Simplify year-end tax planning with expert tips for high-net-worth individuals, and help reduce taxes in 2026 through strategic giving, income timing, and credits.
How high-income earners can reduce taxes before year-end
Reviewing tax optimization opportunities before the end of the calendar year is crucial for high-income earners to ensure they’re saving efficiently and effectively.
Here’s what you should know:
- Contributing more to eligible retirement and health savings accounts provides tax savings while supporting long-term goals.
- Reviewing taxable investment accounts before year-end may uncover opportunities to offset capital gains through tax-loss harvesting.1
- Giving to charity can be more tax-efficient when asset selection and timing are thoughtfully planned.
- Consulting a tax professional may be especially valuable for complex financial situations.
Maximize retirement contributions and tax-advantaged savings
According to Garrett Harbron, Vanguard’s head of Advised Wealth Management Strategies, two of the most powerful strategies investors should consider for reducing taxes are maxing out contributions to their pre-tax employer plan and fully funding a health savings account (HSA), if eligible. These foundational strategies can help build a strong tax-management framework and may offer substantial tax savings regardless of income level. The exact savings will vary depending on your contribution level and marginal tax rate.
A dedicated wealth advisor can help optimize your year-end tax strategy
Optimize employer-sponsored and individual retirement accounts
Contributing to retirement accounts can help lower your taxable income while increasing your retirement savings. Depending on your situation, you may be able to contribute to multiple workplace plans, maximize contributions in a dual-income household, or make additional contributions through a business retirement plan.
Lowering your adjusted gross income (AGI) may also help you stay below income thresholds that trigger additional taxes, such as the net investment income tax (NIIT).
You may also want to consider contributing to an IRA. Traditional and Roth IRAs offer different tax advantages based on your income, goals, and overall financial plan.
Consider backdoor Roth IRA conversions
Higher-income investors may not be eligible to contribute directly to a Roth IRA because of income limits. If that’s the case, a backdoor Roth IRA conversion may be an option.
With this strategy, you make a nondeductible contribution to a traditional IRA and then convert those assets to a Roth IRA. This can provide access to the tax-free growth and tax-free qualified withdrawals offered by a Roth IRA.2
Roth conversions can create a tax-free income source during retirement, reduce future required minimum distributions (RMDs), and support a more tax-efficient wealth transfer to heirs. Converting pre-tax retirement assets also locks in the tax rate applicable to the amount converted.
Optimal times to convert savings to a Roth include:
- When experiencing temporary income dips (due to a career transition, a sabbatical, bonus variability, or other reasons).
- Before age 73 (or 75 for those born in or after 1960) to avoid larger RMDs later.
- When you think your current tax bracket is lower than your expected future tax bracket.
Because tax consequences can vary based on your individual circumstances, it’s important to work with a tax or financial professional to determine whether this strategy is appropriate for you.
Review investment income
Retirement contributions are just one part of year-end tax planning. Selling investments, receiving dividends, and crossing certain income thresholds can all have tax implications. These may call for more advanced investment strategies that can help optimize how much you owe in taxes.
Strategize capital gains or losses with tax-loss harvesting
Not every investment will perform as expected. When some investments have lost value, selling them may help reduce the taxes you owe on gains from other investments.
This strategy, called tax-loss harvesting, involves selling investments that are worth less than what you paid for them.¹ The losses can be used to offset realized investment gains, which may lower your tax bill. To avoid triggering the IRS wash sale rule, investors who reinvest the proceeds generally purchase a different investment rather than the same or a substantially identical one.
If your losses are greater than your gains for the year, you may be able to deduct up to $3,000 of the remaining losses against ordinary income. Any additional losses can generally be carried forward and used in future years.
If you’re in a higher capital gains bracket, every dollar of tax-loss harvesting is worth more.
—Garrett Harbron, J.D., CFA, CFP®, head of Advised Wealth Management Strategies
Keep in mind that tax rules determine how losses are applied, and tax-loss harvesting isn’t right for every situation. Before making any decisions, consider how selling an investment fits with your long-term goals and your overall portfolio diversification. A tax professional can help you understand how this strategy may apply to your specific circumstances.
Use gifting strategies to lower taxable income
Charitable giving can help you make an impact while potentially reducing your tax bill. If giving is already part of your financial plan, thoughtful timing and planning may increase the tax benefits you receive, particularly during higher-income years.
Strategies to consider include:
- Donating appreciated investments you’ve held for more than 1 year.
- Using a donor-advised fund (DAF) to support charities over time while receiving a tax deduction when you contribute.
- Bunching donations, which is combining several years’ worth of charitable contributions into one tax year to potentially maximize deductions.
Keep in mind that charitable deductions generally apply only in the year the donation is made, so contributions for a given tax year must typically be completed by December 31.
Because tax situations vary, it’s important to evaluate charitable giving strategies as part of your overall financial picture. A financial advisor or tax professional can help determine whether strategies such as donation bunching, donor-advised funds, or carrying forward deductions may be appropriate for your circumstances.
Optimize your charitable giving with these 4 tips
Consider how tax decisions support your legacy goals
Year-end tax planning can be a good time to think about your long-term goals for your wealth. Decisions such as charitable giving, Roth conversions, and transferring assets can affect your taxes now and the amount you may leave to future generations.
Looking at these decisions as part of a broader plan can help ensure your tax strategy reflects your long-term goals. Establishing a trust is an option for those looking to preserve wealth, support beneficiaries, and ensure wishes are carried out across generations. Vanguard advisors can help you bring together tax-smart investing, charitable giving, wealth and estate planning, and legacy goals as part of a comprehensive financial plan.
How does strategic timing of deductions and expenses help reduce income?
Tax planning is most effective with a long-term lens. A beneficial tax strategy in one year may not fit your needs in the next. For this reason, having a strategy for timing your income and expenses between tax years can help you remain in a lower tax bracket—allowing you to shift savings toward other goals.
Income deferral and expense acceleration strategies
If your income is unusually high this year because of a bonus, stock compensation event, business sale, or another onetime source of income, it may be worth exploring ways to defer income into the following tax year or accelerate deductible expenses into the current one.
Deferring income can help reduce this year’s taxable income, particularly if you expect to be in a lower tax bracket next year because of a job change, business transition, retirement, or lower investment income. It may also help you stay below income thresholds that trigger additional taxes, such as the net investment income tax (NIIT).
Accelerating deductible expenses into the current tax year may provide additional tax savings by offsetting higher income. This could include making charitable contributions or paying other eligible expenses before year-end rather than waiting until next year.
If you have the ability to influence the timing of income, whether it’s through bonuses or distributions from a business or trust, that can be a powerful tax reduction tool.
—Garrett Harbron, J.D., CFA, CFP®, head of Advised Wealth Management Strategies
Set yourself up for success with a tax-planning checklist and professional guidance
The most effective year-end tax strategy is the one that aligns with your financial goals and helps you make informed decisions before important deadlines pass.
Reviewing retirement contributions, investment activity, charitable giving plans, and major income events before year-end can help uncover opportunities that may otherwise be missed.
Use the following checklist as a basis for strategies to consider as you build your year-end plan:
Everyone can benefit from tax planning. But in terms of the number of dollars saved, the higher the tax bracket, the more your tax bill is reduced.
—Garrett Harbron, J.D., CFA, CFP®, head of Advised Wealth Management Strategies
Get guidance from a financial professional
Tax planning is most effective when it considers your complete financial picture. A financial advisor and tax professional can help you evaluate potential strategies, understand the trade-offs, and build a coordinated plan tailored to your unique situation.