market value, subject to IRS rules and limitations. This strategy is much more tax-efficient than donating cash or selling investments first.
Tax Deduction for Non-Itemizers
Starting in 2026, taxpayers who take the standard deduction and do not itemize can receive a federal income tax deduction for cash contributions to a qualified charity. The deduction is limited to $1,000 for single tax filers and $2,000 for mfj. Taxpayers should keep receipts, canceled checks, or bank records to document their gifts.
In Summary
This article described over a dozen year-end tax planning strategies that can help reduce current or future tax bills. Preplanning income taxes in the fall allows time for taxpayers to make financial decisions before December 31 that may reduce their tax bill.
This article provides general personal finance information and does not address all the variables that apply to an individual’s unique situation. It should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.
