Year-End Tax Moves for Californians

Year-End Tax Planning Overview

The period from October through December is the most important time for tax planning — you still have time to implement strategies that will reduce your current year tax bill, but the window is closing. KDA schedules year-end planning meetings with all clients in October or November to review the year-to-date tax situation and identify strategies to implement before December 31. Many of the most effective strategies require action before year-end — waiting until tax filing season is too late.

Income Deferral Strategies

If you expect to be in a lower tax bracket next year, deferring income to January can save significant taxes: (1) Delay billing — if you are self-employed, delay sending invoices for December work until January so the income is received in the new year. (2) Defer bonus — if your employer offers a choice, elect to receive your year-end bonus in January. (3) Installment sales — if you are selling a business or real estate, structure the sale as an installment sale to spread the gain over multiple years. (4) Roth conversion timing — if you are considering a Roth conversion, evaluate whether this year or next year is the better time based on your projected income.

Deduction Acceleration Strategies

If you expect to be in a higher tax bracket this year than next, accelerating deductible expenses into the current year saves taxes: (1) Prepay state taxes — pay your Q4 California estimated taxes in December rather than January (note: the SALT deduction is capped at $40,000 under the OBBBA for 2025-2029). (2) Prepay mortgage interest — make your January mortgage payment in December. (3) Accelerate business expenses — purchase needed equipment or supplies before December 31 to take the deduction this year. (4) Medical expenses — if you are close to the 7.5% AGI threshold for medical expense deductions, schedule elective procedures before year-end.

Retirement Plan Contributions

Retirement plan contributions are one of the most powerful year-end tax moves: (1) 401(k) — maximize your 401(k) contribution ($23,500 for 2025, plus $7,500 catch-up if over 50). (2) SEP-IRA — contributions can be made up to the extended return due date (October 15 of the following year), but the plan must be established by December 31. (3) Solo 401(k) — the plan must be established by December 31 to make contributions for the current year. (4) Defined benefit plan — the plan must be established by December 31; contributions can be made up to the return due date.

Charitable Giving Strategies

Year-end charitable giving strategies: (1) Donate appreciated stock — instead of donating cash, donate appreciated stock directly to charity. You get a deduction for the full fair market value and avoid capital gains tax on the appreciation. (2) Donor-Advised Fund (DAF) — contribute appreciated assets to a DAF for an immediate deduction; recommend grants to charities over time. (3) Qualified Charitable Distribution (QCD) — if you are over 70½, direct up to $108,000 from your IRA directly to charity; the distribution satisfies your RMD and is excluded from income. (4) Bunching — combine multiple years of charitable contributions into a single year to exceed the standard deduction threshold.

Capital Gains & Loss Harvesting

Year-end capital gains and loss strategies: (1) Harvest losses — sell investments with unrealized losses to offset capital gains realized during the year. Losses can offset gains dollar-for-dollar and up to $3,000 of ordinary income. (2) Watch the wash-sale rule — you cannot repurchase the same or substantially identical security within 30 days before or after the sale. (3) Consider long-term vs. short-term — if you have unrealized gains, consider whether to realize them before year-end (if you are in the 0% long-term capital gains bracket) or defer them to next year. (4) Qualified Opportunity Zone — invest capital gains in a QOZ fund within 180 days to defer the tax.

Business Year-End Moves

Year-end moves for California business owners: (1) Bonus depreciation — purchase and place in service qualifying business property before December 31 to take 100% bonus depreciation (restored permanently by the OBBBA). (2) Section 179 expensing — elect to expense up to $1,220,000 of qualifying property (2024 limit). (3) PTET payment — make the California Pass-Through Entity Tax payment before December 31 to deduct it on the current year federal return. (4) Accounts payable — pay outstanding business expenses before December 31 to deduct them in the current year (for accrual-basis taxpayers, accrue expenses by year-end). (5) Retirement plan establishment — establish a new retirement plan by December 31 to make contributions for the current year.