Year-End Bonus Tax Planning — Minimize the Hit Before December 31
Year-end bonuses arrive right when you still have time to make tax-saving moves before December 31. The strategies that work best — maxing retirement contributions, harvesting losses, making charitable gifts — are all time-sensitive. Once the calendar flips to January, most of these options disappear for the current tax year.
Estimate your bonus after taxes with the Bonus Tax Calculator.
The Year-End Bonus Tax Planning Timeline
| When | Action | Savings Potential |
|---|---|---|
| November | Check 401(k) contribution room remaining | $2,000–$8,000+ |
| November | Review portfolio for tax-loss harvesting | $500–$3,000 |
| Early December | Increase 401(k) deferral for bonus paycheck | Immediate tax reduction |
| Before Dec 31 | Make charitable contributions | Varies |
| Before Dec 31 | Fund HSA to annual limit | $500–$1,500 |
| Before Dec 31 | Consider deferring bonus to January | Defers entire tax liability |
| January | Contribute to IRA (can be done until April 15) | $1,500–$3,000 |
Strategy 1: Max Your 401(k) Before the Bonus Hits
The most impactful move. Check how much 401(k) contribution room you have left for the year:
| 2026 Limit | Your Contributions So Far | Room Remaining |
|---|---|---|
| $23,500 (under 50) | $18,000 | $5,500 |
| $31,000 (50+) | $24,000 | $7,000 |
If your employer allows per-paycheck contribution changes, increase your deferral percentage for the bonus paycheck. Some plans allow up to 90% or even 100% deferral for a single paycheck.
Example: $12,000 bonus with $5,500 room in 401(k). Defer $5,500 to the 401(k). In the 24% bracket, that saves $1,320 in federal tax plus state tax.
Strategy 2: Tax-Loss Harvesting
Review your investment portfolio for positions that are down. Selling them before December 31 creates capital losses that offset capital gains — and up to $3,000 of losses can offset ordinary income (including your bonus).
| Portfolio Position | Current Loss | Tax Savings (24% bracket) |
|---|---|---|
| Tech stock down $5,000 | -$5,000 | $1,200 (offsets $3,000 ordinary income + capital gains) |
| Bond fund down $2,000 | -$2,000 | $480 |
Reinvest in a similar (not identical) asset to maintain your portfolio allocation. Wait 31 days to avoid the wash sale rule if buying the same security.
Strategy 3: Charitable Giving
Bunch your charitable giving into the year you receive a large bonus. If your total itemized deductions exceed the standard deduction, the charitable contribution reduces your taxable income dollar-for-dollar.
Donate appreciated stock instead of cash for a double benefit: deduction for full market value plus avoiding capital gains tax on the appreciation.
Strategy 4: Ask to Defer the Bonus
If your employer is flexible, pushing a December bonus to January defers the tax by a full year. This is especially smart if:
- You expect to be in a lower bracket next year
- You've already maxed all retirement accounts for the current year
- You want to spread the tax impact across two years
December 31 Checklist
Before the year ends, verify:
- 401(k) contributions maxed (or increased for bonus paycheck)
- HSA contributions maxed ($4,300 individual / $8,550 family)
- Tax-loss harvesting completed
- Charitable donations made (if itemizing)
- Review W-4 for next year's withholding
- Estimated taxes paid (if self-employment income)
For the full guide to bonus taxation, see How Bonuses Are Taxed in 2026. For understanding the withholding math, read Bonus Tax Rate 22%. And for comparing bonus types, check Stock Bonus vs Cash Bonus.
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