The Most Overlooked Tax Moves to Make Before Year-End

As the year winds down, most people start thinking about holidays, travel, and wrapping up work projects. But for those serious about building wealth, this season means something else entirely, it’s tax strategy season.

Smart planning before December 31 can save you thousands, or even tens of thousands, on your 2025 return. Yet many high earners and business owners miss out because they wait until tax filing season instead of making moves before year end.

Here are some of the most overlooked but incredibly effective tax strategies to consider before the year ends.

1. Optimize Your Qualified Business Income (QBI) Deduction

One of the most powerful deductions for business owners is the Qualified Business Income (QBI) deduction, which allows S-Corp, LLC, and other pass-through entity owners to deduct 20% of their qualified business income before calculating taxes.

The good news? QBI is now permanent. Originally set to expire after 2025, recent legislation made it a permanent part of the tax code — meaning you can confidently build long-term strategy around it.

Here’s where many high earners go wrong: once your income exceeds certain thresholds (around $394,000 for married filing jointly), your QBI deduction becomes limited by wages paid through the business, it can’t exceed 50% of W-2 wages.

That’s where the “2/7 rule” comes in. It’s a practical framework for finding your optimal S-Corp salary, roughly 2/7 of total business income. This helps balance “reasonable compensation” while maximizing the QBI deduction.

Even a small payroll adjustment before December 31 can lead to $10,000–$30,000+ in annual tax savings. The key is timing, you can’t fix this once the year closes, so it’s critical to model and process any adjustments before your final payroll run.

For service professionals (like attorneys, accountants, and financial advisors), the QBI benefit phases out entirely once income crosses certain limits. Strategic salary planning and entity structure can help keep you eligible.

2. Take Advantage of the Short-Term Rental Loophole

Real estate investors often overlook one of the most powerful deductions in the tax code, the short-term rental (STR) loophole.

Normally, real estate losses are “passive,” meaning they can only offset other passive income. But with the STR loophole, if you materially participate in managing your property and the average stay is less than seven days, the IRS may treat it as non-passive.

That classification unlocks massive potential because it allows you to use real estate losses to offset active income like your W-2 salary or business profits.

Combine this with a cost segregation study and accelerated (bonus) depreciation, and you can front-load years’ worth of deductions into a single year. For example, an investor who acquires or renovates a property in 2025 could deduct a significant portion of the property value immediately often creating paper losses that reduce taxable income across the board.

The key is to ensure you meet material participation thresholds and have documentation in place before December 31. Once the year ends, those opportunities are gone.

3. Maximize Your Retirement Contributions

This one sounds simple, but it’s often missed, especially by business owners juggling cash flow or multiple income sources.

Before December 31:

• Max out your 401(k), Solo 401(k), or SEP IRA contributions

• Consider a backdoor Roth IRA if you’re above income limits

• Don’t forget your HSA/FSA/Dependent Care FSA if you have a high-deductible health plan

Every dollar you contribute to a pre-tax account reduces taxable income and helps grow your retirement savings faster. For high earners, even small adjustments to contribution timing can move the needle meaningfully.

4. Use Charitable Giving to Your Advantage

If charitable giving is part of your plan, there are smarter ways to do it:

• Donate appreciated securities instead of cash to avoid capital gains

• Consider bunching multiple years of giving into one large contribution through a Donor-Advised Fund (DAF)

• Combine with a high-income year to maximize deductions while reducing adjusted gross income (AGI)

DAFs, in particular, can be a strategic tool for high earners who want flexibility, you receive the deduction now, and can distribute the funds to charities over time.

5. Review Your Taxable Investments

Market movement throughout the year can create opportunities for tax-loss harvesting i.e. Selling investments at a loss to offset capital gains elsewhere in your portfolio.

This is especially valuable after strong or volatile market years when rebalancing is needed anyway. Just be mindful of the wash sale rule, which disallows a deduction if you repurchase the same or a substantially identical security within 30 days.

Done properly, tax-loss harvesting can reduce your taxable income, smooth out your returns, and maintain your desired portfolio allocation.

6. Prepare for 2026 Tax Law Changes

While the QBI deduction may now be permanent, many other provisions of the 2017 Tax Cuts and Jobs Act are set to expire after 2025.

That includes lower individual tax brackets, higher standard deductions, and generous estate and gift tax exemptions. For high earners, this presents a clear window of opportunity in 2025 to act while rates are still historically low.

Now is the time to:

• Consider Roth conversions while your marginal rate is favorable

• Review your estate plan and gifting strategy before exemptions sunset

• Accelerate income or deductions depending on your projections for 2026 and beyond

Tax laws are changing, but proactive planning ensures you’re positioned to take advantage while these opportunities last.

Final Thoughts: Many Windows Close December 31

Tax planning is one of the most effective ways to build wealth, but it only works if you act before the year ends.

Whether you’re optimizing your QBI deduction, leveraging the short-term rental loophole, or reviewing your investment accounts for tax efficiency, every strategic move now compounds over time.

If you’d like a personalized year-end planning review, you can schedule your meeting here: Book Your Year-End Review with WealthBound Advisors

Disclaimer: This blog is for educational purposes only and does not constitute financial advice. Please consult with your attorney, advisor, tax professional, or mortgage lender before making a major purchase decision.