Year-End Tax Strategies for High-Income Families
Table of Contents
As the calendar winds down, high-income families face a unique blend of opportunity and complexity when it comes to year-end tax planning. With higher marginal tax rates, exposure to phase-outs, and greater likelihood of encountering the Alternative Minimum Tax (AMT), thoughtful moves before December 31 can help reduce tax liabilities, preserve wealth, and smooth long-term financial outcomes. Below are a few practical, high-impact strategies that families earning at the top of the income scale should consider. As always, review these strategies with a qualified CPA or tax advisor, because individual circumstances and ever-changing tax law could affect your situation.
Accelerate or Defer Income Strategically
Timing matters. If you expect your income to be lower next year (for example, due to a planned retirement or business transition), defer bonus income, consulting revenue, or an S-Corp distribution into the following tax year. Conversely, accelerate income into the current year if you anticipate higher tax rates next year. For employees with control over bonus timing, talk with HR about payout dates. For business owners, consider invoicing and expense timing to spread taxable income across years.
Max Out Retirement Plan Contributions
High earners should fully utilize available retirement vehicles to both save and lower taxable income. Maximize contributions to 401(k), 403(b), or governmental plans, as these reduce adjusted gross income (AGI). If eligible, contribute to a traditional IRA (or perform a deductible conversion strategy if phase-outs apply). Consider defined-contribution alternatives, SIMPLE or SEP IRAs, or, better yet, a defined-benefit or cash balance plan if you run a closely held business; these allow very large, tax-deductible contributions for owners nearing retirement.
Roth Conversions- Timing and Tax Bracketing
A Roth conversion moves pre-tax retirement assets into a Roth account, creating future tax-free growth. For high-income families, partial Roth conversions in lower-income years can be very efficient. If you have a year with lower taxable income or an unusually large deduction, converting a measured amount can “fill” lower tax brackets without pushing you into the highest marginal rate. Be mindful that conversions are taxable in the year of conversion, so plan for the extra cash needed to cover the tax cost.
Harvest Investment Losses and Manage Gains
Tax-loss harvesting (selling investments at a loss to offset capital gains) remains an important part of year-end planning. Realize losses to offset current-year gains and up to $3,000 of ordinary income if losses exceed gains (with the remainder carried forward)1. For high-income taxpayers facing the 3.8% Net Investment Income Tax (NIIT) or high capital gains surtaxes, offsetting gains is especially valuable. Beware of the wash-sale rules if you plan to repurchase similar securities within 30 days.
Optimize Charitable Giving (and Bunching)
Charitable contributions reduce taxable income and can be especially powerful for high-income households. Consider “bunching” gifts into a single year to exceed standard deduction thresholds or qualify for other benefits. For large gifts, donor-advised funds (DAFs) allow an immediate tax deduction while enabling you to distribute donations to charities over time. Also use qualified charitable distributions (QCDs) from IRAs if you’re over 70½ (subject to IRS rules) and explore appreciated stock donations to avoid capital gains taxes while taking a deduction for fair market value.
Leverage Tax-Advantaged Accounts for Education and Health
Max out 529 college savings plans for state tax benefits where applicable and consider direct gifts to 529s to use five-year gift-tax averaging (this lets you front-load up to five years’ worth of exclusions). Health Savings Accounts (HSAs) are triple tax-advantaged because contributions are deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free, so fully funding HSAs where eligible is often wise.
Gifting and Estate Planning Moves
High-income families should also consider annual gifting to shift future appreciation out of the estate. Use the annual gift tax exclusion (adjusted annually for inflation) to give directly to family or to fund 529 plans. For larger estate plans, you may want to explore trust strategies like grantor retained annuity trusts (GRATs), irrevocable life insurance trusts (ILITs), and charitable remainder trusts (CRTs), all of which can preserve wealth while addressing estate tax exposure. Coordinate year-end gifts with your estate attorney to ensure compliance and timing such strategies.
Mind the Alternative Minimum Tax and Phaseouts
High-income taxpayers can be exposed to AMT and various phaseouts (personal exemptions and certain credits). Accelerating deductible state and local taxes or property taxes into the current year might make sense in some cases, but be careful: state and local tax (SALT) deduction caps and AMT interactions can create surprises. Work with your advisor to model how year-end moves affect AMT status and other phaseouts.
Review Withholding and Estimated Tax Payments
Underpaying can trigger penalties, while overpaying is an interest-free loan to the government. Reconcile year-to-date withholding and estimated payments with your projected tax liability. If bonuses, stock vesting, or sales of appreciated assets will increase tax liability significantly, increase withholding or make an estimated tax payment to avoid penalties.
Coordinate Stock-Based Compensation Moves
If you receive stock options, RSUs, or other equity awards, year-end is a critical time to evaluate vesting schedules and tax elections. Consider exercising incentive stock options (ISOs) carefully, as exercise timing affects AMT exposure. For non-qualified stock options or RSUs, plan for tax withholding at vesting and decide whether to sell to cover taxes or hold for growth, thus balancing concentration risk.
Document and Track Everything
Good documentation simplifies filing and defends positions under audit. Keep records of charitable receipts, investment sales (basis documentation), payroll and estimated payments, and any gift-tax filings. Use a centralized checklist with your tax professional to ensure nothing gets overlooked in a busy year-end window.
Conclusion
In conclusion, year-end tax planning for high-income families is a blend of tactical moves and strategic positioning. From timing income and maximizing deductible contributions to harvesting losses and orchestrating charitable gifts, the right combination of steps can reduce current-year tax bills and improve long-term financial outcomes. Because of the complexity of AMT interactions, phaseouts, estate considerations, and the tax treatment of sophisticated instruments like stock-based compensation, partnering with an experienced CPA or tax attorney is strongly recommended. Start planning early, model scenarios with your advisor, and execute by December 31 to capture the benefits for the current tax year.
Written by,
Andre Paiva
Andre joined Insight Wealth Strategies in 2018 and works as an Associate Advisor on our Advisory team creating financial plans and implementing investment management strategies for our clients. He holds a Bachelor’s degree in Business Management from University of Phoenix, he has previously passed his Series 7 and 66 licenses as well as CA life and health insurance, and is a notary public.
Sources:
Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.
Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
