Year-End Tax Planning for 2026: Six Decisions High Earners Should Make Before December 31

Key Points

• Begin with a complete-return projection before moving cash or accelerating deductions.
• Separate expected final liability from the payments required to avoid an underpayment penalty.
• Model 2026 SALT and charitable-floor rules against the taxes and gifts you actually make.
• Coordinate investment losses, business purchases and retirement contributions with eligibility, deadlines and cash needs.

Why year-end planning still matters in a profitable year

A profitable year can leave you with less available cash than expected. Business distributions, a property sale, investment gains and an increased tax bill may all arrive together—even when payroll withholding looks normal.

Effective year-end tax planning starts with a projection of your complete return. Then compare the timing of income, losses, charitable gifts and business purchases against the 2026 rules and your cash needs. A deduction is only useful when it is allowed, usable and worth the financial commitment.

For business owners and investors, the most valuable conversation is often about the decisions still open before December 31. Here are six worth resolving while there is time to act.

1. Calculate your remaining tax bill before moving money

Begin with year-to-date business profit, wages, investment transactions, rental results and expected fourth-quarter income. Reconcile estimated payments and withholding against that forecast. A distribution from a business bank account is not a substitute for knowing the income reported on the tax return.

Separate two numbers: your expected final liability and the payments required to avoid an underpayment penalty.

The IRS explains the estimated-tax penalty framework: taxpayers generally compare 90% of current-year tax with the applicable prior-year safe harbor. Higher-income taxpayers generally use 110% of prior-year tax rather than 100%. Payment timing matters; the safe harbor does not erase the balance due when you file.

For example, assume the applicable prior-year safe-harbor amount is $88,000 and projected 2026 tax is $120,000. Paying the safe harbor on time may address the penalty exposure, but it still leaves an estimated $32,000 filing balance. Reserve cash for that difference.

Use the 2026 Publication 505 rules for your filing status and circumstances. A late payment does not automatically repair every earlier installment shortfall.

2. Revisit the SALT deduction using your actual income

For 2026, Publication 505 gives a state and local tax deduction cap of $40,400, or $20,200 for married filing separately. The cap is reduced above modified adjusted gross income of $505,000, or $252,500 for separate filers, subject to statutory floors.

A larger cap does not mean every high earner receives the full deduction. First determine the eligible taxes you actually paid, then apply the income limits and compare itemizing with the standard deduction.

For Florida households, examine qualifying property taxes and the choice between eligible sales taxes and state income taxes. Having no Florida individual income tax does not make the SALT analysis irrelevant. IRS Topic 503 describes the taxes included in this category.

Before accelerating a payment, have your adviser model the complete return. Timing, deductibility and other limitations can change its value.

3. Recalculate charitable giving under the new floor

Beginning in 2026, itemizers face a 0.5% charitable deduction floor based on their contribution base, generally adjusted gross income. The rule appears in Internal Revenue Code Section 170.

Assume an individual itemizer has a $600,000 contribution base and makes $10,000 of otherwise qualifying gifts. The floor is $3,000. That leaves $7,000 before other applicable limits—not a $10,000 deduction.

This calculation isolates the floor. Percentage limits, carryovers, the overall itemized-deduction limitation and the property donated can change the final benefit.

If you already intend to make substantial gifts, compare spreading them across years with concentrating them in one year. Consider whether cash or an eligible appreciated asset better fits your situation. Keep the charitable objective and your remaining liquidity central to the decision.

Arrange transfers early enough for the recipient to accept them. IRS Topic 506 explains substantiation, including contemporaneous written acknowledgments for gifts of $250 or more. Noncash gifts can require additional documentation or appraisals.

4. Coordinate investment gains and losses across accounts

Tax-loss harvesting begins with realized transactions, carryforwards and your investment plan. Selling solely to produce a deduction can create a poor financial outcome if it undermines the portfolio you intend to hold.

IRS Topic 409 explains capital-loss netting. If losses exceed gains, the ordinary-income deduction is generally limited to $3,000 annually, or $1,500 for married filing separately; unused losses can carry forward.

A hypothetical $40,000 realized loss offsetting $40,000 of otherwise taxable long-term gains would reduce federal capital-gains tax by $8,000 at an assumed 20% rate, before other effects. It would not generally reduce salary by $40,000.

Watch replacement purchases. The SEC’s Investor.gov guidance explains that purchases of substantially identical securities within 30 days before or after a loss sale can trigger wash-sale restrictions. Coordinate automatic reinvestments, household trading and retirement-account activity with your adviser; one brokerage statement may not show the complete picture.

5. Test business purchases against cash needs and eligibility

Restored 100% bonus depreciation can make the timing of a necessary asset purchase important. IRS guidance confirms the general rule for qualifying property acquired after January 19, 2025. The specific asset, acquisition and service dates still require review.

Assume a business spends $100,000 cash on equipment, qualifies to deduct the entire amount and can use the deduction at an assumed 35% federal marginal rate. The simplified tax reduction is $35,000, leaving a $65,000 after-tax cash cost. Financing changes the cash timing, not the need to repay the debt.

That can be sensible for equipment the business needs. It is a costly way to obtain a deduction for equipment it does not need.

Have your adviser confirm eligibility, the service date and loss limits. Request a comparison with the depreciation that would otherwise apply, rather than treating the entire deduction as a permanent incremental saving.

6. Decide on retirement contributions before the administrative deadline

For an owner-operated business, a retirement plan may move money toward a long-term objective while changing current taxes. The correct contribution depends on compensation, business structure, employee eligibility and contributions to other plans.

The IRS’s one-participant 401(k) guidance explains the employee and employer contribution roles. A solo plan generally covers an owner with no employees, or the owner and spouse. Hiring eligible employees changes the analysis.

Ask the plan administrator to confirm establishment, election and funding deadlines for your exact arrangement. Those dates are not interchangeable. The existence of a later employer-contribution funding deadline does not establish that every employee deferral decision can wait until filing season.

Turn the projection into a decision document

Ask for a short written comparison showing each proposed action, its deadline, required cash, projected current-year tax effect and future consequence. Include a base case with no discretionary action.

This makes tradeoffs visible. A charitable gift, retirement contribution and business purchase all use money, but they serve different purposes. Avoid treating their projected deductions as interchangeable—or adding their tax benefits together without recalculating the return.

Want to understand the decisions still available before year-end? Request an MFS tax-planning consultation. Bring your prior-year returns, current financials, year-to-date pay statements, investment activity and tax payments so the conversation can begin with your numbers.

Sources & references

• IRS: Underpayment of Estimated Tax by Individuals Penalty
• IRS Publication 505: Tax Withholding and Estimated Tax
• IRS Topic No. 503: Deductible Taxes
• Internal Revenue Code Section 170
• IRS Topic No. 506: Charitable Contributions
• IRS Topic No. 409: Capital Gains and Losses
• SEC Investor.gov: Wash Sales
• IRS: Additional First-Year Depreciation Guidance
• IRS: One-Participant 401(k) Plans

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