When should you start thinking about your tax return?

For many people, the answer is January or February—when W-2s, 1099s, and other tax documents start arriving.

But if your goal is tax planning, that’s often too late.

Many of the decisions that affect your tax return need to happen during the tax year. Once December 31 passes, some opportunities may no longer be available.

That’s why the final few months of the year can be one of the best times to review your tax situation.

Here are 15 things to consider before December 31.

1. Estimate Your Income for the Year

Start with the big picture.

How much income do you expect to report this year?

Consider sources such as:

• W-2 wages
• Bonuses
• Self-employment income
• Business income
• Interest
• Dividends
• Capital gains
• Retirement distributions
• Social Security
• Pension income
• Rental income
• Other taxable income

You don’t need every number to be exact.

The goal is to develop a reasonable estimate of where your income is likely to end the year.

Once you know that, you can begin estimating your tax liability.

2. Check Your Federal Tax Withholding

Pull out your most recent pay stub.

How much federal income tax has been withheld so far?

Then compare that with your projected tax liability.

If withholding appears insufficient, you may still have time to adjust it.

This is particularly important if you:

• Received a raise
• Changed jobs
• Earned a large bonus
• Have multiple jobs
• Have a working spouse
• Started a business
• Received significant investment income

Finding a withholding problem in November is much better than discovering it while preparing your return.

3. Check Your Wisconsin Withholding

Don’t forget about state taxes.

Wisconsin taxpayers should also review how much Wisconsin income tax has been withheld or paid during the year.

It’s possible to be adequately covered federally while still being short at the state level—or vice versa.

Review them separately.

4. Review Your Estimated Tax Payments

If you’re self-employed, own a business, have substantial investment income, or otherwise don’t have enough tax withheld, you may be making estimated payments.

Before year-end, verify:

• How much you’ve paid federally
• How much you’ve paid to Wisconsin
• The dates payments were made
• Whether payments are still appropriate based on your current income

If your income changed significantly during the year, estimates calculated months ago may no longer match your situation.

Related: Self-Employed in Wisconsin? Here’s How Much You Should Set Aside for Taxes

5. Review Your Retirement Contributions

Retirement contributions can potentially affect your current taxes while also helping you save for the future.

Depending on your situation, you might be contributing to:

• A 401(k)
• 403(b)
• Traditional IRA
• Roth IRA
• SIMPLE IRA
• SEP IRA
• Solo 401(k)
• Other employer-sponsored retirement plans

Different accounts have different contribution rules, income limitations, tax treatment, and deadlines.

Don’t assume every contribution must be completed by December 31—or that every account can be funded after December 31.

Review the rules applicable to your particular plan before the deadline arrives.

6. Consider Whether a Roth Conversion Makes Sense

A Roth conversion can intentionally create taxable income today in exchange for moving assets from a traditional retirement account into a Roth account.

Year-end is a natural time to evaluate one because you have a clearer idea of your full-year income.

Maybe your income is unusually low.

Maybe you’ve recently retired.

Maybe you have room remaining within a tax bracket you’d like to use.

Or maybe your income is already unusually high and a conversion makes little sense this year.

The important question isn’t simply:

“Should I do a Roth conversion?”

It’s:

“How much, if any, makes sense this year?”

Related: Should You Do a Roth Conversion? The Tax Questions to Answer First

7. Review Your Capital Gains

Did you sell investments this year?

Review your realized gains.

Pay particular attention to:

• Large stock sales
• Mutual fund transactions
• Cryptocurrency sales
• Concentrated positions
• Short-term gains
• Long-term gains

A significant gain could materially change your projected tax liability.

It’s much better to know about it before preparing your return.

8. Review Your Capital Losses

Now look at the other side of the portfolio.

Do you own investments currently worth less than what you paid?

Depending on your situation, tax-loss harvesting may be worth discussing.

Realized capital losses can potentially offset capital gains, subject to applicable tax rules.

But don’t sell an investment solely because you want a tax deduction.

The investment decision should make sense first.

You also need to be aware of rules such as the wash-sale rule, which can affect whether a loss is currently deductible when substantially identical securities are purchased within the applicable period.

Coordinate tax decisions with your overall investment strategy.

9. Review Charitable Giving

If charitable giving is already part of your plans, year-end is a good time to review how you’re giving.

You might consider:

• Cash donations
• Appreciated investments
• Donor-advised funds
• Qualified charitable distributions
• Other charitable strategies

Different methods of giving can have very different tax consequences.

For example, donating appreciated securities may potentially allow an eligible taxpayer to avoid realizing a capital gain while receiving an applicable charitable deduction, subject to the relevant rules.

Retirees who meet the requirements for qualified charitable distributions (QCDs) may have another option when giving from an IRA.

The point isn’t to donate simply for a tax deduction.

It’s to make the giving you already want to do as tax-efficiently as reasonably possible.

10. Make Sure You’ve Taken Your Required Minimum Distribution

If you’re subject to required minimum distributions, don’t forget the deadline.

RMD rules can be complicated because applicable starting ages and requirements depend on your circumstances.

If an RMD applies to you, confirm:

• Which accounts require distributions
• How much needs to be withdrawn
• How much you’ve already taken
• Whether anything remains

Don’t wait until the final business day of December to discover you’re short.

Financial institutions may need time to process the distribution.

11. Review Your HSA

If you’re eligible to contribute to a Health Savings Account, review your contributions.

HSAs can offer significant tax advantages when the applicable requirements are satisfied.

Depending on your situation, contributions may be deductible or made pre-tax, investment growth can be tax-deferred, and qualified medical withdrawals can be tax-free.

But eligibility and contribution limits depend on your circumstances.

Make sure you’re eligible before contributing and verify that you haven’t exceeded applicable limits.

12. Business Owners: Review Purchases and Expenses

Business owners have additional year-end considerations.

Review your books and ask:

• Are all expenses properly recorded?
• Are business and personal transactions separated?
• Is mileage up to date?
• Are there outstanding business purchases?
• Does the business need equipment?
• Are accounts reconciled?
• Is payroll accurate?

If you’re already planning a legitimate business purchase, timing may have tax implications.

But remember:

Don’t spend $10,000 unnecessarily just to get a tax deduction.

A deduction reduces taxable income. It doesn’t make an unnecessary purchase free.

Related: 10 Tax Deductions Wisconsin Small-Business Owners Commonly Miss

13. Business Owners: Review Your Entity Structure

Year-end is also a good time to ask whether your business structure still fits.

Maybe you started as a small side business.

Now you’re generating substantially more profit.

As your business changes, it may be worth reviewing whether your current tax classification remains appropriate.

For some business owners, that could include evaluating an S corporation election.

An S Corp isn’t automatically better.

The analysis should consider:

• Business profit
• Reasonable compensation
• Payroll taxes
• Payroll costs
• Accounting costs
• Tax-preparation costs
• Retirement plans
• Administrative complexity

Related: LLC vs. S Corp in Wisconsin: When Does an S Corp Actually Save You Money?

14. Review Major Life Changes

Think back over the entire year.

Did you:

• Get married?
• Get divorced?
• Have a child?
• Lose a spouse?
• Change jobs?
• Retire?
• Start a business?
• Sell a business?
• Sell a home?
• Move?
• Receive an inheritance?
• Begin Social Security?
• Take a major retirement distribution?

Don’t assume your tax professional will know about these events simply because they prepare your return.

Some changes can affect your filing status, deductions, credits, withholding, or other areas of your taxes.

Tell them before year-end when possible.

15. Run a Year-End Tax Projection

This is the step that brings everything together.

Instead of waiting for tax preparation to find out what happened, estimate the return before the year is over.

A year-end tax projection can incorporate:

Income

Deductions

Capital gains/losses

Retirement distributions

Business income

Tax credits

−

Withholding and estimated payments

=

Estimated tax position

The projection doesn’t need to predict your return down to the dollar to be useful.

It can help answer questions such as:

• Am I likely to owe?
• Am I significantly overpaid?
• Should withholding change?
• Do estimated payments need to change?
• Does a Roth conversion make sense?
• Are there capital gains or losses to consider?
• Are there planning opportunities that expire at year-end?

Most importantly, you still have time to respond.

What Has to Be Done by December 31?

This deserves special attention because not every tax deadline is December 31.

Some actions generally need to occur during the calendar year.

Others may have deadlines during the following year.

And certain business and retirement-plan deadlines can depend on your specific circumstances.

So don’t use December 31 as a blanket deadline for everything on this list.

Instead, identify the strategies relevant to you and verify the applicable deadline for each one.

Don’t Let the Tax Tail Wag the Dog

You’ve probably heard this expression before, and it’s particularly appropriate for year-end planning.

A tax benefit doesn’t automatically make a financial decision good.

Don’t:

• Make an unnecessary purchase just for a deduction
• Sell a good investment solely for tax reasons
• Give money to charity solely for the deduction
• Complete a Roth conversion without understanding the tax impact

Tax consequences should inform your decisions.

They shouldn’t necessarily dictate them.

Tax Preparation Looks Back. Year-End Planning Looks Forward.

When you prepare your return next spring, most of this year’s financial activity will already be history.

You’ll know exactly:

• What you earned
• What you sold
• What you contributed
• What you withdrew
• What you donated

But knowing the answer after December 31 doesn’t necessarily give you the ability to change it.

That’s why year-end planning can be so valuable.

Related: Tax Planning vs. Tax Preparation: What’s the Difference?

Year-End Tax Planning in Wisconsin

If your income changed, your business grew, you retired, sold investments, completed a Roth conversion, or simply aren’t sure where your taxes stand, consider reviewing your situation before the year ends.

At La Crosse Tax, we help Wisconsin individuals and business owners look ahead with proactive tax planning.

A year-end tax projection can help you understand where you’re headed and identify tax issues worth addressing while there’s still time.

Want to review your taxes before December 31?