The Great Taxation Shift of 2026: Key Strategies High-Income Individuals Must Act on Before the End of the Year

Time is tight. By the end of 2025, a major overhaul of the tax system is set to take effect. What does this mean for high-income families? Potential increases in income tax rates, significant reductions in estate and gift tax exemptions, and adjustments to deduction items—these changes could catch many off guard. Professional financial planners suggest that taking action now could save a family thousands or even tens of thousands of dollars.

Bundled Charitable Giving: The Last Tax Window of 2025

The key to charitable planning is timing. Under the new rules, individual charitable donation deductions must exceed 0.5% of adjusted gross income (AGI) to be claimed, with a donation cap at 35% of AGI.

For high-net-worth families focused on tax efficiency, 2025 becomes a golden window. The “bundled” strategy has emerged—using this year’s high deduction limits to concentrate multiple years of charitable giving into 2025. Modern donor-advised funds (DAFs) are designed for this purpose, allowing donors to receive full tax deductions in 2025, with subsequent distributions to charities over the following years. This approach preserves tax benefits while maintaining flexibility in executing donations.

Financial professionals remind: tax planning should serve your charitable goals, not the other way around—let the tax considerations support your giving strategy.

Income Pre-Positioning: Securing Lower Tax Rates in 2025

If you anticipate higher tax rates in 2026, a wise move is to bring income that would be realized in 2026 forward into 2025. Specific strategies include:

For Employees: Negotiating with your employer to convert January bonuses into December payments.

Self-Employed and Contractors: Accelerating invoicing to speed up receivables; or delaying deductible expenses to increase net income in 2025.

Retirement Accounts: If flexible, taking IRA distributions at the end of 2025 rather than early 2026 can lock taxable income into a lower tax bracket year.

Roth Conversions: Lock in Tax Rates Early and Enjoy Future Tax-Free Growth

A Roth conversion is a systematic long-term tax optimization strategy. While it requires paying income tax at the time of conversion, the converted funds can grow and be withdrawn tax-free in the future.

Implementation steps:

1. Estimate 2025 income to determine your current tax bracket
2. Set a “ceiling tax rate” to define the maximum amount to convert
3. Convert only enough to reach that ceiling
4. Complete the conversion from pre-tax IRA to Roth IRA before year-end

This approach avoids crossing into higher tax brackets, minimizing tax costs.

Year-End Harvesting: Pre-Planning for Higher Tax Rates in 2026

For taxable investment portfolios, year-end is the optimal time for tax-loss harvesting and income management. If higher tax rates are expected in 2026 or later, proactively realizing certain gains in 2025 may be more economical. It’s akin to “pre-paying” taxes while rates are still low, rather than passively waiting for higher rates to arrive.

Donating Appreciated Assets: Achieve Charitable Goals and Tax Optimization Simultaneously

Donating appreciated securities directly to charities can avoid capital gains taxes and provide tax deductions. The strategy involves:

• Opening a donor-advised fund account
• Identifying securities with the greatest appreciation
• Transferring these securities from your brokerage account into the fund
• Recommending grants to charities as needed

This method satisfies your giving intent while maximizing tax benefits.

Estate Planning: Act Before Exemptions Drop

After 2026, federal estate and gift tax exemptions will significantly decrease. Now is the critical time to review estate plans.

While higher exemptions still exist, high-net-worth families should:

• Fully utilize current exemptions through lifetime gifting strategies
• Update trust structures to optimize tax efficiency
• Review beneficiary designations and key documents to ensure assets transfer as intended

Delaying these decisions could lead to substantial estate tax liabilities, making action in 2025 essential.

All these strategies point to a single reality: the window of the current tax system is closing. Every decision—whether timing income, converting investments, or long-term estate planning—must be made before the 2026 reform takes effect. Acting now is not only about responding to tax changes but also about proactively safeguarding long-term wealth.