Avoiding Surprises at Tax Time
Each year, millions of Americans are surprised by how much they owe at tax time. Often, it’s not because they made more money — it’s because they waited too long to review key items before December 31.
According to IRS data, the most common mistakes leading to unexpected tax bills include underpaying estimated taxes, missing Required Minimum Distributions (RMDs), and missing key deduction deadlines. Fortunately, these errors are preventable with a little planning before year-end.
1. Forgetting to Adjust Withholding or Estimated Taxes
If your income changed in 2025 — maybe from a bonus, investment sale, or retirement account withdrawal — your tax liability likely changed, too. The IRS requires you to pay most of your taxes during the year, not just at filing time.
Failing to adjust your withholding or estimated payments can result in penalties and interest, even if you pay your full balance by April.
What to do:
- Use the IRS Tax Withholding Estimator to check your status.
- Review your pay stub or IRA withdrawal summary.
- If you’ve had a higher-income year, consider a fourth-quarter estimated payment before January 15, 2026.
2. Missing Required Minimum Distributions (RMDs)
If you’re age 73 or older (or inherited an IRA), you must take an RMD by December 31 each year. Missing it can be costly.
Under the SECURE 2.0 Act, the penalty for missing an RMD was reduced from 50% to 25%, and to 10% if corrected quickly — but that’s still thousands in unnecessary taxes.
Common mistake: Assuming your custodian will automatically distribute the correct amount, or forgetting to include old 401(k)s or inherited IRAs.
What to do:
- Confirm your total RMD across all retirement accounts.
- Double-check that distributions have been processed before year-end.
- Consider using your RMD for charitable giving (see below).
3. Waiting Too Long to Make Charitable Donations
Charitable giving can reduce your taxable income — but only if completed before December 31. Stock and mutual fund gifts often take 5–10 business days to process, and Qualified Charitable Distributions (QCDs) from IRAs must clear before year-end.
In 2024, Americans gave an estimated $557 billion to charity (Giving USA), yet many lost tax benefits because their gifts weren’t completed in time.
What to do:
- Start now if you plan to give appreciated stock.
- If you’re 70½ or older, you can donate up to $100,000 per year directly from your IRA via a QCD — it satisfies your RMD and reduces taxable income.
- If you itemize, consider bunching donations every other year to exceed the standard deduction.
4. Overlooking Tax-Loss Harvesting Opportunities
Market volatility creates opportunities to manage taxes. Selling investments at a loss can offset realized gains elsewhere, reducing taxable income — a strategy called tax-loss harvesting.
Research from Morningstar suggests that consistent loss harvesting can improve after-tax returns by 0.5%–1% per year, depending on income and timing.
What to do:
- Review taxable (not retirement) accounts for potential loss positions.
- Avoid repurchasing the same or “substantially identical” investment within 30 days — doing so triggers a wash sale, disallowing the deduction.
- Reinvest proceeds in similar but not identical securities to stay invested.
5. Ignoring Roth Conversion Opportunities
The next 12 months may represent one of the most valuable windows in decades to convert traditional IRA funds to Roth IRAs. Current tax brackets — established under the 2017 Tax Cuts and Jobs Act — are scheduled to expire at the end of 2025, reverting to higher pre-2018 levels.
Why it matters: A married couple earning $300,000 in 2025 is in the 24% bracket. That same income could fall into the 33% bracket in 2026 — a 37.5% jump.
What to do:
- Consider partial conversions now, especially if your income is temporarily lower (e.g., early retirement years).
- Work with your CPA to avoid triggering higher Medicare premiums or moving into the next tax bracket.
- Remember: paying taxes now can lead to decades of tax-free growth and withdrawals later.
Bonus: Coordinate Timing with Big Financial Events
If you sold real estate, exercised stock options, or received a large capital gain this year, year-end planning is even more critical. Smart coordination between your CPA and financial planner can help you:
- Offset gains with losses
- Optimize charitable giving
- Manage income thresholds for Medicare and Social Security taxation
What Should I Do to Minimize Taxes For 2026?
- Don’t wait until April — most tax-saving moves expire December 31.
- Review withholdings, RMDs, and charitable plans now.
- Consider Roth conversions before 2026 tax changes.
- Use volatility to your advantage through tax-loss harvesting.
Year-end planning isn’t just about saving taxes — it’s about gaining control. By reviewing your accounts before December 31, you can prevent costly surprises and ensure your money works harder for you in 2026 and beyond.
About the Financial Planning Author
Alexander Langan, J.D, CFBS, serves as the Chief Investment Officer at Langan Financial Group. In this role, he manages investment portfolios, acts as a fiduciary for group retirement plans, and consults with clients regarding their financial goals, risk tolerance, and asset allocation.
With a focus on ERISA Law, Alex graduated cum laude from Widener Commonwealth Law School. He then clerked for the Supreme Court of Pennsylvania and worked in the Legal Office of the Pennsylvania Office of the Budget, where he assisted in directing and advising policy determinations on state and federal tax, administrative law, and contractual issues.
Alex is also passionate about giving back to the community, and has participated in The Foundation of Enhancing Communities’ Emerging Philanthropist Program, volunteers at his church, and serves as a board member of Samara: The Center of Individual & Family Growth. Outside of work and volunteering, Alex enjoys his time with his wife Sarah, and their three children, Rory, Patrick, and Ava.
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Disclosure
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice.
Please consult legal or tax professionals for specific information regarding your individual situation.
The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
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Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Cambridge and Langan Financial Group, LLC are not affiliated.
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