Your Year-End Tax Planning Checklist: What to Review Before December 31

Between holiday shopping, celebrations, and wrapping up another busy year, taxes probably aren't at the top of your December to-do list. But taking a little time to review your finances before December 31 could help you head into tax season feeling much more prepared.

That's because tax planning and tax preparation aren't the same thing. Tax preparation looks back at what already happened. Tax planning looks ahead at financial decisions you may still have time to make. Use this year-end tax planning checklist to identify areas worth reviewing before the calendar turns to January.

1. Review Your Income and Tax Withholding

Start with your income. Did anything change significantly during the year? Consider whether you:

• Changed jobs
• Received a raise or bonus
• Started a second job or side hustle
• Experienced a change in your household income
• Began receiving another source of income

If something changed, this can be a good time to review your federal income tax withholding. The Internal Revenue Service provides guidance for checking and changing withholding, including circumstances involving multiple jobs and changes in tax liability. [irs.gov]

Don't automatically assume that last year's withholding is still right for this year.

2. Check Your Retirement Contributions

Your retirement savings deserve a spot on your year-end financial checklist, too. Review how much you've contributed to your workplace retirement plan and whether increasing your contributions makes sense for your budget and long-term goals.

Keep in mind that different types of retirement accounts have different contribution rules and deadlines. A traditional IRA may also have different tax implications than a Roth IRA.

3. Review Your Charitable Giving

The end of the year is a popular time for charitable giving, and there are tax considerations worth understanding before you donate.

Keep documentation of your contributions. The IRS says taxpayers should keep a bank record or written communication for monetary gifts, and contributions of $250 or more generally require a written acknowledgment from the qualified organization before a deduction can be claimed. [irs.gov]

4. Take Stock of Your Investments

If you have investments outside of retirement accounts, year-end can also be a good time to review them with a qualified financial or tax professional. Don't make investment decisions based solely on potential tax benefits. Consider how any change fits with your broader investment strategy, risk tolerance, and financial goals.

5. Think About Major Life Changes

Sometimes the biggest reason to revisit your taxes has nothing to do with taxes themselves. Consider whether you experienced a major change during the year, such as:

• Getting married
• Growing your family
• Buying a home
• Changing jobs
• Starting a business or side hustle
• Retiring

A year-end review gives you a chance to identify questions you may want to discuss with a qualified tax professional before tax season.

6. Organize Your Financial Records

You don't have to wait until tax documents begin arriving in January to get organized.

Create a place for financial records that could be relevant when filing your taxes. Depending on your situation, that could include information related to charitable contributions, income, investments, mortgage activity, or other financial transactions.

A little organization in December can mean less scrambling later.

7. Prepare for a Potential Tax Bill

What if your year-end review suggests you could owe money? Don't ignore it.

Instead, use the remaining time to incorporate that expense into your financial plan. Consider how much you may need and whether setting money aside in a dedicated savings account could make the expense easier to manage.

If you aren't sure what you might owe or whether you should make an estimated payment, a qualified tax professional can help you evaluate your individual circumstances.

What Should I Do Before December 31 for Tax Planning?

If you only have a few minutes, focus on these seven items:

• Review your income and withholding
• Check your retirement contributions
• Review charitable giving and documentation
• Take stock of your investments
• Consider any major life changes
• Organize important financial records
• Prepare for a potential tax bill

Frequently Asked Questions About Year-End Tax Planning

What is year-end tax planning?

Year-end tax planning involves reviewing financial decisions that could affect your tax situation before the tax year closes. It can include reviewing income, withholding, retirement accounts, investments, and charitable giving. [sfmadvisorgroup.com]

Why should I review my taxes before December 31?

Some tax-planning decisions need to happen before the tax year closes. Waiting until you prepare your return may mean certain opportunities are no longer available. [tscpatax.com]

Should I check my tax withholding at the end of the year?

It's worth reviewing, particularly if your financial circumstances changed. The IRS provides specific guidance on checking withholding and making adjustments. [irs.gov]

Do charitable donations need to be documented?

Yes, if you're claiming a charitable contribution deduction, documentation requirements can apply. For monetary contributions, the IRS says taxpayers should keep a bank record or written communication showing the organization's name, contribution date, and amount. [irs.gov]

Do I need a tax professional for year-end planning?

Not everyone does. However, professional guidance may be beneficial if your finances have become more complex or you're unsure how tax rules apply to your individual situation.

The Bottom Line

December 31 isn't just the end of the calendar year. It's also an important milestone for your financial plan. Before the year wraps up, take some time to review your income, tax withholding, retirement savings, charitable giving, investments, and financial records. A little preparation now can help you enter tax season more organized and with fewer surprises.

And as you plan for the new year, remember that tax planning works best when it's part of your broader financial strategy, not something you only think about in April.

This article is for educational purposes only and is not intended to provide tax, legal, investment, or accounting advice. Tax rules and individual circumstances vary. Consult a qualified tax professional regarding your specific situation.