5 Smart Year-End Tax Moves for High-Income Earners

There is still time to lower your 2025 tax bill. Here’s how before December 31.

For high-income professionals and pre-retirees, year-end is a hard stop for many of the most effective tax strategies available. By the time January arrives, the window for many strategies that can mitigate your 2025 tax liability will have closed.

Whether you’re navigating concentrated equity, seven-figure W-2 income, or stock options with AMT exposure, precise planning now can create meaningful savings and set you up for a more flexible tax position in retirement.

The good news is that there are still high-impact moves you can make before the clock runs out. Here are the most effective strategies to consider now to lower your 2025 tax liability.

One of the simplest ways to avoid unnecessary penalties is to make sure you’ve met Safe Harbor payment rules. For high-income earners, especially in high-tax states like California, underpayment penalties can be substantial and can’t be “fixed” retroactively in January.

Federal Safe Harbor generally requires you to prepay:

• 90% of your current year’s tax liability or
• 100% of last year’s liability (110% if your AGI exceeded $150,000).

California adds a wrinkle: for those earning more than $1 million, the state does not allow the 100% prior-year Safe Harbor. Instead, you must pay 90% of the current year’s liability to avoid penalties.

For those with significant RSU vesting, bonuses, or capital gains, miscalculating this can lead to five-figure penalty checks.

Real World Scenario

A California executive who earns $2 million faces an $800,000 total tax bill (approximately $600,000 federal and $200,000 state). To avoid underpayment penalties:

• Federal Safe Harbor: He must prepay at least $540,000 (90% of $600,000) because the federal safe harbor requires 90% of current-year tax or 110% of prior-year tax, with no special rule for $1M+ earners.
• California Safe Harbor: He must prepay at least $180,000 (90% of $200,000) since California requires 90% of the current year’s tax for taxpayers with $1 million or more AGI.

Let’s say he only prepays $640,000 (80% of his liability) through a combination of withholding and estimated payments. He’s underpaid $160,000 relative to Safe Harbor thresholds.

That underpayment is subject to an IRS underpayment penalty, effectively an interest charge based on the federal short-term rate, which is currently 7% , annually. California applies its own penalty of around 11%.

On $160,000 underpaid, that could mean:

• Federal penalty: ≈ $5,000–$6,000
• California penalty: ≈ $5,000–$6,000
• Total: around $10,000–$12,000 in penalties and interest

*These estimates assume the underpayment lasted part of the year and use prorated rates. Actual penalties may vary.

Importantly, this can’t be fixed retroactively in January. Safe Harbor looks at timely quarterly payments, not your total by April 15.

Many high earners have lumpy income, with large RSU vesting in Q4, unpredictable bonuses, or option exercises. If those events aren’t modeled in advance, Q4 withholding may be insufficient, and one can’t simply “true up” in January and escape penalties.

A CPA-led quarterly review allows you to:

• Re-estimate your actual year-to-date liability based on bonuses, equity events, and capital gains.
• Adjust withholding or make estimated tax payments before deadlines.
• Avoid high-rate underpayment penalties at both federal and state levels.

Equity compensation often drives the largest year-end tax surprises. How and when you realize income from RSUs, NQSOs, or ISOs can dramatically shift your marginal tax rate.

The key is knowing which levers you can control.

RSUs: Fixed Timing, Limited Control

RSUs are taxed as ordinary income on the vesting date, not when you sell. If a large grant vests in Q4, it can push your AGI into a higher marginal bracket. Planning ahead allows you to layer in offsetting strategies such as charitable giving or loss harvesting elsewhere in your portfolio to keep your effective rate in check. These moves should be coordinated with your CPA or advisor to ensure timing and amounts align with Safe Harbor thresholds.

Options & AMT: Flexibility With Strategy

Unlike RSUs, nonqualified stock options (NSOs) and incentive stock options (ISOs) give you the ability to control when and how much income you recognize. That flexibility can help:

• Stay below key AMT trigger points
• Manage marginal brackets more precisely
• Spread income across multiple years for smoother tax liability

But, ISOs have an additional layer of rules that affect how much of your exercise actually qualifies for favorable tax treatment.

The $100,000 ISO Rule

Under IRS rules, only the first $100,000 worth of ISOs (measured at the grant date fair market value) can be treated as qualified ISOs in any calendar year. Any amount above that automatically becomes NSO for tax purposes. This means a single exercise can trigger both AMT implications and ordinary income, depending on the size of the transaction.

Real World Scenario

An executive with $1M in vested ISOs could choose to exercise $250,000 this year and the remainder next year. This staggered approach may keep them below AMT trigger points and reduce the size of a single-year tax bill. But if the grant-date value of that $250,000 exceeds $100,000, part of the exercise will be treated as NSOs, taxed as ordinary income in the year of exercise.

Because option exercises can simultaneously trigger AMT, ordinary income, and ISO qualification issues, modeling the timing and amount with your CPA and advisor is essential.

Bottom Line: Strategic Timing = Bracket Management

Income timing can be the difference between a 35% and 37% federal marginal rate, a 2% swing that can mean tens of thousands of dollars.

If a bonus or option exercise pushes income over the threshold, accelerating deductions (e.g., DAF contributions) or deferring elective income to January can help keep income in a lower bracket.

The IRS has a $100,000 ISO Rule in which the amount of ISO one can exercise is limited to $100,000 based on the value of the stock price on grant date. In other words, if based on the grant date FMV the value is $150k and I exercise all of them, then only $100k is ISO and the other $50k is Non-Qualified.

Although this piece of the article is based on AMT, it glosses over the incentive piece of the ISO itself. I would find a smooth way to add this into the mix so that a reader (who is an executive) can see that we’re aware of the multiple layers to ISOs.

Retirement accounts are one of the few tools that allow high earners to defer large amounts of income quickly before year-end. Coordinating these contributions with RSU vesting and Safe Harbor calculations can help manage your overall AGI, keep you in a lower bracket, and reduce underpayment risks.

In 2025, contribution limits offer meaningful opportunities:

• 401(k) contributions for 2025 are $23,500 plus a $7,500 catch-up for those over 50. For those 60-63, there’s a $3,750 special catch-up.
• Backdoor Roth IRAs remain viable for many, though careful pro-rata rule planning is critical.
• HSAs allow contributions of $4,300 (individual) or $8,550 (family), plus $1,000 catch-up for those 55+. Unlike FSAs, HSAs offer triple tax advantages: deductible contributions, tax-free growth, and tax-free withdrawals for qualified expenses.
• FSAs must be used or forfeited depending on plan design, making year-end review essential.
• Deferred Compensation and 457(b) Plans allow high earners to defer up to $23,500 pre-tax in 2025, with an additional $7,500 catch-up contribution for those 50 or older. Certain participants aged 60-63 may be eligible for an even higher catch-up limit of $34,750. This can significantly reduce taxable income during peak earning years.

Real World Scenario

A couple in their late 50s maxing 401(k)s and HSAs can shelter over $60,000 from current year taxable income, potentially saving $20,000+ in combined federal and state taxes.

*These figures are intended for explanatory purposes only.

Charitable planning can be an elegant tax management lever, particularly in high-income years. Key approaches to consider include:

• Donor-Advised Funds (DAFs): These let you donate appreciated assets this year and distribute to charities over time. You claim the deduction now, even if grants are made later.
• Gifting Appreciated Stock: Avoid capital gains and deduct fair market value (subject to AGI limits).
• Bunching Deductions: Combining multiple years of deductible expenses (especially charitable giving) into one tax year can help you itemize and increase tax savings.

Timing matters: Transfers to DAFs or charities must settle before December 31, and brokerage processing can take several business days. Early execution avoids year-end bottlenecks.

Real World Scenario

Imagine someone donates $100,000 of stock with a $40,000 cost basis. If they sold the shares first, they’d recognize $60,000 in capital gains, likely taxed at 20% federal + 3.8% NIIT, resulting in roughly $14,000 in capital gains tax.

By donating the stock directly, they avoid that tax. On top of that, they can claim a $100,000 charitable deduction (subject to AGI limits). Assuming a 37% marginal income tax bracket, that deduction could reduce their tax bill by about $37,000.

*These figures are intended for explanatory purposes only.

Tax-loss harvesting remains one of the most underutilized tools among high-income earners. Realizing losses on underperforming assets can offset capital gains from both investments and equity compensation. A few essential guardrails apply:

• Realized capital losses can offset capital gains dollar-for-dollar—whether from equities, real estate, or other investments. If your losses exceed your gains, you can also deduct up to $3,000 of excess losses against ordinary income each year.
• If total losses exceed the annual limit, the unused portion isn’t lost. It carries forward indefinitely, allowing you to offset future gains or income in later tax years.
• Wash-sale rules: If you sell a security at a loss and repurchase the same or a “substantially identical” one within 30 days before or after the sale, the IRS disallows the immediate deduction. Instead, the loss is deferred and added to the cost basis of the replacement security. This rule applies across all accounts, including IRAs and a spouse’s account. To preserve the deduction, either wait the full 31 days or buy a similar, but not identical, investment.

These tactics require precise execution and coordination with a CPA or tax advisor. A single mistake, such as triggering a wash sale by repurchasing too soon, can eliminate the intended tax benefit and create additional reporting complexity.

We’re approaching the final window of the year to manage your income, deductions, and exposure with precision. Each week that passes narrows the options available. Safe Harbor payments, equity events, and contribution deadlines all have firm cutoff dates.

At Summitry, we help high-income earners integrate these tactics into cohesive, forward-looking strategies that incorporate taxes, investments, and retirement planning.

• Download our Year-End Tax Guide to get a detailed planning checklist and learn about proactive strategies.
• Schedule a consultation to tailor these moves to your financial picture before December 31.

This material is intended for general informational purposes only, and should not be construed as legal, tax, investment, financial, or other advice. It does not consider the specific investment objectives, tax and financial condition or needs of any specific person. An investor should consult with their financial professional before making any investment decisions. Investing in securities involves the risk of loss.