Commentary · Tax Strategy
December Is Too Late for the Moves That Matter
Written by the William Allan team · Reviewed by Jason Crawshaw, CPA ·
Year-end tax planning has a reputation it has not earned.
The reputation is that it happens in December. The year is almost over. Someone sends a checklist. A few trades get made in the last week, a check gets written on the 30th, and the household feels like it did the responsible thing.
The calendar is not the problem. The lead time is.
Several of the moves that actually change a tax year need days, and sometimes weeks, to complete cleanly. Selling a position to realize a loss, and then not stepping back into the same thing, takes a window. A gift of appreciated shares has to actually arrive. A conversion has to settle. A contribution change has to hit a paycheck. None of that is a December 31 activity. It is a now activity that happens to have a December 31 deadline.
Waiting until the last week is how people either miss the move or make a messy version of it.
What This Year Actually Looks Like
The useful starting point is not last year’s return. It is this year, the one you are still in.
What has already happened. A sale. A bonus. A vest. A conversion. A distribution you did not need but took anyway. What is still going to happen, whether you plan it or not. A K-1. Another vest. A required withdrawal. A year-end bonus that lands in December and shows up on a return you thought was already done.
You do not need a precise forecast of the market to see the shape of the year. You need a picture of the income that is already in motion.
Households that skip this step do not skip it because they are careless. They skip it because nothing is forcing the conversation yet. April is far away. December still sounds like plenty of time. Then December arrives, the custodian is slow, payroll has already run, and the year is the year.
The Moves That Need Calendar
Tax-loss harvesting is the one people remember. You sell something that is below what you paid, and the loss can offset gains you have already taken, or gains you are about to take. That part is simple. The part that is not simple is the rule that generally disallows the loss if you buy the same, or a substantially identical, security within a short window on either side of the sale. The IRS calls it a wash sale. The practical effect is that a harvest done in the last days of December can follow you into January, which is a different tax year, and create a problem you were trying to solve.
That is why September and October are more useful than December for this particular job. You still have time to take the loss and stay out of the replacement long enough for the rule to stop mattering.
Charitable gifts work the same way, for a different reason. A gift of cash can often move quickly. A gift of appreciated shares cannot. The shares have to leave the account and be accepted by the charity or the donor-advised fund. In the last week of the year, that transfer is competing with everyone else who waited. Completing it in September is boring. Completing it on December 30 is a hope.
Roth conversions belong on the same list. They have to finish this calendar year, and the tax they create belongs to this calendar year. We wrote about the window itself last week. The only point here is the clock. A conversion you decide on December 28 is a conversion that may not land.
Payroll deferrals and workplace contributions need a cycle. If the plan has to see the election on a paycheck that has not been processed yet, the last pay period of the year is not a planning session. It is a leftover.
The Questions That Actually Decide It
What does this year’s income look like without any further moves. Not a guess. The year you are in.
What has already created a gain, a loss, or a lump of ordinary income. Vesting, a sale, a conversion, a distribution.
Whether any of those are still sitting in cash, or already spent, or already earmarked for something else.
Whether you give, and whether you give from cash or from a position that has grown.
Whether you pay estimated taxes, and whether the remaining payments still match the year you are actually having. The next one is due in the middle of this month.
If you cannot answer those yet, you are not behind. You are in the position most households are in at the end of August. The difference is that August still has a fall attached to it.
What We Would Tell a Friend
If a friend asked over dinner, without the software, the honest answer would go something like this.
If you do not know what this year looks like yet, start there. Not with a strategy. With a picture. Most of the useful decisions get easier once the year is visible.
If this year has already been loud, a sale, a vest, a conversion, a distribution, December is not when you want to find that out. The remaining months are for deciding whether anything else should happen, not for discovering the thing that already did.
If this year has been quiet, that is information too. Quiet years are often the ones where a harvest, a gift, or a conversion has room. Loud years are often the ones where the right move is to stop adding.
And if you have been telling yourself you will deal with it in December, you are not wrong about the deadline. You are wrong about the work. The deadline is December. The work is now.
That picture, laid out for this year, is an afternoon. It is the sort of thing worth doing with someone whose job is to lay it out straight.
Informational purposes only. Not investment, tax, or legal advice. Tax-loss harvesting, charitable gifts, retirement contributions, and Roth conversions depend on individual circumstances, account type, and current law, which can change. Wash-sale rules may disallow a loss if a substantially identical security is purchased within a defined window before or after the sale. Deadlines and processing times vary by custodian and employer plan. William Allan does not provide tax advice. Consult a qualified tax professional regarding your situation. William Allan is an investment adviser registered with the SEC; registration does not imply any specific level of skill or training. All investing involves risk, including possible loss of principal.