Ignoring a bonus would be unthinkable. Yet many high earners overlook tax strategies that could help them keep significantly more of what they earn.
Tax planning is one of the most impactful parts of a financial strategy. The earlier you start, the more you can save.
Strategies That Slip Through the Cracks
Without proactive planning, valuable strategies go unused. Tax-loss harvesting involves selling underperforming investments to offset gains elsewhere. According to Vanguard research, this strategy can add approximately 0.10% to 0.30% to after-tax returns annually when implemented systematically. Over decades, that seemingly small difference compounds into substantial wealth accumulation.
Charitable giving strategies offer another avenue. Qualified Charitable Distributions from traditional IRAs allow individuals 70½ and older to donate up to $100,000 annually directly to charity, satisfying required minimum distributions without increasing adjusted gross income. This keeps you in a lower tax bracket while supporting causes you care about. Donor-Advised Funds let you make a large charitable contribution in a high-income year, receive an immediate tax deduction, and then distribute funds to charities over time.
Roth conversions deserve consideration during lower-income years. Perhaps you're between jobs, in early retirement, or experiencing a temporary dip in income. By converting traditional IRA assets to a Roth IRA during these windows, you pay taxes at a potentially lower rate and create tax-free growth for the future. But the window doesn't stay open—once income rebounds, the opportunity closes.
Compensation timing matters for executives and professionals with variable pay. If you can influence when bonuses are paid, when RSUs vest, or when deferred income is received, you might manage your tax bracket more effectively across multiple years rather than having everything hit in a single high-income year.
Windows Don't Stay Open
Many tax strategies are time-sensitive. Waiting until year-end—or worse, tax season—can mean missing the window entirely. Tax-loss harvesting must occur before December 31 to count for the current tax year. Charitable contributions must be completed by year-end to qualify for deductions. Roth conversions require careful planning to avoid unintentionally pushing yourself into a higher bracket. A financial advisor helps you plan ahead throughout the year, positioning you to take advantage of opportunities as they arise rather than scrambling when options are limited.
With thoughtful guidance, you can work toward reducing taxable income through strategic planning, pursuing available deductions and credits systematically rather than missing them, designing your investment strategy with tax implications in mind from the start, and being better positioned to anticipate your tax liability rather than facing unexpected obligations at filing time.
Tax planning is personal and specific to your situation. The strategies that work for you depend on your income sources, your goals, and your timeline. A conversation can reveal opportunities specific to your circumstances.
The income is already earned. The question is; how much of it will you keep?
Download our executive tax planning guide
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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