How to Prepare for Next Year’s Taxes Before December 31

Waiting until tax season to think about taxes can limit your options. By then, the year is already over. Income has been earned, expenses have been paid, deductions may have been missed, and some deadlines have passed.

A year-end tax review helps you make smart moves before December 31, while there is still time to adjust withholding, organize records, contribute to certain accounts, review deductions, and avoid filing surprises.

In this guide, you’ll learn how to prepare for next year’s taxes before December 31 and what actions should happen before the year closes.

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TL;DR: Quick Decision Guide

• If you owed taxes last year → check withholding before year-end.
• If your income changed → update your tax estimate now.
• If you are self-employed → review profit, expenses, and estimated payments.
• If you want to lower taxable income → review retirement, HSA, charitable giving, and eligible deductions before deadlines pass.
• If you wait until January → some tax planning options may already be gone.

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Step 1: Estimate Where You Stand Now

Before making year-end tax moves, estimate your current tax picture. You do not need a perfect number, but you need enough information to know whether you may owe, break even, or receive a refund.

Review:

• Year-to-date income
• Expected income through December 31
• Federal tax withheld
• Estimated tax payments made
• Side hustle or business profit
• Investment gains or losses
• Retirement contributions
• HSA contributions
• Deductions and credits
• Filing status and dependents

The IRS Tax Withholding Estimator helps workers and retirees estimate federal withholding and can generate a completed Form W-4 or W-4P to give to an employer or pension provider. The IRS says this can help avoid too little withholding, which may lead to a balance due or penalty, or too much withholding, which reduces paychecks during the year.

What to do:
Run a year-end estimate before December gets away from you. If the numbers look off, you still have time to adjust.

👉 Explore: Tax software and free filing options in the Marketplace →

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Step 2: Adjust Withholding Before the Last Paychecks

If you are a W-2 employee, your last paychecks of the year may be your final chance to adjust withholding for the current tax year.

Consider adjusting withholding if:

• You changed jobs
• You got a raise or bonus
• You got married or divorced
• You had a child
• You started side income
• You had investment gains
• Your spouse started or stopped working
• You owed taxes last year
• Your refund was much larger than expected

If you need more federal tax withheld before year-end, you can submit a new Form W-4 to your employer. The IRS estimator can help you decide whether extra withholding is needed.

What to do:
If you are underwithheld, ask payroll how soon a new W-4 can take effect. Do not wait until the final paycheck.

👉 Related: How to Adjust Your Tax Withholding →

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Step 3: Review Retirement Contributions

Some retirement contributions must happen by December 31. Others may have later deadlines, but year-end is still a good time to review them.

Check:

Account Type	Year-End Action
401(k), 403(b), 457, TSP	Review employee contributions before the final payroll
Traditional IRA	Check eligibility and contribution plans
Roth IRA	Check income eligibility and contribution plans
SEP IRA or solo 401(k)	Review business income and plan deadlines
SIMPLE IRA	Confirm employee deferrals and employer rules

Workplace retirement contributions usually happen through payroll, so December 31 often matters. IRA contributions may generally be allowed until the tax filing deadline, but you should still plan before year-end so you know what cash is available. The IRS retirement contribution page explains IRA limits and deduction considerations.

What to do:
Review your year-to-date retirement contributions. If you want to increase workplace contributions, make the change before your final pay period.

👉 Related: How to Use Retirement Accounts to Reduce Taxes →

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Step 4: Check HSA Contributions and Healthcare Records

If you have an HSA-eligible high-deductible health plan, review your HSA contributions before year-end. HSAs can offer tax benefits, but eligibility rules matter.

For 2026, HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, based on IRS guidance. HSA contributions can often be made until the federal tax filing deadline, but payroll contributions may need to be adjusted before year-end if you want them reflected through your paycheck.

Also gather healthcare records that may matter for taxes:

• HSA contributions
• HSA distributions
• Qualified medical receipts
• Marketplace Form 1095-A, if applicable
• Medical expenses, if you may itemize
• Long-term care premium records
• FSA balances and deadlines

What to do:
Check your HSA and FSA balances before year-end. Make sure you understand what must be used, contributed, or documented before deadlines pass.

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Step 5: Organize Deductions and Credits

Some deductions and credits depend on actions taken during the tax year. Year-end is the time to check whether you have the records and whether there is still time to act.

Review:

• Charitable contributions
• Mortgage interest
• Property taxes
• State and local taxes
• Student loan interest
• Education expenses
• Childcare expenses
• Adoption expenses
• Energy-efficient home improvements
• Business expenses
• Retirement saver’s credit eligibility
• Dependent information

The IRS “Get Ready” guidance encourages taxpayers to gather records, review tax law changes, and use IRS online tools to help file accurately and avoid delays.

What to do:
Create a year-end tax folder and add receipts, forms, confirmations, and records now. Filing gets easier when your proof is already organized.

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Step 6: Review Self-Employment Income and Business Expenses

If you freelance, run a side hustle, or own a business, year-end planning is especially important.

Review:

• Gross income
• Business expenses
• Net profit
• Mileage logs
• Home office records
• Contractor payments
• 1099 forms you may need to issue
• Estimated tax payments
• Business bank statements
• Tax savings balance
• Retirement plan options

If you had a profitable year, you may need to make estimated tax payments or adjust your final payment. If you had a slow year, your earlier estimates may be too high.

What to do:
Run a year-to-date profit and loss report before December 31. If large business purchases already make sense, complete them before year-end, but do not spend just to chase deductions.

Smile Money Tip: A deduction is not free money. Spending $1 to save a smaller amount in taxes only makes sense if the expense already supports your life or business.

👉 Related: How to Prepare Taxes for a Small Business →

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Step 7: Review Investment Gains and Losses

If you sold investments during the year, review your gains and losses before December 31. This gives you time to understand the tax impact and consider whether tax-loss harvesting, rebalancing, or holding off on additional sales makes sense.

Check:

• Stock sales
• ETF and mutual fund sales
• Crypto sales
• Capital gain distributions
• Dividend income
• Interest income
• Wash sale issues
• Cost basis records
• Prior-year capital loss carryovers

Do not make investment decisions only for taxes. Taxes matter, but your investment strategy, risk tolerance, and long-term goals matter too.

What to do:
Download year-to-date brokerage reports and review realized gains and losses. If the numbers are meaningful, consider talking with a tax professional or financial planner before year-end.

👉 Related: How to File Taxes if You Have Investment Income →

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Step 8: Prepare Your Filing Information Before January

You will not have every tax form by December 31, but you can still prepare your filing system.

Before year-end, confirm:

• Current mailing address
• Legal name after marriage or divorce
• Bank account for direct deposit
• IRS Online Account access
• IRS IP PIN, if applicable
• Dependent Social Security numbers
• Childcare provider tax information
• School or student loan account access
• Employer payroll portal access
• Brokerage and bank login access
• Business bookkeeping access

The IRS encourages taxpayers to prepare early by using online tools, reviewing records, and getting ready before filing season begins.

What to do:
Make sure you can access every account where a tax form may appear in January or February. Fix login or address issues before filing season starts.

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Common Mistakes to Avoid

• Waiting until January to review withholding
• Forgetting side hustle income
• Missing final workplace retirement contribution deadlines
• Letting FSA funds expire
• Making charitable gifts without receipts
• Spending money only for deductions
• Forgetting state taxes
• Ignoring investment gains
• Not saving estimated tax confirmations
• Filing before all forms arrive

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FAQs on Preparing for Next Year’s Taxes

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Final Thought

Preparing for next year’s taxes before December 31 gives you something filing season cannot: options.

You can still adjust withholding, review income, organize records, check deductions and credits, make year-end contributions, review business expenses, and plan for investment tax impact. The goal is not to make taxes perfect. It is to enter filing season with fewer surprises and more control.

Next Steps:

• 👉 Learn: How to Create a Year-Round Tax Planning System →
• 👉 Related: How to Estimate Your Taxes for the Year →
• 👉 Read: How to Adjust Your Tax Withholding →
• 👉 Learn: How to Plan Taxes When Your Income Changes →
• 👉 Explore: Tax software and free filing options in the Marketplace →