Key Takeaways
- The beginning of the fourth quarter represents a unique opportunity to make strategic tax moves prior to year-end.
- The decisions you make in 2026 can impact your tax exposure both in the current year and in future years.
- An experienced financial advisor and tax professional can help you implement smart year-end tax planning strategies to reduce your tax burden.
As fall settles in and the weather cools, now is a great time to start considering strategies for reducing your 2026 tax exposure. The beginning of the fourth quarter provides clarity into this year’s tax picture while there is still time to act.
Work with your financial advisor and tax professional to determine whether it makes sense to revisit the following tax planning strategies prior to year-end.
Tax-Loss Harvesting
Tax-loss harvesting refers to the strategy of selling assets that have declined in value in the short term and replacing them with highly correlated alternatives. Doing so may allow you to realize a tax loss that you can use to offset gains elsewhere in your portfolio. When done correctly, your risk profile and expected returns remain unchanged, but the loss reduces your overall tax exposure.
The IRS allows taxpayers to offset up to $3,000 in taxes each year, and additional losses can be carried over to offset gains in future years. However, this is a complex strategy, and a wrong move may expose you to the wash-sale rule, which could invalidate your losses. Be sure to consult with your financial advisor prior to attempting on your own.
Charitable Giving
Giving to charity can be a great way to have a lasting impact while also reducing your tax exposure. While a donation of cash is always appreciated by charitable organizations, there are several other ways to optimize both your impact and your tax savings.
Donor-advised funds (DAFs)
A DAF is a charitable giving vehicle that allows you to make donations, receive a tax deduction in the current year and allocate funds to charitable organizations over time. Assets held within a DAF grow tax-deferred, and there is no distribution deadline for allocating funds, which means you can make donations over several years.
Bunching
One particularly effective tax planning strategy is to fund a DAF using a “bunching” approach. This refers to making several years’ worth of contributions in a single year. Doing so allows you to claim a larger tax deduction on this year’s itemized tax return while having the flexibility to allocate charitable donations over time using the DAF.
In-kind donations of appreciated securities
Rather than donating cash, you may be able to optimize both your charitable impact and your tax exposure by making an in-kind donation of appreciated securities, such as stocks, bonds or mutual funds. This allows you to deduct the current market value of the asset without triggering a taxable gain. Because charitable organizations are tax-exempt, the charity can then sell the asset and receive its full market value to support its operations.
Qualified charitable contributions (QCDs)
If you are currently subject to required minimum distributions (RMDs) from your qualified retirement accounts, you may be able to reduce your income tax exposure by making a QCD. In 2026, individuals can contribute up to $111,000 directly from a qualified retirement account to a charitable organization without triggering income taxes. This amount doubles to $222,000 for married couples filing jointly. The contribution counts toward your RMD for the year, which can be a very effective strategy for managing your tax exposure in retirement.
Roth Conversion
If you experienced lower-than-normal income in 2026 and have a significant amount of savings in pre-tax retirement accounts, now may be a great time to consider a Roth conversion. This strategy involves converting assets held in tax-deferred accounts (i.e., traditional IRAs and 401(k)s), paying income tax on those assets and transferring them to a Roth account. The tax benefit of doing so is that Roth assets are not subject to RMDs or ordinary income tax when they are withdrawn in retirement.
The reason it may make sense to complete a Roth conversion in a low-income year is that the converted amount is taxable during the year in which the transaction is completed. Your financial advisor and tax professional can help you determine whether your current situation is compatible with a Roth conversion.
Retirement Plan Contributions
Contributions to a pre-tax retirement account, such as a traditional IRA or 401(k), reduce your taxable income during the year in which they are made. If you are close to bumping up into the next tax bracket, it may make sense to increase your deferrals for the rest of the year.
In 2026, individuals under age 50 can contribute up to $24,500 to a qualified retirement plan. Those age 50 and older can contribute an extra $8,000 as a catch-up contribution. For those ages 60 through 63, the maximum catch-up contribution increases to $11,250.
Could you use some help taking steps to reduce your tax exposure prior to year-end? United Capital Financial Advisors is here for you. To learn more, please schedule a call with a member of our team.
