End-of-the-Year Income Tax Checklist

Your upcoming tax return may not be all that you think it is—especially if you think you’ll end up with a huge tax bill. In fact, there may be things you can do to improve your tax situation.

It’s always a good idea to take time to do some last-minute strategizing before the tax year runs out. Check yourself on these six key items and you’ll be better prepared to handle the tax-filing season. Our strategies for last-minute tax savings could save you money. Keep in mind that you can use these tips anytime of the year, so you don’t just have to consider them at the end of the year.

1. Know Your Filing Status

There are several ways to file your taxes. Depending on your marital status and dependent situation, you can file as one of the following:

Each of these comes with different tax bracket income thresholds, standard deductions, and eligibility for certain tax credits.

2. Review Retirement Contributions and Distributions

Pay attention to your annual contribution limits for employer-sponsored retirement accounts such as 401(k)s and 403(b)s. For most employees, the limit is $22,500 for 2023 ($23,000 for 2024). There is a special allowance for an additional $7,500 catch-up contribution for employees age 50 or older. You may also be eligible to deduct contributions to a traditional individual retirement account (IRA) if you meet certain conditions.

Be sure you take the required minimum distributions (RMDs) from your retirement account if you reach the required age. You will be required to start withdrawing on April 1 the year after you turn 73. The rules are in effect as of Jan. 1, 2023, according to the SECURE 2.0 Act. If you turned 72 anytime from Jan. 1, 2020, to Dec. 31, 2022, you must take RMDs beginning April 1 the year after you turn that age.

3. Decide: Itemized or Standard Deduction?

It’s beneficial to add up your potential itemized deductions before the end of the year to plan whether you might itemize or take the standard deduction. If your itemized deductions exceed the standard deduction for your tax status, you should itemize expenses on your tax return.

Here’s the standard deduction amount:

• Single: $14,600 for 2024 ($15,000 for 2025)
• Head of household: $21,900 for 2024 ($22,500 for 2025)
• Married filing separately: $14,600 for 2024 ($15,000 for 2025)
• Married filing jointly: $29,200 for 2024 ($30,000 for 2025)

4. Bunch Medical Expenses in One Year

You may want to bunch medical expenses into the current year before Dec. 31 if you plan to itemize. Itemized expenses are only deductible to the extent that they exceed 7.5% of your adjusted gross income (AGI) for medical and dental expenses.

If your AGI is $50,000 and you have $7,000 in qualified expenses, you don’t get to deduct $7,000 from your taxable income. Instead, you can only deduct the expenses that exceed 7.5% of your income. Since 7.5% of $50,000 is $3,750, you can deduct $7,000 minus $3,750, or $3,250.

It’s better to claim something than to miss out on this deduction entirely. So, November–December is a good time to look at your actual medical expenses for the current year and your anticipated medical expenses for the upcoming year.

If you’re close to crossing the 7.5% threshold for the current tax year, move your purchases of eyeglasses, dentist and doctor visits, surgical procedures, and other medical and dental expenses to December to gain a tax deduction, advises Scott M. Estill, author of the book “Tax This! An Insider’s Guide to Standing Up to the IRS” and a former senior trial attorney for the Internal Revenue Service (IRS). Likewise, if you have few medical and dental expenses for the current tax year, defer what you can until the next one.

Numerous voluntary medical costs are tax-deductible, including LASIK eye surgery, doctor-prescribed weight loss programs, smoking cessation programs (but not patches or gum), and capital expenses for ramps, railings, and other features installed in a home to accommodate disabilities.

5. Consider Next Year’s Tax Brackets

Before bunching expenses together, taxpayers should consider their overall tax brackets for this tax year and next year, Estill says.

“For instance, if I know my income will go up next year and thus I will be in a higher tax bracket, it may make sense to wait until next year to take the deduction because it will be worth more to me as a percentage of my income,” he says.

If you will be in the 12% bracket in 2023 but might be in the 22% bracket in 2024, your deductions will be worth more in 2024. A major tax bracket change might apply if you were, say, unemployed for a chunk of 2023 but then started a new job, among other possible scenarios.

“Likewise, if my income is expected to go down next year, it may make sense to try to accelerate the purchases into the current tax year,” Estill adds. This could happen if you know, for example, that you’re going to retire next year.

6. Beware the Alternative Minimum Tax

The common advice to shift expenses, such as prepayment of property or state taxes, from January to December to get the tax deduction a year earlier can backfire if you end up being subject to the alternative minimum tax (AMT). But what is this tax?

According to the IRS, “Under the tax law, certain tax benefits can significantly reduce a taxpayer’s regular tax amount. The alternative minimum tax (AMT) applies to taxpayers with high economic income by setting a limit on those benefits. It helps to ensure that those taxpayers pay at least a minimum amount of tax.”

Determining if the AMT applies to you is tricky and may require professional tax assistance. If it does, you’ll need to rethink your tax minimization strategy. “If you are subject to AMT, the benefit of being able to deduct property taxes disappears. It may be more advantageous to wait until next year to make the payment. Make sure you consult with a tax professional before you assume prepayment will result in income tax savings,” Estill says.

The same is true of state income taxes for the fourth quarter of the current tax year that you might elect to pay in December instead of January, he adds.

The Bottom Line

Ideally, you shouldn’t wait until the end of the year to consider ways to minimize your tax bill. For example, leaving tax planning to the last minute can result in overlooked deductions.

If you haven’t done so already, consider the strategies and tips in our checklist. Implementing the ones that apply to your tax situation could result in tax savings.