Year-End Tax Moves for 2026: What Has to Happen by December 31

Many tax-planning opportunities for 2026 disappear when the calendar turns to January. A few can wait until tax season. Every move below belongs to the first group, and the last section covers the ones that can wait.

Retirement Contributions Run Through Payroll

Contributions to a 401(k), 403(b), or governmental 457 plan have to come out of a paycheck dated in 2026. If you want to raise your contribution for the year, the change has to reach your employer while enough pay periods remain to make it.

For 2026 the employee contribution limit is $24,500. Workers 50 and older can add an $8,000 catch-up contribution, for a total of $32,500. Workers who turn 60, 61, 62, or 63 during 2026 can contribute a higher catch-up of $11,250, for up to $35,750, if their plan has adopted that option.

One rule is new this year. Employees whose 2025 Social Security wages from the same employer, shown in Box 3 of the W-2, exceeded $150,000 generally must make any catch-up contributions as Roth contributions. Those dollars go in after tax, and the benefit arrives in retirement as generally tax-free withdrawals. Plans without a Roth option cannot accept catch-up contributions from those employees, so confirm how your plan is handling the change.

The RMD Deadline for Anyone 73 and Older

If you are 73 or older, your required minimum distribution from traditional IRAs and pre-tax workplace plan accounts generally has to be out of the account by December 31. Roth IRAs and Roth 401(k) accounts have no required distributions during the owner's lifetime. If you are still working and do not own 5% or more of the business, your current employer's plan may let you wait until you retire.

The amount is the prior year-end balance divided by an IRS life expectancy factor. For someone who is 73 in 2026 with $500,000 in a traditional IRA at the end of 2025, the factor is 26.5 and the required distribution is about $18,868. Your custodian can usually run the calculation for you.

The first year works differently. Someone who turns 73 in 2026 can delay that first distribution until April 1, 2027. The 2027 distribution is still due by December 31, 2027, so delaying puts two years of distributions, roughly twice the amount in the example above, on one tax return. That may increase taxable income enough to affect your marginal rate or other income-based calculations, depending on what else you earn that year.

A missed RMD carries an excise tax of generally 25% of the amount that should have come out, reduced to 10% if the shortfall is corrected within the IRS correction window, which generally runs through the end of the second year after the miss. If you have several IRAs, the combined required amount can come from any one of them. Workplace plans such as 401(k)s generally each require their own distribution.

Giving Directly From an IRA

For anyone who has reached age 70½ and gives to charity, a qualified charitable distribution can be a tax-efficient way to give. The IRA custodian sends the money straight to the charity, and the qualifying distribution generally stays out of taxable income. For 2026 the limit is $111,000 per person, and a QCD counts toward your required minimum distribution for the year.

Because a qualifying QCD is generally excluded from income, it delivers its benefit whether you itemize or take the standard deduction, and it sidesteps the new 0.5% floor on itemized charitable deductions. Keeping that income off the return can also help with calculations tied to adjusted gross income, including the taxable portion of Social Security benefits and Medicare premium surcharges.

The transfer has to leave the IRA, payable to the charity, by December 31. Donor-advised funds and private foundations cannot receive QCDs, and the money has to come from an IRA, since 401(k) plans do not allow them. Custodians get busy in December, so start the request early.

What Changed for Charitable Giving This Year

Two charitable changes take effect this year. Taxpayers who take the standard deduction can now deduct up to $1,000 of cash contributions, or $2,000 for joint filers, when the money goes to a public charity. Gifts to donor-advised funds are excluded from this deduction.

Itemizers face a new floor: only the portion of total giving above 0.5% of adjusted gross income is deductible. On a $200,000 AGI, the first $1,000 of giving produces no deduction.

The new 0.5% floor can make bunching more attractive for some itemizers. Some households concentrate two or three years of giving into a single year, itemize that year, and take the standard deduction in the years between, so the floor applies once instead of every year. In the standard-deduction years, the $1,000 or $2,000 non-itemizer deduction still provides a limited benefit for direct cash gifts to public charities. A donor-advised fund makes this practical: you contribute the larger amount in one year, take the deduction then, and recommend grants to charities on your usual schedule. An earlier post on this blog covers how to tell whether your household is close enough to the itemizing threshold for bunching to help.

Selling Investments at a Loss

If you hold stocks or funds in a taxable brokerage account that have dropped below what you paid, selling them before year-end turns a paper loss into a deductible one. Capital losses first offset capital gains for the year. Losses beyond your gains can reduce ordinary income by up to $3,000, or $1,500 if married filing separately, and anything left over carries forward to future years with no expiration.

Complete the sale by December 31. Watch the wash sale rule: if you buy the same or a substantially identical investment within 30 days before or after the sale, the loss is disallowed. In most cases it is added to the basis of the new shares and recovered later, but a repurchase inside an IRA can eliminate the loss permanently. Because wash-sale issues can arise from purchases in other accounts, including IRAs, review any replacement purchase before making the trade.

This applies only to taxable accounts. Gains and losses inside IRAs and 401(k)s have no effect on this year's return.

New York's 529 Deduction Has a December 31 Deadline

New York residents can deduct up to $5,000 of contributions to the state's 529 College Savings Program from New York taxable income, or $10,000 for married couples filing jointly. The deduction follows the calendar year, so a contribution made in January 2027 counts toward the 2027 deduction.

Only the account owner, or the owner's spouse on a joint return, can claim the deduction. A grandparent contributing to an account a parent owns receives no New York deduction, while a grandparent who opens and owns an account for a grandchild can claim it. Contributions to other states' 529 plans are excluded.

What Can Wait Until Tax Season

Several 2026 contributions can still be made after the year ends. Traditional and Roth IRA contributions for 2026 can generally be made through the 2027 federal filing deadline, not including extensions, with a 2026 limit of $7,500 plus a $1,100 catch-up for those 50 and older, subject to income limits for Roth IRAs. Direct contributions to a health savings account generally follow the same deadline, while payroll contributions have to happen within the year. Self-employed taxpayers with a SEP IRA can generally contribute up to the due date of the return, including extensions.

Payroll retirement contributions, required distributions, QCDs, charitable gifts, investment sales, and New York 529 contributions all have to happen by December 31. IRA, HSA, and SEP contributions can wait.

Review the Year Before It Closes

Year-end planning works best before December becomes a scramble. Reviewing retirement distributions, charitable giving, taxable investment gains and losses, and New York 529 contributions in November leaves time to make changes before the deadlines arrive. Using a QCD in place of a taxable IRA distribution followed by a cash donation, for example, can reduce adjusted gross income, which may affect the taxable share of Social Security and Medicare premium surcharges.

Gregg Jaffe Tax Services reviews year-end moves with individuals, retirees, and families across Plainview and Long Island. Gregg has been preparing taxes for Long Island taxpayers for more than 25 years.

Phone: 516-770-5305

Email: GJaffetax@yahoo.com

Contact online: greggjaffetax.com/contact