A large tax bill can mean a large amount of anxiety come tax time, but with a little planning and a few smart financial moves, you can leave the worry behind and potentially pay less in taxes. Here are five ways you could start saving on next year’s taxes today.
1. Make a plan for your retirement contributions
Retirement accounts help you live comfortably later in life, but they can also help you sooner. Contributions to a 401(k) or Traditional and Self-Employed Individual Retirement Accounts (IRA) are considered ‘pre-tax dollars’ and lower your total taxable income for the year—as well as your tax bill if that moves you to a lower tax bracket. The money you invest in these accounts is only taxed at withdrawal in retirement.
You can contribute to both an Individual Retirement Account (IRA) and 401(k). In 2026, taxpayers under 50 can contribute up to $7,500 to an IRA and $24,500 to a 401(k) in pre-tax dollars. When you open an IRA with Wealthfront, we make it easy to track your contributions and max them out directly from your Cash Account. If you house your IRA elsewhere, setting up automatic contributions that bring you to the maximum can help you make the most of long-term, tax-deferred growth.
If you’re interested in funding an IRA but you’re not sure if a Traditional IRA, Roth IRA, or Self-Employed IRA is right for you, check out Wealthfront’s IRA Account Selection Tool to learn more about your IRA eligibility.
2. Consider a Roth conversion
Roth IRA contributions are made in after-tax dollars and offer more liquidity—with tax-free growth, and tax-free qualified distributions in retirement. However they also come with income limits that dictate how much of the annual $7,500 contribution you can make (if at all). For 2026, income limits are $168,000 for single filers or $252,000 for married couples filing jointly.
If you anticipate you’ll end up in a higher tax bracket after retirement, are currently in a low tax bracket, or currently earn more than the income limit, you might want to convert your traditional IRA to a Roth IRA. While you’ll pay taxes on the amount converted, you won’t pay taxes on qualified distributions in retirement.
Converting your traditional IRA to a Roth is designed to be effortless and takes just a few minutes.
3. Strategize for an IPO or other windfall
If your company is about to go public it’s a good idea to prepare for a potentially hefty tax bill. You’ll likely want to hire a qualified accountant to guide you through this process, but here are some tips to get you started.
Pay quarterly estimated taxes: If you anticipate owing money on your 2026 taxes because you received (or will receive) income that wasn’t subject to tax withholding, you’ll likely need to pay estimated taxes each quarter to avoid underpayment penalties and interest. Since the exact amount is difficult to predict, the “safe harbor rule” states that if you pay 100%-110% of the previous year’s tax liability (depending on your income) you’ll be shielded from penalties. When it comes to state taxes, rules vary. In California, for example, the safe harbor rule doesn’t apply to people earning over $1 million.
Take advantage of long-term capital gains: When you hold a security for longer than one year (two years from the vest date), you’ll owe significantly less in taxes than you would with short-term capital gains. Short-term capital gains are usually taxed like regular income whereas long-term capital gains are taxed up to 20%. You’ll likely want your gains to qualify for the latter, which means you’ll need to hold your investments for 366 days after purchasing them.
For ISOs (incentive stock options) you must wait at least one year and one day after exercising an option to sell it –– and at least two years and one day from when you were granted the option –– to have your profits taxed at the long-term capital gains rate.
Consider charitable contributions: A donor advised fund (DAF) is a great way to make charitable contributions and get a tax break at the same time. You can deduct your contribution this year, then spread out your giving over time. If you choose to contribute appreciated stock to your DAF, be sure to use long-term held positions, which will allow you to take a charitable deduction at the current fair market value. Donating short-term positions means your deduction is limited to the lesser of fair market value, or cost basis.
4. Take advantage of tax-loss harvesting (if you aren’t already)
Tax-loss harvesting takes advantage of investments in your portfolio that have declined in value and uses them to offset your other taxable gains, thus helping to lower your tax bill. If you start tax-loss harvesting now, you can reduce your tax liability in the years ahead, beginning with your 2026 tax return. Tax-loss harvesting becomes even more valuable the more frequently you add deposits to your account.
Wealthfront’s Tax-Loss Harvesting is available for all taxable Investment Accounts and takes advantage of daily market volatility (instead of waiting until the end of the year as a traditional advisor is likely to do). As a result, our service has historically generated estimated after-tax savings worth many times our annual advisory fee of 0.25% whether the market closes the year up or down.
What can I do with the losses I harvest?
Harvesting losses can help you offset long-term and short-term capital gains and/or offset up to $3,000 of ordinary income in a given year. Best of all, any harvested losses left over can be carried forward indefinitely.
Let’s illustrate this with an example. To start, imagine you harvested $4,000 of losses last year and realized $500 of capital gains. We’ll also imagine you have a salary of $150,000 and an assumed tax rate of 24%. Here’s what you could do with those losses:
| The $4,000 loss… | Tax impact |
|---|---|
| 1. Offsets capital gains | Saves taxes on $500 of capital gains |
| 2. Lowers ordinary income | Reduces ordinary income by $3,000 |
| 3. Saves taxes on that income | Saves $720 in taxes owed (at 24% bracket) |
| 4. Then rolls the remainder over | Carries $500 in harvested losses forward to offset future capital gains and/or ordinary income |
5. Minimize your tax burden with direct indexing
Direct indexing takes the benefits of Tax-Loss Harvesting a step further, providing more opportunities to harvest losses (and potentially lower future taxes owed).
Instead of owning a single ETF, direct indexing lets you own the individual stocks within an entire index. That means even on days when the index is up as a whole, you can still harvest losses if individual stocks within the index are down. If you only do tax-loss harvesting at the ETF level, you could miss out on additional potential tax savings.
Wealthfront has three direct indexing offerings, including our two standalone products: S&P 500 Direct and Nasdaq-100 Direct.
| S&P 500 Direct | Nasdaq-100 Direct | |
|---|---|---|
| Minimum Investment | $5,000 | $5,000 |
| Annual Advisory Fee | 0.09% | 0.12% |
| Stock Exclusion | Yes | Yes |
| Fractional Shares | Yes | Yes |
Get ready for next year’s taxes, today
Unlocking potential tax savings is easy. We’ve shown you how a smart direct indexing strategy, tax-loss harvesting, planning for IPOs or even a Roth conversion can help you owe less in taxes no matter what stage of life you’re in.
Disclosure
Investment management and advisory services are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser, and brokerage related products are provided by Wealthfront Brokerage LLC (“Wealthfront Brokerage”), a Member of FINRA/SIPC. Financial planning tools are provided by Wealthfront Software LLC (“Wealthfront Software”).
The information contained in this communication is provided for general informational purposes only, and should not be construed as investment or tax advice. Nothing in this communication should be construed as a solicitation, offer, or recommendation, to buy or sell any security. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Wealthfront Advisers or its affiliates endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.
Wealthfront Advisers and its affiliates do not provide legal or tax advice and do not assume any liability for the tax consequences of any client transaction. Clients should consult with their personal tax advisors regarding the tax consequences of investing with Wealthfront Advisers and engaging in these tax strategies, based on their particular circumstances. Clients and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the investor’s personal tax returns. Wealthfront Advisers assumes no responsibility for the tax consequences to any investor of any transaction.
The IRA calculator is offered by Wealthfront Software. The IRA calculator is for illustrative purposes only. You should not rely on the IRA calculator as the primary basis of any investment, financial, or tax planning decision. The IRA calculator relies on assumptions that will not be representative of each individual who uses the tool. No representations, warranties or guarantees are made as to the accuracy of any suggestions provided by the IRA calculator.
Tax-Loss Harvesting benefits vary depending on the client’s entire tax and investment profile. The performance of new securities purchased may be better or worse than those sold. The strategy could introduce portfolio tracking error, meaning the portfolio’s performance might slightly diverge from its intended benchmark. There may also be unintended tax implications. Wealthfront does not provide tax advice. Consult a tax professional for your specific situation.
Wealthfront Advisers offers tax-loss harvesting for many investment products, which has generated over $3.6 billion of deductible tax losses from 2012 through July 31, 2025. Based on clients’ self-reported tax attributes, Wealthfront Advisers estimates a tax benefit that pays for its advisory fee approximately 7.7 times over, as of July 31, 2025. Wealthfront also estimates that more than 96% of clients who used tax-loss harvesting received more in tax benefit than they paid in fees.
Harvested losses are first used to offset capital gains of the same type. This means short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.
The S&P 500® index is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by Wealthfront Advisers LLC. Standard & Poor’s®, S&P®, S&P 500®, US 500 and The 500 are trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Wealthfront Advisers LLC. Wealthfront’s S&P 500 Direct Portfolio is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the S&P 500® index.
S&P 500 Direct invests in many of the stocks in the S&P 500®, but it may not invest in all the stocks in the index. As a result, its performance may deviate from that of the S&P 500® index due to tracking error, market conditions, and the limitations of Tax-Loss Harvesting. Account size and customization options, such as excluding individual stocks, may affect your portfolio’s ability to track the S&P 500® index.
Nasdaq®, Nasdaq-100 Index®, NDX®, and Nasdaq-100® are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Wealthfront Advisers LLC. The Product(s) (“Wealthfront Nasdaq-100 Direct Index”, “Wealthfront Nasdaq-100 Direct”, “Nasdaq-100 Direct”) have not been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).
Nasdaq-100 Direct allows clients to hold individual stocks in the Nasdaq-100 Index®, but it may not hold all the stocks in the index. As a result, its performance may deviate from that of the Nasdaq-100 Index® due to tracking error, market conditions, and the limitations of Tax-Loss Harvesting. Account size and customization options, such as excluding individual stocks, may affect the portfolio’s ability to track the Nasdaq-100 Index®
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About the author(s)
Scott has practiced public accounting since 2009. He focuses on the tax aspects of estate planning, including gift planning and trust taxation, to help his clients achieve their financial goals and manage their tax liabilities efficiently. His clients include individuals, families, and closely held businesses. Scott can be reached at +1 (408) 558 3274. Professional services are offered through Baker Tilly US, LLP and Baker Tilly Advisory Group, LP. Attest services provided through Baker Tilly US, LLP, a licensed independent CPA firm. Tax and business advisory services provided through Baker Tilly Advisory Group, LP and its subsidiary entities. View all posts by Scott Peterson, CPA
