Year-End Tax Planning for High-Income Earners and Business Owners

If you earn a high income or own a business, waiting until April to think about taxes is one of the most expensive habits you can have. The most impactful tax decisions are made in the final months of the year, when you still have time to restructure, accelerate, defer, and optimize before the books close. Here is a breakdown of the strategies that high-income earners and business owners should be evaluating right now.

Evaluate Your Entity Structure

Your business entity type has a direct impact on how much you pay in taxes. Many business owners operate as sole proprietors or single-member LLCs without realizing that an S-Corp election could save them thousands in self-employment tax.

• S-Corp election timing: If your business is generating consistent net income above $60,000 to $80,000 per year, an S-Corp election allows you to split income between a reasonable salary (subject to payroll taxes) and distributions (which are not). For the 2024 tax year, the deadline for a retroactive S-Corp election via Form 2553 has passed, but filing now with reasonable cause can still be accepted by the IRS for late elections. Planning for 2025 should start immediately
• Multi-entity planning: Business owners with multiple income streams, such as a consulting practice and rental portfolio, often benefit from separating activities into distinct entities. This allows for cleaner accounting, targeted liability protection, and more precise tax treatment for each income source
• C-Corp considerations: For high earners reinvesting profits back into the business, a C-Corp taxed at a flat 21% rate may create opportunities to retain earnings at a lower rate than the individual marginal rate, which can exceed 37% at the federal level

Maximize Retirement Contributions

Retirement accounts remain one of the most powerful tools for reducing taxable income, and high-income earners have access to vehicles with significantly higher contribution limits than a standard 401(k).

• Solo 401(k): If you are self-employed with no employees other than a spouse, a Solo 401(k) allows up to $23,000 in employee deferrals (plus $7,500 catch-up if age 50+) and an employer contribution of up to 25% of net self-employment income, for a combined maximum of $69,000 in 2024
• SEP-IRA: A simpler alternative that allows contributions up to 25% of net self-employment earnings, with a maximum of $69,000 for 2024. SEP-IRAs can be established and funded as late as the tax filing deadline, including extensions
• Defined benefit plans: For established professionals with high, consistent income (physicians, attorneys, consultants), a defined benefit plan can shelter $200,000+ per year in tax-deductible contributions, far exceeding what any other retirement vehicle offers
• Backdoor Roth: High earners who exceed Roth IRA income limits can still contribute through a backdoor Roth conversion. Contribute to a traditional IRA (non-deductible) and convert to Roth. Be aware of the pro-rata rule if you have existing pre-tax IRA balances

Income Timing and Deferral

Controlling when income hits your return is one of the most effective tools available to business owners and high-income individuals, especially when you expect your income to fluctuate year over year.

• Defer invoicing: If you are on a cash-basis accounting method, delaying the issuance of invoices until January can push that income into the following tax year. This is particularly useful if you expect lower income or a change in tax bracket next year
• Accelerate deductions: Conversely, pulling expenses forward into the current year reduces taxable income. Prepaying business insurance, purchasing equipment, or paying estimated state taxes before year-end are all common acceleration strategies
• Capital gains harvesting: If you have investment gains, consider whether offsetting them with capital losses (tax-loss harvesting) makes sense. You can also time the sale of appreciated assets to land in a year where your overall income is lower
• Bonus depreciation: Under current law, 60% first-year bonus depreciation is available for qualifying assets placed in service in 2024. This allows business owners to deduct a significant portion of equipment, vehicle, and property improvement costs in the year of purchase rather than depreciating them over time

Real Estate Strategies

Real estate remains one of the most tax-advantaged asset classes, and high-income investors should be reviewing their portfolios for year-end opportunities.

• Cost segregation studies: If you have acquired or placed in service commercial or residential rental property, a cost segregation study can reclassify building components into shorter depreciation lives, accelerating deductions and reducing taxable income significantly in the first few years of ownership
• 1031 exchanges: If you are selling an investment property and reinvesting in another, a properly structured 1031 exchange allows you to defer capital gains taxes entirely. Strict identification (45 days) and closing (180 days) timelines apply
• Real estate professional status: Taxpayers who qualify as real estate professionals under IRS rules can use rental losses to offset active income, which is not available to passive investors. This requires spending more than 750 hours per year in real estate activities and more time in real estate than any other occupation

Charitable Giving for Tax Efficiency

For high-income earners who are philanthropically inclined, strategic charitable giving can create meaningful tax savings while supporting causes that matter to you.

• Donor-advised funds (DAFs): A DAF allows you to make a large, tax-deductible contribution in a high-income year and then distribute the funds to charities over time. You get the full deduction in the year of the contribution
• Qualified charitable distributions (QCDs): If you are age 70 1/2 or older, you can direct up to $105,000 from your IRA directly to a qualifying charity. The distribution counts toward your required minimum distribution but is excluded from taxable income
• Donating appreciated assets: Instead of writing a check, consider donating appreciated stock or other assets held for more than one year. You receive a deduction for the full fair market value and avoid paying capital gains tax on the appreciation

Key Takeaways

• Review your entity structure now to determine if an S-Corp or other election could save you on self-employment taxes going forward
• Maximize retirement contributions before December 31st (or the filing deadline for SEP-IRAs)
• Evaluate whether deferring income or accelerating deductions makes sense based on your projected income for this year and next
• Explore real estate strategies like cost segregation and 1031 exchanges if you hold investment properties
• Consider charitable vehicles like donor-advised funds to bunch deductions in high-income years