Year-End Tax Planning for High Earners

An uncomfortable truth about my job: by the time we're preparing your return in the spring, the year is closed and I'm mostly keeping score. The decisions that actually change the number get made in October, November, and December, while there's still time to act. This is the short list I walk through with clients every fourth quarter.

Fill the retirement buckets

• Max out the 401(k) deferral, then check whether your plan allows after-tax contributions with in-plan Roth conversions, the mega backdoor Roth. Plenty of plans do. Most people never ask.
• Income too high for a direct Roth IRA? The backdoor Roth still works: just mind the pro-rata rule if you're carrying other traditional IRA balances, because it can make the conversion partly taxable.
• Self-employed with strong income? A solo 401(k) (or, for the right profile, a cash-balance plan) can shelter multiples of what a SEP allows.
• If you're HSA-eligible, fund it. It's the rare account that's deductible going in, tax-free growing, and tax-free coming out for medical costs.

Give, but give efficiently

If charitable giving is already part of your life, the tax side is about timing and asset choice. Bunching two or three years of gifts into one (often through a donor-advised fund) can lift you over the standard deduction in the year you fund it. Better still: give appreciated long-term stock instead of cash. You skip the capital-gains tax entirely and still deduct full market value. And past age 70½, a qualified charitable distribution straight from an IRA is often the cleanest gift there is.

Harvest losses without tripping the wash sale

Selling losers to offset realized gains (plus up to $3,000 against ordinary income) is the easy part. The wash-sale rule is where people trip: buy back the same or a substantially identical security within 30 days, before or after the sale, and the loss is disallowed. If a big equity-comp gain or a fund exit hit this year, this is the lever to coordinate against it.

Mind the 110% safe harbor

High earners live under a stricter estimated-tax standard: paying in 110% of last year's tax during the year (the safe harbor for higher-AGI filers) generally protects you from underpayment penalties even if this year's income jumped. A large RSU vest, a Roth conversion, a good year in the business: any of them can blow past your withholding without you noticing. Check the math in November. It's a ten-minute exercise that regularly saves a penalty.