Tax Tip Tuesday: Year-End Income Timing Basics - Should You Receive Income Before or After December 31?

A dollar received on December 31 and a dollar received on January 1 are taxed in different years. That one-day difference can change your tax bracket, your capital gains rate, and even which credits you qualify for.

Year-end income timing is one of the simplest planning tools available, but it only works if you act before December 31. Once the year closes, the income is where it is. Here are the basics.

How Income Timing Works

Most individuals and many small businesses use the cash method of accounting: income is taxed in the year you receive it. That gives you some control over which year income lands in.

There’s one important limit, called constructive receipt. Income is taxed when it’s available to you, even if you don’t take it. A check you receive on December 30 is 2026 income, even if you don’t deposit it until January. You can’t defer income just by leaving it in your mailbox.

Defer or Accelerate? The Basic Rule

If You Expect…	Consider…	Why
A similar or lower tax rate next year	Deferring income into January	Pay tax later, and possibly at a lower rate
A higher tax rate next year	Accelerating income into December	Lock in this year’s lower rate
A low-income year now	Accelerating income, gains, or Roth conversions	Fill up low brackets that would otherwise go unused

When should you expect a change? Common reasons include a raise or promotion, retirement, starting or selling a business, a change in filing status, or a big one-time event like a home sale or stock vesting.

6 Year-End Income Timing Moves

1. Time Your Business Invoicing

If you’re self-employed or own a cash-basis business, you can generally choose when to send late-year invoices. Billing in late December with standard 30-day terms usually moves payment into January. Just don’t refuse or hold payments that are already available to you.

2. Ask When Your Bonus Is Paid

Some employers pay year-end bonuses in December, others in January. You usually can’t change your employer’s schedule once the bonus is earned, but knowing which year it lands in helps you plan everything else.

3. Make Retirement Contributions

Pre-tax contributions lower your taxable income for the year. 401(k) contributions generally must go through payroll by December 31. Traditional IRA and HSA contributions can be made until the April filing deadline and still count for 2026.

4. Plan Your Capital Gains and Losses

Selling an investment on December 31 versus January 2 changes the year the gain is taxed. A few things to know:

•        0% rate: for 2026, long-term capital gains are taxed at 0% federally if your taxable income stays at or below $49,450 (single) or $98,900 (married filing jointly).

•        Harvesting losses: selling investments at a loss can offset gains, plus up to $3,000 of ordinary income.

•        Trade date counts: for stock and fund sales, the trade date determines the tax year.

5. Consider a Roth Conversion

Converting traditional IRA money to a Roth IRA adds the converted amount to your income. In a lower-income year, a partial conversion can let you pay tax at a lower rate now instead of a higher rate later. Conversi

ons must be completed by December 31.

6. Watch Retirement Distributions

If you’re taking required minimum distributions (RMDs), the deadline is generally December 31. If you delayed your first RMD to April 1 of the following year, you’ll take two in one year, which can push you into a higher bracket.

Example 1: Deferring Income

Maria is a single consultant. Her 2026 taxable income puts her in the 22% federal bracket. She plans to work part-time in 2027 and expects to drop into the 12% bracket.

She has a $20,000 project wrapping up in December. If she invoices December 1 and gets paid that month, it’s 2026 income. If she invoices December 28 with 30-day terms and gets paid in January, it’s 2027 income.

•        Federal income tax at 22%: $4,400

•        Federal income tax at 12%: $2,400

•        Potential savings: $2,000 (self-employment tax is the same either way)

Example 2: Accelerating Gains

David and Lisa are married and retired early. Their 2026 taxable income is $70,000. They can realize up to $28,900 of long-term capital gains before passing the $98,900 limit for the 0% federal rate. Selling appreciated shares in December lets them reset their basis higher, with no federal tax on that gain.

Watch Out For

•        California taxes capital gains as ordinary income. A 0% federal rate doesn’t mean 0% state tax for California residents.

•        Income can affect more than your bracket. Higher income can reduce health insurance premium credits, and Medicare premiums are based on income from two years earlier.

•        Estimated taxes. If you accelerate income, your fourth-quarter estimated payment, due January 15, 2027, may need to increase.

•        Don’t let taxes override business sense. Delaying an invoice to a client who might not pay is a bad trade.

Income timing doesn’t reduce what you earn. It controls when, and sometimes at what rate, you’re taxed on it. The right move depends on how this year compares to next year, and that comparison has to happen before December 31.

•        Estimate your 2026 income now and think about whether 2027 will be higher or lower.

•        If you’re self-employed, plan your December invoicing before the holidays.

•        Review your investment gains and losses year-to-date.

•        Consider a Roth conversion if 2026 is a lower-income year.

Want help deciding whether to defer or accelerate income this year? MKHS Tax Group offers year-end tax planning for individuals and business owners. Contact us at info@mkhstaxgroup.com.