December is a natural time for investors to pause, tidy up their financial lives, and make a few smart moves that can boost after-tax returns heading into 2026. With tax laws changing and emotions often running high around money, having a simple year-end checklist empowers clients to act with intention rather than on impulse.
Long-term capital gains rates are still pretty favorable for most people, but higher-income households may get hit with an extra 3.8% Net Investment Income Tax (NIIT) on top of regular capital gains tax. This surtax kicks in once your income crosses certain thresholds, so the timing and type of income you realize can make a big difference on your final tax bill.
NIIT generally applies when your modified adjusted gross income goes above set amounts for single filers or married couples filing jointly. Since it covers interest, dividends, capital gains, and other investment income, an unexpected asset sale late in the year can accidentally push you into the surtax zone.
If you’re close to these thresholds, coordinating sales, making charitable gifts of appreciated securities, or deferring income can help you avoid the extra 3.8%. By combining investment and tax planning, you can keep more of what you earn—without taking on extra risk in the market.
Given the ups and downs in markets lately, you may have some investments showing losses while others have done well. Tax-loss harvesting—selling those losers to offset gains—can lower your tax bill. You can maintain your overall market exposure by swapping into similar (but not identical) investments, which also helps you avoid wash-sale issues.
Where you hold your investments matters too. Keeping tax-inefficient assets—like high-yield bonds or actively traded funds—in tax-deferred accounts, and putting tax-efficient assets—like broad equity index funds—in taxable accounts, can help you keep more of your returns over time.
Some new laws are set to phase in over the next few years, affecting things like interest expense, qualified small business stock, and cross-border income for certain investors and business owners. Staying on top of these changes can help you avoid surprises—and might even present opportunities to act before the rules change.
For entrepreneurs and private business investors, possible changes to gain exclusions on certain qualified stock could affect when you choose to invest or sell. If you invest in real estate or REITs, you might also see new rules about leverage and entity structures, which could impact your preferred strategies and borrowing levels over time.
Behavioral finance research shows that our own biases—like loss aversion, overconfidence, or just following the crowd—can eat away at our returns. Taking time in December to reflect on these habits gives you a chance to set up safeguards before the next market rollercoaster.
Common year-end missteps include chasing the year’s top-performing funds, giving up on lagging strategies just before they rebound, or letting cash build up after a stressful market. Writing out a simple “behavioral policy” can sit alongside your investment policy and spell out how you’ll respond to market drops, scary headlines, or sudden rallies.
A straightforward December checklist could include confirming your realized gains and losses, checking if your projected income might trigger NIIT, and finding smart opportunities for loss harvesting that fit your long-term goals. Rebalancing your portfolio to target allocations—using rules instead of gut feelings—is another valuable move.
Finally, jot down two or three specific behavioral commitments for 2026—like not changing your allocation based on just one news report or Fed meeting. Turning these intentions into written rules makes it far more likely you’ll stick to them when markets get noisy again.
Disclosure
This material is for informational and educational purposes only and is not intended as tax, legal, or investment advice. Tax laws and regulations can change, and their application can vary based on individual circumstances. Readers should consult with a qualified tax professional, financial advisor, or attorney before making any decisions related to the topics discussed. Investment involves risk, including possible loss of principal, and no strategy can guarantee success or eliminate the risk of loss.
Sources
For additional background on concepts referenced in this article, consider reviewing:
- IRS – Net Investment Income Tax (NIIT):
https://www.irs.gov/newsroom/net-investment-income-tax-frequently-asked-questions - IRS – Tax-Loss Harvesting and Capital Gains/Losses (Capital Gains, Losses and Sale of Home):
https://www.irs.gov/taxtopics/tc409 - IRS – Capital Gains and Losses (Topic No. 703):
https://www.irs.gov/taxtopics/tc703 - IRS – Understanding Marginal and Effective Tax Rates:
https://www.irs.gov/newsroom/soi-tax-stats-individual-statistical-tables-by-size-of-adjusted-gross-income - FINRA – Understanding Capital Gains and Tax-Loss Harvesting:
https://www.finra.org/investors/insights/tax-loss-harvesting - CFA Institute – Behavioral Finance and Investor Biases:
https://www.cfainstitute.org/en/research/foundation/2014/behavioral-finance-and-investor-types
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