Year-end is an important time to review your tax position and identify strategies that may reduce your 2026 federal tax liability. Recent law changes extended or enhanced several taxpayer-friendly provisions, creating planning opportunities around deductions, investments, charitable giving, retirement accounts, and family wealth transfers.
Review Withholding and Estimated Tax Payments
Start with the basics: compare your 2026 federal income-tax withholding and estimated payments with your projected tax liability. Generally, taxpayers may face an underpayment penalty if payments don’t equal at least 90% of their 2026 tax liability or 100% of their 2025 liability (110% for higher-income taxpayers with prior-year adjusted gross income above $150,000, or $75,000 for married taxpayers filing separately).
If you received unexpected income, investment gains, or other taxable income earlier in the year, increasing wage withholding for the rest of 2026 may help. Wage withholding is generally treated as paid evenly throughout the year, which can make it useful for reducing an underpayment from earlier quarters.
Consider Whether to Bunch Itemized Deductions
For 2026, the standard deduction is $16,100 for single filers and married individuals filing separately, $32,200 for married couples filing jointly, and $24,150 for heads of household.
Taxpayers whose itemized deductions are close to these amounts may benefit from “bunching” deductible expenses into alternating years. For example, accelerating charitable contributions, qualifying medical expenses, or certain tax payments into 2026 could allow you to itemize this year. You could then take the inflation-adjusted standard deduction in 2027.
Potential expenses to review include:
- State and local taxes. The 2026 deduction cap is $40,400, or $20,200 for married taxpayers filing separately, subject to income-based limitations. Prepaying a tax bill due early next year may be useful in some circumstances, but it may not help if you are already at the cap or subject to the alternative minimum tax.
- Medical, dental, and vision expenses. Eligible medical expenses may be deductible to the extent they exceed 7.5% of adjusted gross income. Timing elective procedures before year-end may help taxpayers nearing that threshold.
- Mortgage interest. For qualifying home-acquisition debt incurred after December 15, 2017, the mortgage-interest deduction generally applies to interest on up to $750,000 of debt, with different limits for married taxpayers filing separately and certain grandfathered debt.
Taxpayers age 65 or older should also review the temporary senior deduction available for tax years 2025 through 2028. The deduction is up to $6,000 per qualifying individual, or up to $12,000 for qualifying married couples filing jointly, and is available whether or not the taxpayer itemizes, subject to income limits.
Look Into Newer Deductions
Several deductions may be available regardless of whether you itemize:
- Qualified passenger-vehicle loan interest. For eligible new vehicles purchased and financed during 2025 through 2028, taxpayers may be able to deduct up to $10,000 of qualifying annual interest. Used vehicles, leases, and several other types of financing don’t qualify, and the deduction phases out at higher income levels.
- Qualified tips. Eligible workers may be able to deduct qualified tips, up to $25,000 before income-based phaseouts, if the tips are properly reported and were earned in an occupation that customarily received tips before 2025.
- Qualified overtime compensation. Eligible taxpayers may deduct up to $12,500 annually, or $25,000 for married couples filing jointly, subject to income-based phaseouts. In general, only the portion of overtime pay above the regular rate of pay qualifies.
Keep Forms W-2 and 1099, pay statements, and tip records to support any deduction claimed.
Review Your Investment Portfolio
Year-end is a useful time to assess taxable investment accounts. Selling appreciated investments held for more than one year may qualify gains for long-term capital-gains treatment, while capital losses can offset capital gains recognized during the year.
If capital losses exceed capital gains, taxpayers may generally use up to $3,000 of net capital loss against ordinary income in 2026 ($1,500 for married taxpayers filing separately), with remaining losses carried forward.
Before selling an investment at a loss, consider the wash-sale rules. Repurchasing substantially identical securities within the restricted period can defer the loss. Investment decisions should also remain consistent with your long-term goals, risk tolerance, and intended asset allocation.
Plan Charitable Giving
Charitable gifts can be a valuable part of both a tax and philanthropic plan. Beginning in 2026, nonitemizers may deduct up to $1,000 of qualifying cash contributions, or $2,000 for married couples filing jointly. Itemizers may benefit from combining future gifts into 2026 if doing so helps them exceed the standard deduction.
Other options to consider include:
- Donor-advised funds, which may allow a charitable deduction when you contribute while providing flexibility to recommend grants to charities over time.
- Donating appreciated securities held longer than one year, which may allow a deduction for fair market value while avoiding tax on the built-in gain, subject to applicable rules.
- Qualified charitable distributions (QCDs) from an IRA. Taxpayers age 70½ or older may make a direct transfer to an eligible charity that can count toward required minimum distributions without increasing adjusted gross income. The 2026 QCD limit is $111,000 per IRA owner.
Evaluate Retirement and Benefit-Account Choices
A Roth IRA conversion may be worth considering if you expect to be in the same or a higher tax bracket in retirement. Rather than converting an entire traditional IRA at once, converting smaller amounts over multiple years may help manage the current tax impact.
Also review flexible spending account balances. Unused funds may be forfeited unless your employer’s plan offers a permitted carryover, a grace period, or a run-out period for submitting claims. For 2026, employers may allow up to $680 of medical FSA funds to carry into 2027.
Incorporate Gifting and Family Planning
The annual gift-tax exclusion is $19,000 per recipient for 2026, with no limit on the number of recipients. Strategic gifts can help reduce a taxable estate and may shift income-producing assets to family members in lower tax brackets, though the Kiddie Tax rules can apply to certain children and students.
Families with children born between 2025 and 2028 may also want to review the new Trump Account provisions. Beginning in 2026, eligible parents or guardians may open an account and contribute up to $5,000 per child annually. Eligible children born in 2025 or 2026 may qualify for a one-time $1,000 federal contribution, subject to the stated requirements.
Take Action Before Year-End
Tax planning is most effective when it reflects your full financial picture, including projected income, deductions, investments, retirement savings, charitable goals, and estate plan. Reviewing these items before December 31 can help identify actions that may still be available for the 2026 tax year.
Related reading: 2026 Year-End Tax Planning Strategies for Small Businesses
