Year-End Tax Planning for 2026: Ten Moves That Actually Matter Before December 31

Key Takeaways

• Some deadlines are real and some are not: Charitable gifts, Roth conversions, annual exclusion gifts, portfolio sales, owner payroll, deferred compensation elections, and property placed in service generally require action by December 31. Several retirement plan contributions do not.
• 2026 changed the charitable math: Itemizers now lose the first 0.5% of adjusted gross income from the charitable deduction calculation, and a new limitation on itemized deductions reduces the marginal benefit for taxpayers in the 37% bracket.
• Pennsylvania changes several federal answers: Pennsylvania offers no individual charitable deduction and no pass-through entity tax election, disallows bonus depreciation for personal income tax purposes, ignores the federal wash sale rule, and can pull certain gifts made within one year of death into the inheritance tax base.

Year-end is chaotic for most families, and layering financial deadlines on top of everything else in December only makes it harder.

Every year when we meet with clients in the fourth quarter, we work through the same review: the financial plan, the tax picture, and the portfolio. The goal is simple, which is to identify the highest value and easiest to implement moves that genuinely have to happen before December 31. What comes out of that review is usually a shorter list than people expect, because a good deal of what feels urgent in December is not, and rushing those decisions tends to produce a worse answer than taking them up calmly in February.

2026 gives the review more to work with than usual. New charitable rules change the economics of giving, the Roth catch-up mandate changes how payroll has to code contributions, the SALT deduction is larger but still limited by income, and the return of the ACA subsidy cliff raises the cost of a poorly timed dollar of income. Pennsylvania adds a layer of its own, because several federal strategies get different state treatment here, and one of the most common workarounds does not exist in this state at all.

Below is the version of that checklist we are using with clients this year: the ten moves that have to be completed by December 31, the decisions that have more time than people think, and the Pennsylvania rules that change the answer.

1. Charitable Giving Under the New 2026 Floor

Giving is first on this list because 2026 is the first year its arithmetic changed. Itemizers now deduct charitable contributions only to the extent they exceed 0.5% of adjusted gross income, so a family with $1 million of AGI clears a $5,000 floor before any deduction begins. Taxpayers in the top bracket face a second limit that can reduce total itemized deductions by 5.4% of the lesser of itemized deductions or taxable income above the 37% bracket threshold, which for 2026 begins at $768,700 for married couples filing jointly and $640,600 for single filers. The charitable floor applies first, and the itemized deduction limitation applies to what survives it.

• Bunching gifts: Combining several years of giving into one year subjects the contributions to the 0.5% floor once instead of repeatedly.
• Using appreciated securities: Donating qualifying appreciated securities can create a deduction while avoiding realization of the embedded gain, subject to the applicable limits.
• Using QCDs when eligible: A qualified charitable distribution made directly from an IRA after age 70 1/2 stays out of income and can count toward a required minimum distribution.
• Using a CRT before a sale: For a concentrated appreciated position, a charitable remainder trust can produce an income stream and a current deduction, but must be established before a binding sale agreement and is irrevocable once funded.

Pennsylvania provides no individual deduction for charitable gifts, so for residents this entire analysis is federal, as our Pennsylvania charitable giving strategies piece covers.

A Simple Bunching Example

Assume a married couple with $1 million of AGI in both 2026 and 2027 intends to give $20,000 each year. Ignoring other limitations, the 0.5% floor is $5,000 annually.

The same $40,000 of giving creates $5,000 more of potentially deductible contributions, because the floor is encountered once instead of twice. A donor-advised fund makes that timing practical while allowing grants over future years. For a 2026 deduction, the contribution generally needs to be completed by December 31.

2. Harvesting Losses and Sizing Gains Against MAGI

Tax loss harvesting is usually presented as a portfolio exercise, which is why it often gets run in isolation from the rest of the tax year. For a founder or early retiree, the better question is what a sale does to total 2026 modified adjusted gross income. The tax year follows the trade date rather than settlement, so a December 31 sale creates a 2026 result even when it settles in January.

Three federal issues belong together:

• Wash sales across the household: The federal rule reaches purchases of substantially identical securities within 30 days before or after the loss sale, a 61-day window covering an IRA or a spouse.
• IRMAA two years later: Medicare uses MAGI from two years earlier for income-related premium adjustments, so 2026 income can affect 2028 premiums.
• ACA subsidy eligibility: The enhanced premium tax credits expired after 2025, so for 2026 eligibility again generally ends above 400% of the federal poverty line. Crossing that line does not raise a rate, it removes the credit.

Pennsylvania answers four of these questions differently, which changes what harvesting is worth:

• No preferential rate: Pennsylvania taxes capital gains at its flat 3.07% rate, the same as ordinary income, so holding for a long-term rate has no state analogue.
• No wash sale rule: The federal wash sale provisions do not apply for Pennsylvania purposes, where every transaction is separate and independent. A loss disallowed federally can still be recognized on the Pennsylvania return.
• No loss carryforward: Pennsylvania provides no carryover of losses between years, so a loss harvested without offsetting Pennsylvania gains produces no state benefit at all, now or later.
• No offset between spouses or income classes: Losses cannot offset a spouse’s gains or gains in another class of income, so which account holds the position matters even on a joint return.

For founders selling qualified small business stock, the Section 1202 exclusion does not carry through to Pennsylvania, so state tax stays in the gain model around any sale or secondary. See our Pennsylvania capital gains tax guide and what happens after you sell your business.

3. Sizing a Roth Conversion Before the Window Closes

Conversions are the clearest example of a decision that cannot be revisited. A conversion must be completed during the calendar year to count for 2026, and conversions made after 2017 cannot be recharacterized if the tax result turns out worse than expected.

For households where a conversion already makes sense, the year-end decision is usually how much can be converted without creating a larger cost elsewhere:

• Filling a bracket: Sizing the conversion to the remaining room in a desired bracket is most valuable in an unusually low income year between liquidity events or employment.
• Stopping short of an IRMAA tier: The surcharge tiers are cliffs rather than phase-ins, so crossing one by a small amount can carry a disproportionate cost two years later.
• Stopping short of the ACA threshold: A dollar crossing 400% of the federal poverty line can cost the entire premium tax credit, far more than the tax on the converted dollar.

Pennsylvania residents have a real advantage here, because Pennsylvania generally does not tax a traditional IRA converted to a Roth when the funds are actually transferred into the Roth, though amounts withheld to pay tax rather than deposited can be taxable at the state level. For a founder with a late-year stock sale, realized gains and losses belong in the analysis before the conversion amount is finalized, which our Roth conversion strategy for high earners covers in depth.

4. Finalizing S Corporation Owner Wages Through Payroll

Owner compensation is the item most likely to be discovered too late, because it becomes difficult to repair once the final payroll has run. The IRS requires an S corporation to pay a shareholder-employee reasonable compensation before treating payments as non-wage distributions, and the amount turns on the facts of the business rather than a universal percentage. Three things depend on getting it right before the last payroll:

• Compliance exposure: Substantial distributions paired with minimal wages is a reliably examined pattern, and fixing it through payroll beats reconstructing compensation after Forms W-2 are prepared.
• Retirement contribution capacity: Deferrals and employer contributions are calculated from W-2 wages, so an understated wage figure quietly caps the owner’s tax-deferred capacity.
• The qualified business income calculation: Wages affect both the deduction’s wage-based limitations and the pass-through income it applies to, and the two move in opposite directions.

By year-end, the owner, the CPA, and the payroll provider should be working from the same numbers.

5. Knowing Which Retirement Deadlines Are Actually December Deadlines

Retirement planning is where year-end checklists most often manufacture false urgency, because contribution types follow genuinely different clocks.

• Employee elective deferrals: Salary deferrals generally must be elected by the end of the plan year, so employees cannot retroactively defer salary already paid.
• Employer contributions: Profit-sharing and matching contributions can often be funded after year-end and remain deductible for the prior year if made by the employer return deadline, including extensions.
• SEP plans: A SEP can generally be established and funded by the business return deadline, including extensions.
• First-year solo 401(k): SECURE 2.0 can allow a sole proprietor with no employees to establish a plan after year-end and make a first-year deferral election by the individual’s return due date, without extensions.

Plan establishment, deferrals, and employer funding are three separate questions, and a December scramble frequently solves the wrong one.

6. Verifying Catch-Up Contributions Are Coded Roth

Not every year-end item is a strategy decision, and this one is closer to an audit of the payroll file. 2026 is the first year the SECURE 2.0 Roth catch-up rule is operational. For most 401(k), 403(b), and governmental 457(b) participants, the age 50 catch-up limit is $8,000, and participants ages 60 through 63 can generally contribute $11,250 if the plan permits it.

If an employee had more than $150,000 of prior-year Social Security wages from the sponsoring employer, 2026 catch-up contributions generally must be designated Roth. The threshold looks to wages from that specific employer, not household income, and the fix is far easier before the final payroll run than after a Form W-2 is issued. Self-employed owners with no Social Security wages from the sponsoring employer generally do not cross it simply because business income exceeds $150,000.

7. Placing Equipment in Service Before Year-End

A December equipment order does not automatically create a 2026 deduction. Section 179 and depreciation turn on when property is placed in service, meaning ready and available for its intended business use, so delivery and installation can matter more than the invoice date.

For 2026, the federal Section 179 limit is $2.56 million, phasing out once qualifying property placed in service exceeds $4.09 million. The 100% bonus depreciation rule applies broadly to qualifying property acquired and placed in service after January 19, 2025, while property acquired earlier can remain under the old phase-down rules, a distinction reflected in IRS Publication 946.

Pennsylvania produces a different result, though not the one most owners expect:

• Section 179 now conforms: For property placed in service in tax years beginning on or after January 1, 2023, Pennsylvania follows the federal Section 179 limit, replacing the old $25,000 state cap. Many owners and some advisors have not updated for this.
• Bonus depreciation does not: Pennsylvania does not allow bonus depreciation for personal income tax purposes. An owner who expenses an asset fully at the federal level still depreciates it over time on the Pennsylvania return, a federal and Pennsylvania timing difference rather than permanent tax savings.
• Economic purpose comes first: A deduction reduces an asset’s after-tax cost but does not make an unnecessary purchase sensible, and the Pennsylvania treatment means the true first-year benefit is smaller than the federal figure suggests.

8. Using Annual Exclusion Gifts and Watching Pennsylvania’s One-Year Rule

Gifting belongs on a year-end list for a simple reason: unused annual exclusion capacity does not carry into 2027. With the basic exclusion at $15 million per individual, the urgency around large exemption-driven gifts has faded, but annual gifting still matters when assets are expected to appreciate or a family is gradually funding trusts.

• Annual exclusion gifts: A donor can generally give up to $19,000 per recipient in 2026 without using lifetime exemption if the gift qualifies for the annual exclusion.
• 529 front-loading: That exclusion allows a donor to elect to spread up to $95,000 of a 529 contribution over five years for gift tax purposes.
• Pennsylvania inheritance tax: Pennsylvania generally pulls certain transfers made within one year of death into the inheritance tax base, but allows a $3,000 exclusion per transferee per calendar year.

That last rule creates an unusual calendar effect, since a December gift and a January gift can each use a different year’s $3,000 exclusion if the donor later dies within the lookback period. Splitting a planned gift across the year boundary is therefore different from making it all at once in January, and because Pennsylvania rates vary by relationship, what is at stake depends on who receives it.

See our multigenerational estate planning case study, Pennsylvania inheritance tax planning, and Pennsylvania trust tax planning guides.

9. SALT Planning for Pennsylvania Owners Without a PTET

Deduction timing is where the larger SALT cap helps less than the headline suggests. The federal cap is $40,400 for 2026, or $20,200 for married filing separately, but it declines once MAGI exceeds $505,000 and cannot fall below $10,000. For many founders, income pushes the deduction back toward that floor, so the year-end question is whether payments can be timed into a year with actual room under it.

• Pennsylvania owners: As of September 2026, there is no Pennsylvania elective pass-through entity tax converting state income tax into an entity-level federal deduction. Legislation has been proposed without enactment, leaving Pennsylvania among a small group of jurisdictions imposing a personal income tax with no PTET election.
• Multistate businesses: Another state may offer a PTET election, but the federal benefit and the Pennsylvania resident credit treatment need to be modeled state by state.
• Payment timing: State estimated payments, real estate taxes, and other SALT items should be reviewed against the cap and phase-down before accelerating anything into December.

10. Making 2027 Deferred Compensation Elections Before December 31

The last item is the one most likely to be missed entirely, because it concerns income not yet earned. Under Section 409A, an election to defer compensation for services to be performed in 2027 generally must be made before 2027 begins, putting the deadline at December 31, 2026, with no filing-season extension.

• The election is made a year early: Deferring 2027 salary or bonus requires action in 2026, though certain performance-based compensation tied to a period of at least twelve months can be deferred up to six months before that period ends, a different date entirely.
• The distribution schedule locks at the same time: The election generally fixes the time and form of payment, and changing it later requires a subsequent election made twelve months in advance that pushes payment out at least five additional years.
• Deferred compensation is an unsecured claim: Deferred amounts remain subject to the employer’s creditors, so the tax deferral has to be weighed against concentration risk in the company that already produces most of a founder’s net worth.

Coordination Is the Part That Changes the Answer

A Roth conversion, a harvested gain, a charitable bunch, an S corporation wage adjustment, and a business deduction all move the same AGI or taxable income calculation, and the 2026 rules make that interaction sharper. The charitable floor, the itemized deduction limitation, the SALT phase-down, IRMAA, and the ACA threshold are all keyed to figures that every other item on this list moves.

That is why our year-end work starts with a full-year projection before transactions are executed. Some moves need to happen by December 31, some need a specific sequence, and others should wait until the business return is better known.

Our mid-year 2026 tax planning priorities focus on building that runway; the year-end review is where the decisions that actually expire get executed without forcing the ones that still have time.

Frequently Asked Questions

Figures reflect federal and Pennsylvania rules as of September 6, 2026. Sources: IRS Revenue Procedure 2025-32, Public Law 119-21 (OBBBA), IRS Publications 505 and 946, Treasury regulations under Section 409A, and the Pennsylvania Department of Revenue Personal Income Tax Guide. Tax rules change and individual circumstances differ; this is general information, not individualized tax or legal advice.

Please read important disclosures here.