Tax Planning for High Earners: A 2026 Year-End Checklist

Earning more changes the questions you need to ask before tax season. A larger bonus can leave a withholding gap. A profitable business can create a tax bill before its owner has set aside the cash. A rental property can generate depreciation deductions that do not immediately offset a household’s salary.

Effective tax planning for high income earners starts by connecting those pieces before December 31. The goal is to understand what your household will owe, which decisions can still affect that amount and how much cash each decision requires.

This 2026 year-end tax planning checklist follows three hypothetical households: a highly paid employee, a profitable business owner and a family with investments and rental properties. Their numbers are illustrative, not projected results for a particular taxpayer.

How to reduce taxable income before year-end

The right approach depends on where your income comes from. Employees should examine remaining retirement contributions and compensation withholding. Business owners should review actual profit, payroll, retirement plans and planned purchases. Investors should connect realized gains, charitable gifts and rental activity.

Start with a projection using your current records. Compare the tax effect, cash cost and deadline of each proposed action. A deduction reduces income subject to tax; it does not reimburse the full expense. Paying more tax in advance changes your balance due, but does not itself reduce your tax liability.

Your situation	First question	Decision to review before December 31
Highly paid employee	Does withholding reflect bonuses and the household’s other income?	Remaining payroll deferrals and withholding adjustments
Profitable business owner	What is actual taxable profit after accurate accounting?	Compensation, retirement planning and useful business purchases
Investments and rentals	Which gains and losses are usable this year?	Securities transactions, donations and rental readiness

Situation 1: A highly paid employee with a large bonus

Consider a Fort Lauderdale employee under age 50 who expects $320,000 of salary and bonus income. By October, the employee has contributed $16,000 to a traditional 401(k). Their spouse also earns income, and the household has a taxable brokerage account.

Review the remaining 401(k) opportunity

The regular employee 401(k) deferral limit for 2026 is $24,500, before eligible catch-up contributions. The employee potentially has $8,500 of remaining room, subject to plan rules and sufficient remaining compensation. The limit generally follows the individual across employers, so a job change does not automatically provide a fresh allowance. See the IRS 2026 retirement contribution limits.

If that additional $8,500 is contributed pre-tax and would otherwise be taxed entirely at an assumed 35% federal marginal rate, the simplified current federal income-tax reduction is $2,975. The funds remain in retirement savings, and future withdrawals generally have tax consequences. Roth deferrals do not provide the same current income exclusion. See the IRS Roth comparison chart.

Year-end action: Contact payroll early enough to change the remaining paychecks. Confirm the employer’s processing cutoff and match rules before accelerating contributions.

Check the bonus against the entire household

A bonus withholding amount should not be treated as a calculation of the household’s final tax. Review year-to-date withholding alongside both spouses’ income, brokerage activity and expected deductions.

For example, if a projection identifies an $18,000 remaining federal payment requirement, the useful next question is how to fund it through available withholding or estimated payments. That payment addresses the funding gap; it is not an $18,000 tax saving.

Federal tax is paid throughout the year. Payment timing matters when evaluating underpayment penalties, and uneven income can sometimes be addressed through the annualized income installment method. See IRS Topic 306.

Year-end action: Run the projection before the final payroll. If additional withholding is appropriate, allow time for the employer to implement it.

Coordinate donations with the 2026 rules

For itemizers, 2026 introduces a charitable deduction floor of 0.5% of adjusted gross income. At $400,000 of AGI, the floor is $2,000. A $12,000 otherwise eligible gift would leave $10,000 above that floor, before other applicable limits. See IRS Publication 505 for 2026.

The planning question is whether to make an intended gift this year, combine several years of intended giving or contribute suitable appreciated assets. Compare itemizing with taking the standard deduction, and account for the overall itemized-deduction limitation where applicable.

Year-end action: Complete the gift in time for 2026 treatment. Securities transfers can require lead time; keep the required acknowledgment and supporting records.

Situation 2: A profitable business owner with uneven cash flow

Consider a South Florida consultant whose S corporation projects $500,000 of profit before the owner’s compensation and additional year-end planning. The owner sees a healthy bank balance and assumes that buying equipment will solve the tax problem.

The first step is to establish what that profit figure actually includes. Bank deposits can include loans, while bank withdrawals can include distributions and debt principal. Reconciled books provide the starting point for a reliable projection.

Review compensation before the last payroll

An S corporation must pay reasonable compensation to a shareholder who performs services before treating payments for those services as non-wage distributions. Salary should reflect the owner’s work and the business facts. See the IRS S corporation compensation guidance.

A compensation review also helps connect payroll, retirement contributions and cash available for distributions. Paying an arbitrary bonus solely to reach a preferred tax number can create a different problem elsewhere in the plan.

Year-end action: Review the owner’s duties, compensation support and payroll records before finalizing the year’s payroll.

Design retirement contributions around the business

A business retirement plan can create an opportunity beyond an owner’s employee deferral. However, employer contributions depend on the plan, compensation, applicable limits and employee coverage requirements. A sole proprietor’s calculation differs from an S corporation shareholder’s calculation. See IRS Publication 560.

For this consultant, compare contributions the business can afford with employee obligations and operating reserves. A substantial contribution may support long-term wealth while reducing current taxable income, but it also commits cash.

Year-end action: Have the plan administrator confirm adoption, election and funding deadlines. Some employer contributions can be funded after year-end; that does not mean every employee deferral or plan election can wait until the return is prepared.

Evaluate equipment purchases on their business value

Suppose the consultant needs $30,000 of qualifying equipment. If an immediate deduction is available and the entire deduction offsets income at an assumed 35% federal rate, the simplified reduction is $10,500. The purchase still costs $19,500 after that assumed federal benefit.

Current law provides 100% bonus depreciation for eligible property acquired and placed in service after January 19, 2025, subject to the applicable rules. Ordering equipment or paying a deposit does not establish that it has been placed in service. See the IRS additional first-year depreciation guidance.

Year-end action: Confirm eligibility, business use and readiness for use before December 31. Model the effect on other deductions and limitations before relying on the simplified calculation.

Compare 2026 with 2027

Moving a deductible expense into December can shift its benefit from next year to this year. Evaluate that shift against expected income, cash needs and the business’s accounting method. Income already constructively received cannot simply be relabeled as next year’s income.

For an owner anticipating a much stronger 2027, using every possible deduction in 2026 may not produce the best combined result. Ask for a comparison of both years, including qualified business income deduction limitations, rather than a single-year deduction total.

Need a projection based on your actual books? Explore MFS Tax Planning & Advisory Services.

Situation 3: A household with investments and rental properties

Consider a married household with $450,000 of combined employment and business income, $70,000 of realized investment gains and two Florida rental properties. One property has a substantial accounting loss after depreciation.

Their priorities are to identify usable investment losses, understand rental loss restrictions and avoid making a December transaction without seeing its effect on the full return.

Match investment losses with realized gains

Assume the household sells an investment and realizes a $25,000 loss. In a simplified example where the entire loss offsets long-term gains otherwise subject to a 20% federal capital-gains rate, the reduction is $5,000. Actual results depend on the character and netting of gains and losses. See IRS Topic 409.

Review replacement investments before trading. Wash-sale rules generally disallow a loss when substantially identical securities are acquired within 30 days before or after the loss sale. Coordinate activity across relevant household accounts, including IRAs. See IRS Publication 550.

Year-end action: Review realized gains, loss carryforwards and proposed sales with the tax professional and investment adviser. A December loss sale can still be affected by a January purchase.

Determine whether rental losses are currently deductible

A depreciation deduction can reduce a rental property’s reported income without generating a current reduction in tax on the owner’s wages. Rental losses are generally passive, and the special allowance for eligible active participants phases out as income rises. Real estate professional status and material participation require their own analysis.

For this household, a $40,000 rental loss should not automatically be multiplied by the top marginal rate and advertised as current savings. First determine whether the loss is deductible now or suspended, and review other applicable limitations.

Year-end action: Organize income, expenses, depreciation schedules and participation records. Ask which losses can be used on the 2026 return before committing to additional spending.

Verify when a newly purchased rental became available

If the household closes on another property in December but it remains under renovation and unavailable for rent, closing alone does not establish the start of rental depreciation. Residential rental depreciation generally begins when the property is ready and available for rent; land is not depreciable. See IRS Publication 527.

Year-end action: Preserve evidence of availability, such as listings and completion records. Separately identify land, building, repairs and improvements instead of treating the entire closing payment as a current deduction.

Your 2026 year-end tax planning calendar

Timing	Practical action
October–November	Reconcile books, collect year-to-date income and prepare a household tax projection.
Before the final payroll cutoff	Implement appropriate employee deferral and withholding changes; finalize owner compensation decisions.
Before December 31	Complete intended charitable gifts, investment transactions and assets’ placement in service where 2026 treatment requires it. Allow for provider processing time.
Before year-end	Confirm retirement-plan elections and adoption requirements rather than assuming they follow the filing deadline.
January 15, 2027	Generally, make the fourth 2026 federal estimated income-tax installment. A January payment does not automatically cure earlier underpayments.
During 2027 filing preparation	Verify any remaining eligible IRA, HSA or employer retirement contributions and their specific deadlines. Avoid assuming all contributions share one deadline.

Records to prepare for a planning meeting

• Your 2025 federal and relevant state returns, including carryforward schedules.
• Current pay statements, expected bonuses and equity-compensation details.
• Business profit-and-loss reports, balance sheets, payroll and reconciled accounts.
• Retirement contributions already made and current plan documents.
• Brokerage realized gains, losses, carryforwards and expected distributions.
• Rental statements, depreciation schedules, closing records and participation logs.
• Donation records and information about proposed gifts.
• Estimated payments, withholding totals and anticipated major transactions.

Bring information about your cash reserves and plans for 2027, too. A technically available deduction may be a poor choice if it leaves the household or business short of cash.

Connect year-end tax planning with your broader finances

For high earners, the tax return often reflects decisions made across several relationships: employer payroll, business accounting, investment management, property operations and legal planning.

MFS Tax Planning & Advisory Services help connect income, records and proposed transactions before those decisions become filing positions. MFS’s Personal CFO services provide a broader conversation about financial priorities and the coordination of personal and business matters.

Whether you are managing a large bonus, growing a professional practice or adding rental properties, start with a clear projection and a defined list of actions, deadlines and cash requirements.

Speak with MFS about year-end tax planning and Personal CFO services.