Which year-end moves before December 31 lower my Virginia tax as well as my federal tax?
This guide sorts the usual year-end moves by the return each one lowers, federal, Virginia or both, and works one family's numbers through.
Priya and her husband live in Fairfax County with two children, and it has been a good year. In early November their financial advisor sent a year-end checklist: give to charity, top up the 401(k), fund the kids' 529s, look at harvesting losses. An AI assistant told her about a heat pump credit and never mentioned Virginia. Every list treats "lower your taxes" as one number. She pays two returns, one to the IRS and one to Virginia, and she suspects some of these moves help only one of them. So is there a rule that sorts the moves, or must she look up each one? There is a rule. For a couple on the standard deduction, a federal deduction lowers Virginia tax only if it comes off before adjusted gross income. Invest529 is the reverse: it lowers Virginia tax alone. The couple earn $220,000 in wages plus a $30,000 bonus, all paid in 2026, and take the standard deduction. In December she is thinking of $5,000 to a charity, $10,000 split across two Invest529 accounts and $6,000 more into her 401(k).
Key points
- For a couple on the standard deduction, a federal deduction lowers Virginia tax only when it comes off before adjusted gross income; Invest529 works the other way and lowers Virginia alone.
- Pre-tax 401(k), IRA and HSA money comes off before adjusted gross income. So it lowers both returns. That holds for an HSA-eligible person within the annual limit. For an IRA it holds only where the deduction is not phased out.
- The 2026 gift deduction for people who don't itemize is up to $2,000 for a couple. It covers cash gifts to public charities. Gifts to donor-advised funds or supporting organizations don't count. It lowers only the federal return.
- Virginia lets an Invest529 owner who files a Virginia return deduct up to $4,000 per account each year. The rest is deducted in later years.
- In the example, the three moves cut federal tax by $1,888. They cut Virginia tax by $805.
Year-end moves: which ones reach the Virginia return?
For a couple on the standard deduction, a federal move reaches the Virginia return only when it changes one line of the federal return, adjusted gross income. Adjusted gross income is your total income minus a short list of deductions the law takes off first. For Priya, before any move, it is $250,000. Virginia's resident income tax return, Form 760, starts there: Line 1 asks for federal adjusted gross income. The 2025 Form 760 instructions say to use federal adjusted gross income, "NOT federal taxable income".
That gives Priya a test for every line on her advisor's list. A move that lowers adjusted gross income lowers both returns. A move that comes off later, between adjusted gross income and taxable income, lowers only the federal return for a couple on the standard deduction. A deduction that exists only on Virginia's form lowers only Virginia. If you itemize federally, you must itemize in Virginia too. Virginia's itemized deductions start from your federal ones, less state and local income taxes. So an itemized gift lowers both returns. The details of Virginia's schedule are not covered here.
Do retirement and HSA contributions lower both returns?
Yes. Pre-tax retirement and HSA contributions come off before adjusted gross income, so each one lowers both returns. The workplace ones have to go through payroll by December 31.
A pre-tax deferral is money you tell your employer to put into your 401(k) out of your pay before income tax. It is left out of the wages your W-2 reports for income tax. Priya's extra $6,000 would come off those wages, so her adjusted gross income falls from $250,000 to $244,000. It still counts as wages for Social Security and Medicare, the payroll taxes taken apart from income tax. The 2026 deferral limit is $24,500.
A traditional IRA deduction and an HSA deduction come off at the same point, with two conditions. An HSA deduction requires coverage under a high-deductible health plan. For 2026 it is limited to $4,400 for self-only coverage or $8,750 for family coverage, plus $1,000 at age 55 or older. An IRA deduction is phased out for anyone covered by a workplace plan. On a 2026 joint return, the phase-out runs between $129,000 and $149,000 of modified adjusted gross income for the covered spouse. It runs between $242,000 and $252,000 for a spouse who is not covered. At Priya's income, a spouse in a 401(k) gets no IRA deduction. An IRA contribution for 2026 can be made up to the return's due date, not counting extensions. Priya's extra $6,000 has no such grace: it has to come out of a 2026 paycheck.
Does the new charitable deduction lower my Virginia tax?
No. The 2026 deduction for people who do not itemize comes off after adjusted gross income, so it lowers the federal return and leaves Virginia where it was.
The standard deduction is a flat amount you subtract instead of adding up your own deductions, which is called itemizing. For a married couple in 2026 it is $32,200 federally and $17,500 in Virginia. The Virginia figure applies for 2026 and rises to $18,400 for 2027. Starting in 2026, you can deduct cash gifts to public charities without itemizing. Gifts to donor-advised funds and supporting organizations do not qualify. The cap is $2,000 on a joint return.
The law lists the deductions taken before adjusted gross income, and this one is not on the list; it is subtracted afterward. A couple on the federal standard deduction must take Virginia's standard deduction too. So the gift leaves Priya's Virginia return unchanged. Federally, her $5,000 gift gives $2,000 of deduction, and the other $3,000 gives no deduction this year.
If you itemize, 2026 works differently. Gifts deduct only to the extent they exceed 0.5 percent of the contribution base, which is generally adjusted gross income. On $250,000, that is the first $1,250. Itemized deductions are also reduced for households in the top federal rate of 37 percent, which on a 2026 joint return begins above $768,700 of taxable income. The reduction is 2/37 of the smaller of total itemized deductions or taxable income above the start of that rate. Virginia does not apply this reduction. It keeps its own older limit on itemized deductions.
Does an Invest529 contribution lower my federal tax?
No. The federal return gives no deduction for a 529 contribution. Virginia does, so Invest529 lowers the Virginia return alone.
Invest529 is Virginia's state college savings program. The account owner can deduct up to $4,000 per account each year, and anything above that is deducted in later years until it is used up. An owner 70 or older can deduct the whole amount in one year. The deduction belongs to the owner on the plan's records as of December 31, who must file a Virginia return. No Virginia deduction is allowed for an amount deducted on the federal return. The deduction is taken back if money is withdrawn for anything other than qualified expenses. The program is run by Commonwealth Savers, formerly Virginia529.
For Priya, two accounts owned by one parent give $8,000 of Virginia deduction this year, with $2,000 left to deduct in 2027. The same $10,000 in one account would give $4,000 now and $6,000 later.
Do capital losses and a December bonus change both returns?
Yes. Gains, losses and a bonus paid by December 31 all land in adjusted gross income, so, as we read it, each one moves both returns.
A bonus counts in the year it is credited to your account or made available to you without restriction. Priya's $30,000 was paid in 2026, so it is 2026 income on both returns. If losses beat gains, up to $3,000 of net loss comes off other income in a year, and the rest is used in later years. As we read it, the loss reaches Virginia through adjusted gross income, and Virginia taxes gains at its ordinary rates, 5.75 percent above $17,000.
A wash sale is a sale at a loss with a purchase of, or a contract or option to buy, substantially identical shares within 30 days before or after it. The loss is not allowed then. It is added to the cost of the new shares, the figure a later sale's gain or loss is measured from. The old shares' holding period carries over to the new ones. If Priya sold a fund at a loss on December 10 and bought it back on December 20, the loss would wait.
Estimated tax after a big bonus: what is due January 15?
A large late bonus can leave both returns short of what had to be paid during the year, and the last 2026 payments are due January 15, 2027.
An estimated payment is tax you send in yourself, on top of withholding, the income tax your employer takes out of each paycheck. Priya's last pay stub shows how much has been withheld so far this year. Federally, no estimate is required if she expects to owe less than $1,000 after withholding. Nor is one required if her withholding reaches the smaller of 90 percent of her 2026 tax or 110 percent of her 2025 tax. The 110 percent is 100 percent if her 2025 adjusted gross income was $150,000 or less. For Virginia, she compares her Virginia withholding with the smaller of 90 percent of her 2026 Virginia tax or 100 percent of her 2025 Virginia tax. Virginia's fourth payment is also due January 15, 2027, unless the 2026 Virginia return is filed and the tax paid in full by March 1, 2027. The fourth federal payment is due January 15, 2027, unless the return is filed by February 1, 2027 with the balance paid.
| Move | Federal return | Virginia return |
|---|---|---|
| Pre-tax 401(k), IRA or HSA contribution | Lower, if eligible and the IRA deduction is not phased out | Lower by the same amount |
| Cash gift to a public charity without itemizing | Lower, up to $2,000 on a joint return | No change |
| Invest529 contribution | No change | Lower, up to $4,000 per account a year |
| Capital losses | Lower, up to $3,000 of net loss a year | Lower, as we read it, through adjusted gross income |
Worked example: Priya's December on both returns
The couple file jointly, are both under 50 and take the standard deduction on both returns. The example leaves out credits, so it measures only what each move changes, and the figures are illustrative.
Federal tax is charged in brackets: each slice of taxable income has its own rate, and Priya's top slice is taxed at 24 percent. Before any move, adjusted gross income is $250,000, taxable income is $217,800 after the $32,200 standard deduction, and tax is $37,468. The deferral lowers tax by $1,440, which is $6,000 at 24 percent. The gift lowers tax by $480. The Invest529 contributions change nothing.
Virginia, before any move: Line 1 is $250,000, then the $17,500 standard deduction and four personal exemptions of $930 come off, one for each family member. Tax on the $228,780 left is $12,897.35. The deferral lowers tax by $345. The two accounts lower tax by $460. The gift changes nothing.
All three together lower federal tax by $1,888, which is $32 less than the moves added one at a time, because $1,600 of the $8,000 the deferral and gift take off drops into the 22 percent bracket. They lower Virginia tax by $805. At another income, the last dollars sit in a different federal bracket, and the numbers change.
Priya opens the advisor's email again. Next to each line she can now write federal, Virginia or both, because, for a couple on the standard deduction, the one test is whether the move comes off before adjusted gross income. The gift and the 529 pull in opposite directions, one lowering only the federal return and the other only Virginia's, while the 401(k) lowers both. Which ones to make, and how much, is hers to settle, with her advisor where it touches the plan.
We're LAS CPA, PC, in Woodbridge, and we work with people across Northern Virginia who are weighing what to do before December 31. Our personal advisory work covers retirement, a complex year and returns in more than one state. The return comes last, after a year of planning. The investment plan and the trades stay with your financial advisor.
If this looks like your situation, the introduction call is where you tell us about it.
Is the heat pump or solar credit still open for 2026?
No. Both credits have ended. The home improvement credit is not allowed for anything installed and ready to use after December 31, 2025. The clean energy credit ended for spending after that date.
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