Year End Tax Planning for High Earners: What I Do With Clients Before December 31

Year end tax planning for high earners runs on a December 31 deadline, not April 15. By spring, the year is closed and your accountant is mostly recording what already happened. This article covers the six moves I go through with clients before December 31, in the order I would do them, including the new 2026 rules on charitable deductions.

Close the withholding gap on bonuses and restricted stock

If part of your pay comes as a bonus or restricted stock, your employer typically withholds federal tax at a flat 22%, stepping up to 37% only after that income passes $1 million for the year. Your real rate is probably well above 22%. Say $400,000 of stock vests in 2026. Withholding is $88,000, but if that income is taxed at 35%, you owe $140,000. That is a $52,000 gap before state tax.

If your income was above $150,000 in 2025, you generally avoid an underpayment penalty by paying in 110% of your 2025 total tax. And withholding is treated as if it were paid evenly through the year, so raising it in December can cover a shortfall from the spring, which a late estimated payment cannot do.

Harvest losses in your taxable accounts

Even in a strong year, some positions are down, and selling them locks in a loss you can use against gains elsewhere. Say you realized $200,000 of long term gains in 2026 and have $50,000 of losses in the portfolio. Harvest them and you are taxed on $150,000 instead, which saves $11,900 at the top federal rate of 23.8%. Losses beyond your gains can offset $3,000 of ordinary income, and the rest carries forward. I go deeper in direct indexing and tax loss harvesting.

Watch the wash sale rule. Buying the same or a substantially identical investment within 30 days before or after the sale disallows the loss, and that includes purchases in your IRA and your spouse's accounts. Before buying a mutual fund in a taxable account late in the year, check its estimated capital gain distribution, or you can inherit a tax bill on gains you never earned.

Fill the retirement accounts that close on December 31

For 2026, you can put $24,500 into a 401(k), plus another $8,000 if you are 50 or older. If you are short, you can usually still raise your contribution for the last few paychecks. One change in 2026: if your wages from that employer were above $150,000 in 2025, your catch up contributions now have to go in as Roth.

Ask whether your plan allows after tax contributions. The total that can go into a 401(k) from all sources in 2026 is $72,000, and the space between your own contribution and that total is the door to the mega backdoor Roth. A Roth conversion also has to be completed by December 31, with no extension into April, and it cannot be undone. I cover sizing one in Roth conversions explained.

Charitable giving under the new 2026 rules

Starting in 2026, there are two new limits on charitable deductions. The first 0.5% of your adjusted gross income that you give away is no longer deductible. And if you are in the top 37% bracket, itemized deductions now save you 35 cents on the dollar instead of 37.

Take a couple with $1 million of income who give $30,000 a year. The first $5,000 of their giving earns no deduction each year, or $15,000 of lost deductions over 3 years. If they instead put 3 years of giving, $90,000, into a donor advised fund in 2026 and keep sending $30,000 a year to the same charities from the fund, they hit the floor once instead of three times.

Funding it with appreciated stock adds more. If that $90,000 of stock cost $30,000, they never pay tax on the $60,000 gain, worth another $14,280 at 23.8%. Stock transfers take time and custodians set early cutoffs, so I would start in early December.

Use your annual gift exclusion before it resets

In 2026, you can give $19,000 to as many people as you like with no gift tax return and without touching your lifetime exemption, and unused exclusions do not roll over. A married couple with 3 children can move $114,000 out of their estate before year end, then do it again in January. A 529 plan lets you front load 5 years of gifts, $95,000 per child from each parent.

The federal estate exemption is $15 million per person, but a number of states tax estates at far lower levels, and every dollar you give today takes its future growth with it.

Rebalance your portfolio without creating a tax bill

After a year of markets moving, you probably hold more stock than you planned. Rather than selling winners in a taxable account, here is the order I use:

1. Sell the positions at a loss, which you already did when harvesting.
2. Point new cash, like a bonus or distribution, at whatever is underweight.
3. Make the remaining trades inside retirement accounts, where selling does not trigger tax.

Also check how much of your net worth is tied to your employer or your fund, and whether your cash covers the next 12 months, including the tax bill from the withholding gap. All six moves share one deadline and affect each other, so it pays to look at them together.

Common questions

What is the deadline for year end tax planning?

Loss harvesting, Roth conversions, charitable gifts, and annual exclusion gifts all need to be done by December 31, and stock transfers need an earlier start.

Can increasing withholding in December avoid an underpayment penalty?

It can, because withholding is treated as paid evenly through the year, while a late estimated payment is not.

How does the 0.5% charitable deduction floor work in 2026?

The first 0.5% of your adjusted gross income that you give away is not deductible. At $1 million of income, that is the first $5,000 each year, which is why bunching gifts into a donor advised fund can help.

VDB Wealth is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

Most of the tax planning that actually moves the needle has a hard deadline, and it is not April fifteenth. It is December thirty first. By the time you sit down with your accountant in the spring, the year is closed, and they are mostly recording what already happened.

And this year has a twist. New rules took effect in twenty twenty six that changed how charitable deductions work for high earners, and a lot of people have not adjusted their giving.

In the examples I am about to show you, the dollars at stake run well into five figures. So in the next nine minutes, I will walk you through six moves to make before December thirty first, in the order I would do them, with real numbers for each one.

Who I am and what we will cover

Quick introduction. I am Andy VandenBerg, founder of VDB Wealth, a boutique registered investment adviser where I work with private equity professionals, founders, and executives on taxes, estate planning, and their full personal balance sheet. I am a fiduciary, and the last quarter of the year is when a lot of that planning either gets done or gets missed.

Here is the plan. One, close your tax withholding gap. Two, harvest losses. Three, fill the accounts that expire. Four, fix your charitable giving under the new rules. Five, use your annual gifts. And six, rebalance where it is free.

Move one, close the withholding gap

Move one. Find out whether you have actually paid enough tax this year.

If part of your pay comes as a bonus or as restricted stock, your employer typically withholds federal tax on it at a flat twenty two percent. That only steps up to thirty seven percent after that kind of income passes one million dollars for the year. The problem is that your real tax rate is probably well above twenty two percent.

Here is what that looks like. Say four hundred thousand dollars of stock vests this year. Twenty two percent withholding is eighty eight thousand dollars. If that income is actually taxed at thirty five percent, you owe one hundred forty thousand. That is a fifty two thousand dollar gap, before state tax, and nobody sends you a reminder.

Two things to know. First, the safe harbor. If your income was above one hundred fifty thousand dollars last year, you generally avoid an underpayment penalty by paying in one hundred ten percent of last year's total tax. Second, withholding is treated as if it were paid evenly through the year, no matter when it came out of your paycheck. So raising your withholding in December can cover a shortfall from the spring, and a late estimated payment cannot do that.

Either way, set the cash aside now, so April is not a surprise.

Move two, harvest losses

Move two. Look through your taxable accounts for losses.

Even in a strong year, some positions are down. Selling them locks in a loss you can use against gains anywhere else, whether that is a stock sale, a property, or a business interest.

Run the numbers. Say you realized two hundred thousand dollars of long term gains this year, and you have fifty thousand dollars of losses sitting in the portfolio. Harvest them and you are taxed on one hundred fifty thousand instead. At the top federal rate of twenty three point eight percent, that saves eleven thousand nine hundred dollars. And if your losses are larger than your gains, three thousand dollars offsets ordinary income and the rest carries forward indefinitely.

Two things to watch. First, the wash sale rule. If you buy the same investment, or one that is substantially identical, within thirty days before or after the sale, the loss is disallowed. That includes purchases in your IRA and in your spouse's accounts. So swap into something similar, not identical, and stay invested.

Second, before you buy a mutual fund in a taxable account late in the year, check its estimated capital gain distribution. Funds pay out their gains in November and December, and if you buy right before, you inherit a tax bill on gains you never earned. I have full videos on tax loss harvesting and on that mutual fund tax bomb if you want to go deeper.

Move three, fill the accounts that expire

Move three. Fill the accounts that close on December thirty first.

For twenty twenty six, you can put twenty four thousand five hundred dollars into a four oh one k, plus another eight thousand if you are fifty or older. Check your latest pay stub. If you are short, you can usually still raise your contribution for the last few paychecks.

One change this year. If your wages from that employer were above one hundred fifty thousand dollars last year, your catch up contributions now have to go in as Roth.

Next, ask whether your plan allows after tax contributions. The total that can go into a four oh one k from all sources this year is seventy two thousand dollars. The space between your own contribution and that total is the door to what people call the mega backdoor Roth, and it is one of the most overlooked features I see.

And if a Roth conversion is part of your plan, it has to be completed by December thirty first. There is no extension into April the way there is for an IRA contribution, and a conversion cannot be undone. I cover how to size one in my Roth conversion video.

Move four, charitable giving under the new rules

Move four, and this is the one that changed.

Starting in twenty twenty six, there are two new limits on charitable deductions. First, a floor. The first half of one percent of your adjusted gross income that you give away is no longer deductible. Second, a cap. If you are in the top thirty seven percent bracket, your itemized deductions now save you thirty five cents on the dollar instead of thirty seven.

Here is why the floor matters. Take a couple with one million dollars of income who give thirty thousand dollars a year. Half a percent of one million is five thousand dollars. So every single year, the first five thousand dollars of their giving earns no deduction. Over three years, that is fifteen thousand dollars of deductions lost.

Now bunch it. Put three years of giving, ninety thousand dollars, into a donor advised fund this year, then keep sending the same thirty thousand a year to the same charities from the fund. You clear the floor once instead of three times.

Then fund it with appreciated stock instead of cash. If that ninety thousand dollars of stock cost you thirty thousand, you also never pay tax on the sixty thousand dollar gain. At twenty three point eight percent, that is another fourteen thousand two hundred eighty dollars.

One practical note. Stock transfers take time, and custodians set cutoff dates well before the end of the month. Start this in early December, not on the thirtieth.

Move five, use your annual gifts

Move five. Use your annual gift exclusion, because it does not roll over.

In twenty twenty six, you can give nineteen thousand dollars to as many people as you like, with no gift tax return and without touching your lifetime exemption. A married couple with three children can move one hundred fourteen thousand dollars out of their estate before year end, and then do it again in January.

For education, a five twenty nine plan lets you front load five years of gifts at once. That is ninety five thousand dollars per child, from each parent.

Now, the federal estate exemption is fifteen million dollars per person, so this can feel less urgent than it used to. But a number of states tax estates at far lower levels, and every dollar you give today takes its future growth with it.

Move six, rebalance where it is free

Move six is the investing one. After a full year of markets moving, your portfolio is probably not at the mix you intended. Usually that means more stock than you planned, and often more of one stock.

The expensive way to fix that is to sell your winners in a taxable account and send a check to the IRS. Here is the order I use instead. First, sell the positions that are at a loss, which you already did in move two. Second, point new cash, like a bonus or a distribution, at whatever is underweight. Third, make the remaining trades inside your retirement accounts, where selling does not trigger tax.

While you are in there, check two more things. How much of your net worth is tied to your employer or your fund. And whether your cash covers what you actually need over the next twelve months, including the tax bill from move one.

Close and call to action

So that is the list. Close the withholding gap. Harvest losses. Fill the accounts that expire. Bunch your giving under the new rules. Use your annual gifts. Rebalance where it is free.

None of these is complicated by itself. What makes year end hard is that all six share one deadline and they affect each other, so it pays to look at them together, and to start before December.

If you have questions about how any of this applies to you, reach out. I am happy to walk through it with you.

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