Year-End Tax Planning for High Earners: What Closes Dec. 31

Takeaways

• Many of the most impactful year-end tax decisions have a December 31 deadline and cannot be made retroactively, though some, like IRA and HSA contributions, can wait until the filing deadline
• The decisions that matter most are the ones that interact with each other: RSU timing, bonus income, charitable giving, and Roth conversion windows all affect the same tax picture
• Withholding on RSU vests is frequently insufficient for high earners — and the gap only becomes visible after the fact unless you are planning ahead
• The year you’re in matters as much as the strategy: a Roth conversion that makes sense in one income year may not in another
• These decisions work best when tax and equity-comp planning happen in one conversation, which is how a Personal CFO team approaches Q4

Every year around October, the same articles appear: max your 401(k), harvest your losses, make your charitable contributions. All of that is correct. None of it is the hard part.

The hard part of year-end tax planning for high earners is the decisions that are specific to your situation — the ones that depend on what your income looks like this year vs. next year, how your RSUs interacted with your bonus, whether this is the right year to do a Roth conversion or the wrong one, and whether you’ve already used up the deductions you were counting on.

December 31 is a hard deadline for many, but not all, year-end tax decisions. Unlike most financial decisions, many of the moves that affect your tax picture for a given year simply cannot be made in January. This article is about the ones that matter most for high earners with complex income — and what’s worth a conversation before the window closes.

One question worth answering at year-end is whether you need to make an estimated payment. Steady W-2 withholding doesn’t settle that on its own. The answer depends on your total tax for this year and last year, your income level, and the timing of your withholding, which together determine whether the safe-harbor rules are met. It’s a small thing to confirm with a projection, but it’s easy to miss when no one is looking at the full year.

Tax-loss harvesting depends on what the market gives you in a given year, which makes it a useful final pass once the bigger decisions are set.

Start with the income picture, not the strategy list

Most year-end tax planning starts with a list of strategies. A more useful starting point is your income picture for the year: what has already landed, what is still coming, and how that total compares to what you expected at the start of the year.

For high earners with equity compensation, this picture is rarely static. A large vest in Q4 can push income significantly higher than projected. A bonus that lands in December rather than January changes the bracket math. Options exercised mid-year have tax implications that interact with everything that comes after.

The question worth answering in October or November is: given everything that’s landed and everything that’s still coming, what does my total taxable income look like for this year — and does that change any decisions I was planning to make? See also: year-end tax planning checklist.

Portfolio income is another piece that’s easy to miss. In taxable accounts, interest, dividends, and capital gains distributions are often reinvested automatically, yet they still count as taxable income for the year.  Unless this is modeled out with your financial team, it can be easy to underestimate when adding up your income.

The RSU withholding gap: The most common year-end surprise

When RSUs vest, your employer withholds tax, often at the flat IRS supplemental wage rate of 22% (37% on supplemental wages above $1 million in a calendar year), as well as any required state withholding. Employers may use other permitted methods, and withholding is a prepayment toward your tax for the year, not the final bill. For many high earners, that rate is significantly below their actual marginal rate. If you’re in the 32%, 35%, or 37% bracket, the gap between what was withheld and what you actually owe accumulates across every vest throughout the year. See: RSU underwithholding.

This isn’t an obscure edge case. It’s one of the most common tax surprises for high earners with meaningful equity compensation, and it can often be addressed with planning.

The year-end question: estimate your total income including all vests, bonuses, and other income sources. If the gap between what’s been withheld and what you’ll owe is material, increasing withholding before year-end or making a fourth-quarter estimated payment (due in mid-January) may help reduce a large April bill and potential underpayment penalties. Payment timing and safe-harbor treatment depend on your situation, and a January estimated payment may not make up for an underpayment earlier in the year.

A related consideration: if you have a vest scheduled for late December, it counts as income in the year it vests. Vest dates are usually fixed by your grant schedule, though some plans offer deferral elections, which depend on plan terms and Section 409A rules and must be made well in advance. This is worth understanding before the vest happens, not after. See: how RSUs are taxed.

Not sure if your withholding is covering your RSU exposure? Let’s look at the numbers before year-end. Schedule a complimentary intro call.

The Roth conversion window: Right year or wrong year?

A Roth conversion — moving money from a traditional IRA or 401(k) into a Roth — is a taxable event in the year it happens. The conversion amount is added to your ordinary income for that year, and you pay tax on it at your current marginal rate. In exchange, future qualified withdrawals are tax-free, and Roth IRAs have no required minimum distributions during the owner’s lifetime. The trade-offs: a conversion raises your taxable income for the year, which may affect income-based costs and benefits; you need cash on hand to pay the tax; and a conversion generally cannot be reversed.

Whether a Roth conversion makes sense in a given year depends heavily on what your income looks like that year vs. what you expect it to look like in the future, along with factors such as cash available to pay the tax, time horizon, Medicare premiums, Social Security taxation, and estate goals. If this is a lower-income year — a sabbatical, a job transition, a year where your vests are lighter than usual — the conversion may be meaningfully less expensive than it will be in a higher-income year.

If this is a high-income year, a Roth conversion may push you into a higher bracket on the converted amount than you’d pay in retirement. In that case, deferring the conversion may be worth considering.

December 31 is a real constraint: a Roth conversion must be completed by December 31 to count for the current tax year. There’s no retroactive option. If this is the right year, the conversion needs to happen before December 31.

Consider a hypothetical example. A Roth conversion can look like an obvious decision in isolation — a client in a low marginal bracket, sitting on a sizable traditional IRA, seems like a clear candidate. But the marginal bracket alone doesn’t tell the whole story. If that same client also has capital gains taxed at 0% or a portion of Social Security income that becomes taxable once other income rises, the effective rate on a conversion can be significantly higher than the bracket suggests. This is exactly the kind of scenario where running the full projection — rather than defaulting to the bracket-based answer — can change the recommendation entirely.

Charitable giving: Strategy before sentiment

If you have charitable giving goals, the planning questions are how to give tax-efficiently and in which year. For high earners who itemize and meet the applicable requirements, donating appreciated securities rather than cash may be more tax-efficient. Giving shares held longer than one year that have increased in value generally generates a deduction for the full current market value (subject to AGI limits, holding-period, and substantiation requirements) and may avoid recognition of the embedded capital gain, depending on the asset, recipient, and timing. Giving cash can generate a similar deduction but forgoes that capital gains benefit. See: RSUs and DAFs.

A Donor-Advised Fund (DAF) extends this further: you can make a large contribution in a high-income year to capture the deduction, then distribute to causes over time. This is particularly useful in a year with a significant vest, a bonus, or another income event that pushes you higher than usual — the deduction is generally worth more when your marginal rate is higher, though starting in 2026 the tax benefit of itemized deductions is capped at 35% for taxpayers in the 37% bracket.

The year-end constraint: charitable contributions must be made by December 31 to count for the current tax year. For appreciated securities, the transfer needs to be complete before year-end, so it’s worth initiating well ahead of the deadline and confirming processing cutoffs with your custodian and the receiving charity or fund.

Proactive planning is critical here. Many clients come to us giving a certain amount each year consistently, yet receiving little or no tax benefit because their total itemized deductions don’t exceed the standard deduction. One small tweak, and the use of a Donor Advised Fund to bunch gifting into one year, can make more of those gifts deductible in the year you bunch them.

Tax-Loss Harvesting: Useful, But Usually Not the Most Important Conversation

Tax-loss harvesting — selling positions that have declined in value to generate a loss that offsets gains elsewhere in the portfolio — is a legitimate strategy with a December 31 deadline. It’s also the one that gets the most attention in year-end tax articles, often at the expense of decisions that matter more. See: when to sell a losing stock.

The mechanics are straightforward: realized losses offset realized gains dollar for dollar, with up to $3,000 of excess losses available to offset ordinary income in the current year and any remainder carried forward to future years. Under the wash-sale rule, the loss is disallowed if you buy substantially identical securities within 30 days before or after the sale. In a taxable account, the disallowed loss is generally added to the basis of the new shares and deferred; a repurchase in an IRA can mean the loss is permanently disallowed. The rule can also apply to purchases in a spouse’s account.

Where it fits in the priority order: tax-loss harvesting makes the most sense after you’ve addressed withholding gaps, Roth conversion timing, and charitable giving strategy — because those decisions are more likely to move the overall tax picture meaningfully. Harvesting losses works best as a final pass.

One consideration worth noting: harvesting lowers the cost basis of the replacement position, which can mean a larger gain later. If the harvested loss offsets gains taxed at a lower rate today and the larger future gain is taxed at a higher rate, harvesting may be less attractive than it looks. The result depends on your basis, holding period, future tax rates, and transaction costs.

Questions about year-end tax decisions and your complete picture? Book an intro call with a Brighton Jones advisor.

Account contributions: The straightforward part

If you’re eligible, contributing to tax-advantaged accounts such as a 401(k), HSA, or IRA is worth evaluating, with plan terms, eligibility, cash needs, and your broader household picture taken into account. It’s also the advice that appears in most year-end planning articles because it applies broadly.

A few details worth knowing for high earners:

• 401(k): Employee contributions must be elected through payroll and generally cannot be made retroactively after December 31. If you’re not on track to hit the limit, your last opportunity to adjust is your final payroll of the year.
• HSA: Unlike 401(k) contributions, HSA contributions can be made until the tax filing deadline (April 15 of the following year) and still count for the prior year. This gives you more flexibility, but eligibility depends on having HSA-qualified high-deductible health plan coverage during the year.
• IRA: Traditional and Roth IRA contributions can also be made until the tax filing deadline for the prior year. High earners may not be eligible for a direct Roth IRA contribution depending on income — a backdoor Roth may be an option, though the pro-rata rule can create unexpected tax if you hold other pre-tax IRA balances. Traditional IRA contributions may also be nondeductible if you’re covered by a workplace plan.

Worth noting: for some high earners with significant equity compensation or bonus income, the employee 401(k) contribution may be only one component of the overall tax picture. It matters, but it may not be where the most leverage is. See: maximizing your HSA.

The underlying point: These decisions interact

The reason year-end tax planning is genuinely complex for high earners isn’t that any individual decision is hard to understand. It’s that the decisions interact with each other in ways that aren’t obvious when you’re looking at them one at a time.

Whether to do a Roth conversion depends on your total income, which depends on how much RSU income landed this year. Whether to harvest losses depends on what gains you have, which depends on what you sold. Whether a large charitable contribution makes sense this year depends on whether your income is high enough to use the deduction effectively.

Looking at each decision individually produces locally correct answers that may not be globally right. The sequencing matters as much as the strategies.

The same logic applies beyond equity compensation. Selling a business, closing on a property, or any other liquidity event changes your income picture just as much as a large RSU vest — and often with less warning. These events don’t always surface in a planning conversation before they happen; a property sale, in particular, is easy to overlook until it’s already closed and the tax year is locked in. A business sale can trigger its own set of timing questions around installment payments and the year the gain is recognized.

That’s the kind of work a Personal CFO team can do year-round, not just in Q4, with Q4 in view from the beginning of the year. Depending on the scope of your engagement, the Personal CFO approach can integrate tax strategy with investment management and equity compensation planning, so year-end decisions happen in context rather than in isolation.

The question worth asking yourself before December 31 isn’t complicated: what’s different about this year? A new job, a bonus that landed differently than expected, a property sale, a life change — any of these can shift decisions that would otherwise happen on autopilot. The value of year-end planning usually comes down to whether that one honest conversation happens before the deadline, not after.

Frequently Asked Questions

How do I know if I’m on track before I file in April?

The clearest signal is comparing your total expected income — including any Q4 events — against what’s already been withheld or paid in estimated taxes. If there’s a meaningful gap, a Q4 estimated payment or additional withholding may help close it and meet the safe-harbor thresholds that protect against underpayment penalties. Waiting until filing may limit available planning options and could result in a larger balance due or underpayment penalties.

What’s the most important year-end tax decision for high earners?

It depends on your situation, but for many high earners with equity compensation, the RSU withholding gap is one of the most commonly missed issues. Understanding your total income picture for the year — including all vests, bonuses, and other income — and comparing it to what’s been withheld is the starting point for most other decisions.

Can I make IRA and HSA contributions after December 31?

Yes, for both. IRA and HSA contributions for a given tax year can be made until the tax filing deadline — typically April 15 of the following year. 401(k) employee contributions, however, generally must be made through payroll by December 31.

Is tax-loss harvesting worth doing?

It can be, but it’s often overemphasized relative to higher-leverage decisions. If you have meaningful realized gains and positions with unrealized losses, harvesting those losses before year-end can offset your gain. But the wash-sale rule adds complexity, and the value of the loss depends on what tax rate it’s offsetting. See: minimizing capital gains taxes.

When should I start year-end tax planning?

For many taxpayers, October or November provides enough year-to-date information to make informed decisions and enough time to execute before December 31 deadlines, although some decisions, like RSU deferral elections, require earlier planning. Waiting until mid-December narrows the options — appreciated security transfers need time to settle, and some decisions simply can’t be rushed.

About the Author: Zach Bergthold, CFP®, is a Lead Advisor at Brighton Jones. He helps high-income professionals and families design tax-efficient investment strategies and retirement plans aligned with their principles and long-term goals.

Ready to look at your year-end picture before the window closes? Our Personal CFO approach brings tax strategy and equity compensation planning into one conversation, so year-end decisions are made with the full picture in view. Schedule your complimentary intro call.

Standard Disclosure:This content is for informational and educational purposes only and should not be construed as individualized advice. For individualized advice tailored to your specific circumstances, please consult with your adviser. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Brighton Jones, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. To the extent that you have any questions regarding the applicability of any specific issue discussed above to your individual situation, you are encouraged to consult with the professional advisor of your choosing. Examples in this article are hypothetical, for illustration only, and do not reflect actual client results; individual outcomes will vary. Tax information reflects law in effect as of [publish date] and is subject to change.