Tax Planning for Year-End Bonuses
Know a big bonus is coming? Proactive planning can significantly reduce the taxes you'll owe on that windfall.
Tax Planning for Year-End Bonuses
Timing Is Everything
If possible, ask your employer to delay your bonus to January. This defers income to the next tax year, potentially keeping you in a lower bracket this year.
Increase 401(k) Contributions
If your plan allows it, elect to have a large portion of your bonus contributed to your 401(k) before it hits your paycheck.
- 2025 limit: $23,500 ($31,000 if 50+)
- Reduces taxable income dollar-for-dollar
Fund Your IRA
Contribute to a traditional IRA by April 15 to deduct for the prior year.
Fund Your HSA
If you have an HDHP, maximize your HSA contribution for the year.
Make Charitable Donations
A large donation to a Donor-Advised Fund provides a current-year deduction while allowing grants to charities over time.
Offset with Losses
Harvest investment losses before year-end to offset the additional income.
Withholding Adjustment
Bonuses may be withheld at 22% flat, but your effective rate may be lower. You could owe less than withheld.
Self-Employed Bonus Planning
If you're self-employed, accelerate deductions (equipment purchases, retirement contributions) to offset higher income.
Getting a year-end bonus? Plan now to keep as much of it as possible.