The Monet Blog · Taxes

Timing: moving income and deductions between tax years

The cheapest strategy in the book is often just deciding which year something lands in — and it expires on December 31.

By Sankha NagChoudhurySeptember 4, 20268 min read

Timing does not reduce lifetime income, it moves it — into a year where the rate is lower, a threshold is clear, or a deduction is usable. Done well it is quiet and cheap. Done blindly it just shifts a problem forward.

Defer into a lower year, accelerate into a higher one

The rule is simple to state: recognize income in your lowest-rate years and deductions in your highest-rate years. Applying it requires a projection of at least two years, which is why this work belongs in Q3, not December 28.

A sabbatical, a startup year, or early retirement can be an unusually low-rate window.
A business sale, a large bonus, or a vesting cliff can create a spike worth planning around.
Deferral is not free if rates or your income are expected to rise.

Bunching and harvesting

Two techniques do most of the work. Bunching concentrates itemizable expenses into alternate years so they clear the standard deduction. Harvesting realizes investment losses to offset gains, with the wash-sale rules respected.

Donor-advised funds let you bunch a deduction now and grant out over time.
Losses offset gains first, then a limited amount of ordinary income, then carry forward.
Do not let the tax tail wag the investment decision — keep the target allocation intact.

Deadlines that are real

Some moves must be completed by December 31; others can be made until the filing deadline. Confusing the two is one of the most common and most expensive planning mistakes.

Year-end: charitable gifts, loss harvesting, Roth conversions, equipment placed in service.
Until filing (with extensions in some cases): certain retirement and health account contributions.
Payroll-dependent moves need lead time — a December decision may already be too late.

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Timing: moving income and deductions between tax years

Defer into a lower year, accelerate into a higher one

Bunching and harvesting

Deadlines that are real

Ask Monet this

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