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Test deductions and credits to estimate your upcoming spring tax bill.
The final two months of the calendar year are filled with holiday celebrations and travel. But for your finances, November and December represent the single most important window on the calendar.
Once the clock strikes midnight on December 31, the IRS closes the tax book on that calendar year. Tax deductions, employer matches, and FSA funds that you failed to capture are lost forever.
Here are the seven essential financial moves you must execute before December 31.
1. Top Off Your 401(k) to Maximize the Match & Tax Deduction
Unlike an IRA (which allows contributions until April 15), employee 401(k) contributions must be processed via payroll on or before December 31.
- Check Your Year-to-Date 401(k) Total: Log into your benefits portal. Did you capture 100% of your employer’s matching dollars?
- Boost Your Percentage for Final Paychecks: If you have available cash flow, temporarily increasing your 401(k) contribution percentage on your November and December paychecks reduces your taxable income in your highest marginal bracket.
- 2026 Elective Limit: $23,500 (or $31,000 if aged 50+).
2. Spend “Use-It-or-Lose-It” Healthcare FSA Dollars
If your employer offers a Flexible Spending Account (FSA), check your unspent balance immediately.
Under IRS rules, unspent FSA funds may be forfeited back to your employer on December 31 unless your company offers a small rollover or a 2.5-month grace period.
Eligible FSA Expenses You Can Buy Before Year-End:
- Prescription eyeglasses, contact lenses, and prescription sunglasses.
- Over-the-counter medical staples: sunscreen (SPF 15+), first-aid kits, thermometers.
- Dental cleanings, orthodontia payments, and copays.
- Chiropractic, acupuncture, and physical therapy sessions.
(Note: Health Savings Accounts (HSAs) never expire. HSA funds roll over forever and can be invested.)
3. Harvest Capital Losses in Taxable Brokerage Accounts
If you hold individual stocks or ETFs in a taxable investment account that have declined in value, you can deploy tax-loss harvesting before December 31:
- Sell the depreciated asset to lock in the paper loss.
- Use that capital loss to offset capital gains realized earlier in the year.
- If your losses exceed your gains, the IRS allows you to offset up to $3,000 of ordinary wage income on your tax return, rolling over any excess loss to future tax years.
- Beware the Wash-Sale Rule: Do not repurchase the exact same or substantially identical security within 30 days before or after the sale.
4. Rebalance Your Portfolio to Target Allocations
Over the course of a calendar year, market movements cause your asset allocation to drift. Strong equity years cause stocks to grow from an intended 80% allocation to 88%, increasing your portfolio’s downside risk.
Log into your retirement accounts and execute a tax-free rebalancing:
- Inside a 401(k) or IRA, reallocating funds between stock and bond index funds triggers zero taxes.
- Rebalance back to your target allocation (e.g., 85% US equities, 15% international/bonds).
5. Review Annual Credit Reports for Identity Theft
Federal law entitles every American to free weekly credit reports from the three nationwide bureaus (Equifax, Experian, TransUnion) via AnnualCreditReport.com.
Review your reports for:
- Accounts or credit inquiries you did not recognize.
- Inaccurate balances or closed accounts reported as open.
- Inaccurate personal addresses or variations in your name.
6. Audit Recurring Subscriptions & Fixed Expenses
December is the ideal moment to conduct an annual spending audit:
- Call your auto and homeowners insurance carrier to request policy reviews and re-quote deductibles.
- Cancel streaming subscriptions, software apps, and fitness tiers you have not used in the past 30 days.
7. Set Clear Numerical Goals for the Upcoming Year
Vague New Year’s resolutions (“I want to save more money”) fail by February. Specific, automated systems succeed:
- Calculate your exact monthly savings target (e.g., $583/month to max out your 2026 Roth IRA).
- Automate the recurring bank transfer to execute on the morning of payday.
- Enter the new year with your financial machinery working on autopilot.
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Frequently Asked Questions
What is the deadline for IRA vs. 401(k) contributions?
Employer 401(k) elective deferrals must be completed by December 31 of the calendar year through payroll. However, contributions to Traditional and Roth IRAs for a tax year can be made up until the tax filing deadline (typically April 15 of the following year).
What is tax-loss harvesting?
Tax-loss harvesting involves selling investments that are currently at a loss in a taxable brokerage account to offset realized capital gains. The IRS allows you to offset unlimited capital gains plus up to $3,000 in ordinary income per year.
Do FSA balances carry over to the next year?
Unlike HSAs which roll over forever, Health FSAs operate under 'use-it-or-lose-it' guidelines. Depending on your employer's plan election, you may lose unspent balances, have a 2.5-month grace period, or roll over a maximum statutory limit ($640).
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