Key Takeaways
- Some deductible expenses only count if paid by December 31.
- Maximize retirement contributions to reduce your taxable income.
- Investment losses can offset gains, but watch out for the 30-day wash-sale window.
- Correct any withholding errors before the final paycheck of the year.
- Business purchases made by year-end may be deductible.
The end of the year is your last window to make smart tax moves that could fatten your tax refund (or shrink your bill) come filing season. Many credits and deductions come with a December 31 deadline, so timing matters.
Don’t worry, you don’t need to make a financial overhaul. And we’re not talking about “organize your receipts” or “find your W-2.” These are actionable steps that directly affect your refund size, and you can take care of most of them within days, not weeks.
Accelerate Deductions Before Year-End
One of the easiest ways to increase your refund is to pull next year’s deductible expenses into this year. If you itemize deductions, prepaying certain bills before December 31 could push you over the standard deduction threshold. Or, it could simply add to what you’re already claiming.
The standard deduction amounts for 2025 have increased for all filing statuses. It‘s now $15,750 for single filers, $31,500 for married filing jointly, and $23,625 for head of household. If your itemizable expenses exceed these amounts, itemizing makes sense. If you’re close to the threshold, consider prepaying expenses that could push you over the line. For example:
Prepay Deductible Expenses
If your lender allows it, consider prepaying your January mortgage payment. This allows you to deduct the interest portion on your 2025 tax return, rather than waiting until 2026. The same rule applies to property taxes, but be sure to check your state’s regulations on when payments are officially counted.
Increase or Bunch Charitable Donations
Timing your charitable donations can help you maximize your tax deduction. If you’re close to the itemization threshold, try bunching several years of donations into the current year (e.g., donating $6,000 this year instead of $3,000 annually). This strategy helps you clear the itemization limit. Just make sure the donation is completed by December 31. For credit card donations, the charge date counts, even if you pay the bill in January.
Consider Paying Outstanding Medical Bills
Out-of-pocket medical expenses often get overlooked because they’re only deductible if they exceed 7.5% of your adjusted gross income (AGI). But if you’ve had a high-cost medical year, prepaying January appointments or procedures could push you over that threshold. Dental work, vision care, and prescription costs all count.
Turn Unused Accounts Into Refund Boosters
Putting money into retirement accounts cuts your tax bill now and builds your future. Contributions to a traditional IRA or 401(k) lower your taxable income directly, which means you keep more money when you file.
401(k)
A 401(k) allows you to contribute money pre-tax, thus lowering your current taxable income. The funds then grow tax-deferred until retirement. Plus, most employers offer a matching contribution.
The 2025 contribution limit is $23,500 if you’re under 50. Once you hit 50, you can add catch-up contributions:
- Ages 50 to 59: An extra $7,500 (total of $31,000)
- Ages 60 to 63: An extra $11,250 (total of $34,750)
Contributions count for the year you make them. If you’re trying to increase yours before year’s end, ask your employer when payroll changes take effect.
Traditional and Roth IRAs
Traditional IRA contributions may cut your taxes now, depending on your income. Roth contributions don’t help this year, but your withdrawals will be tax-free in retirement. Choose the IRA contribution based on when you want the tax break.
You can put in $7,000 for 2025, or $8,000 if you’re 50 or older. You have until April 15, 2026, to fund your IRA for the 2025 tax year. Note that Roth contribution limits begin to phase out once your modified AGI hits $150,000.
HSAs and FSAs
If you have a high-deductible health plan, a health savings account (HSA) is valuable. Money goes in, grows, and comes out tax-free for medical costs. Unlike a flexible savings account (FSA), HSA funds never expire.
For 2025, the limit is $4,300 for individuals and $8,550 for families. While you have until April to contribute, payroll contributions often end in December.
Flexible spending accounts (FSAs) are stricter: you typically forfeit any unused funds. If you have FSA funds remaining, use them by December 31 to cover eligible expenses, such as glasses, dental work, or prescriptions.
Balance Gains and Losses in Your Portfolio
If you’ve sold investments at a profit this year, you face a capital gains tax bill. You can reduce or eliminate this bill through tax-loss harvesting, by using losing positions to offset those gains.
How Tax-Loss Harvesting Works
- Offsetting gains: Sell investments that have dropped in value before year-end. These realized losses cancel out your capital gains dollar-for-dollar.
- Offsetting income: If your losses exceed your gains, you can use up to $3,000 of the excess to offset ordinary income. Any remaining losses roll forward to future tax years.
The Wash-Sale Rule
To claim the loss, you must avoid the wash-sale rule. This rule disallows the loss if you purchase the same or a “substantially identical” security within 30 days before or after the sale date.
To avoid the wash-sale rule while remaining in the market, immediately reinvest the proceeds into a similar but not identical security (e.g., selling one S&P 500 fund and buying another). You must wait at least 31 days before repurchasing the original security.
Tax-loss harvesting is most effective when you have large gains or have experienced significant market volatility. It’s not necessary for investments held in tax-advantaged accounts like IRAs, where annual gains and losses don’t affect your tax bill.
Revisit Withholding and Estimated Payments
The final weeks of the year are the last opportunity to adjust your tax payments and avoid an interest-free loan to the government or a surprise bill.
Withholding (for Employees)
Your withholding determines how much tax comes out of each paycheck. If your income changed due to a raise, a side gig, or a change in your spouse’s employment, your current W-4 form may be outdated.
To avoid having too little withheld and owing a lot of tax, CPA Caroline Hartmann said, “Revisit your tax withholding once a year or when you experience a major life change or change jobs. The general rule is if you owe more than $1,000 in taxes, or are receiving a large refund, it’s a sign your withholding amount is off and you should adjust it up or down.”
- Submit a new W-4 to your employer before the final payroll of the year. Even one adjusted paycheck can significantly close the gap between taxes paid and taxes owed.
- The IRS Tax Withholding Estimator or 2025 Form W-4 Step 4(b)—Deductions Worksheet can help you calculate the correct amount. Plug in your year-to-date income, withheld taxes, and expected deductions to see if you are on track.
Estimated Payments (for Self-Employed)
If you’re self-employed or have significant income that doesn’t come from a paycheck, withholding doesn’t apply. Instead, you’re supposed to make quarterly estimated tax payments. Miss those and you might face underpayment penalties, even if you pay everything you owe when you file.
The fourth-quarter deadline for the 2025 tax year is January 15, 2026, but you can make a payment in December if it helps you sleep better. There is no penalty for paying early, and it could increase your refund if you underestimated what you owe.
Combining Strategies
If you’re an employee who also has self-employment income, you can use your W-4 withholding to cover your quarterly tax liability. Instead of making separate estimated payments, you can increase your W-4 withholding. The IRS treats withholding as if it were paid evenly throughout the year, even if the bulk came out in December. This strategy can help you avoid underpayment penalties if you neglect quarterly payments.
Tip
Run the numbers now—waiting until January means you lose the chance to adjust your 2025 tax liability.
Make Smart Moves if You’re Self-Employed
Self-employment lets you control your tax bill, but you need to act before the year runs out. Business expenses paid this year reduce your taxable income this year. Wait until January, and they don’t help until 2027.
Buy Equipment or Pay Business Expenses Before December 31
If you need a new laptop, camera, or other equipment, buy it now to maximize your deduction. Section 179 lets you deduct the full cost of qualifying business expenses in the purchase year, up to $1,220,000 for 2025.
Defer Income Until Next Year
CPA Hector Castaneda said, “If you’re expecting a significant payment from a client or year-end bonus, it can be smart to hold off until January to bill it or collect it (depending on whether you’re cash basis or accrual basis).” He also noted, “You’re not avoiding income; you’re simply managing when it appears on your return.”
Bonus depreciation adds more savings. For 2025, you can immediately deduct 60% of equipment costs beyond the Section 179 limit. Prepay January software subscriptions, stock up on supplies, or pay contractor invoices before year-end. If the business expense is ordinary and necessary, it’s deductible.
Set up or Contribute to a Solo 401(k) or SEP IRA
For self-employed workers, the two key savings vehicles are the Solo 401(k) and the SEP IRA, both of which offer high contribution limits:
Solo 401(k): You can contribute as both the employee (up to $23,500 or $31,000 if you’re 50 or older) and as the employer (up to 25% of your net self-employment income). The combined total caps at $70,000 for 2025 ($77,500 with the catch-up contribution).
Simplified Employee Pension (SEP) IRAs: Only the employer (you) contributes, up to 25% of your net self-employment earnings. This plan does not allow catch-up contributions, but you can establish and fund it until your tax filing deadline, offering greater flexibility.
Given the extra time allowed for retirement contributions, many tax and financial planners, including Castaneda, recommend clients hold off on their contributions until after calculating their taxes. He said, “In one case, we had a client who had sold some property prior to the end of the year, and they were facing a tax bill of over $26K beyond their withholdings. By applying their entire proceeds from the sale to their already established 401(k) plan (as an employer contribution), we were able to get them a small refund.”
Log Any Mileage and Calculate Home Office Expenses
It’s generally better to track expenses as you go: record your mileage and home office expenses while the details are fresh. The standard mileage rate for 2025 is 70 cents per mile driven for business, medical, or charitable purposes.
To qualify for home office deductions, you need a dedicated space used exclusively for business—a combined office space/guest bedroom won’t do. Most taxpayers use the simplified method of $5 per square foot (up to 300 square feet). Alternatively, if you maintain accurate records, you can track and deduct actual expenses.
Take Advantage of Time-Sensitive Credits
Tax credits reduce your bill dollar for dollar. Several of them require action before the year runs out.
Energy Efficiency Credits
The Energy Efficient Home Improvement Credit covers windows, doors, insulation, and HVAC upgrades. You can claim up to 30% of costs, up to $1,200 per year. Heat pumps and similar equipment have a separate $2,000 limit. The Residential Clean Energy Credit covers solar panels, geothermal systems, and wind turbines at 30%.
Warning
Under the One Big Beautiful Bill Act, the Energy Efficient Home Improvement Credit and Residential Clean Energy Credit apply only to improvements made by Dec. 31, 2025.
Electric Vehicle Credits
New Electric Vehicles (EVs) acquired on or before Sept. 30, 2025, qualify for a credit of up to $7,500, but face strict requirements on assembly, price, and battery capacity. Income limits for the credit are $300,000 (joint), $225,000 (head of household), $150,000 (single).
Used EVs under $25,000 and at least two years old qualify for up to $4,000 if purchased by Sept. 30, 2025. Income limits are $150,000 (joint), $112,500 (head of household), $75,000 (single).
Education Credits
The American Opportunity Tax Credit offers up to $2,500 per student for the first four years of college. The Lifetime Learning Credit provides up to $2,000 per return for any post-secondary education. Both phase out if your MAGI is between $80,000-$90,000 (single filers) or $160,000-$180,000 (joint filers). Pay tuition or fees before the year ends to claim them for the 2025 tax year.
The Bottom Line
December provides a crucial, final window to boost your 2025 tax refund. To lower your taxable income, focus on accelerating deductions and maxing out contributions to tax-advantaged accounts. Review your investments to harvest losses. And make sure you claim time-sensitive credits for items like electric vehicles or home energy upgrades before the deadline. A few well-timed moves now can substantially increase your refund or help you avoid a tax surprise.
