Tax planning is often framed through the lens of a single calendar year. In reality, income doesn’t arrive in a neat, evenly spaced way. It may show up earlier or later than expected, or multiple income sources could end up hitting all in the same year, pushing you into higher tax brackets. By taking a multi-year planning approach instead, you gain more control over when income is recognized and can better align losses and deductions to offset it. Here’s how to be tax-efficient in practice.

Strategy 1: Balance income across years to manage tax brackets

Who should consider this approach? Anyone over age 59 who has balances will be subject to the required minimum.

Distributions from retirement income in later years. Individuals with variable or multi-source income, such as investors with taxable portfolios, business owners, or anyone who experiences fluctuations from bonuses, capital gains, or distributions. The key to this strategy is to be tax-efficient each year by leveraging the tax code’s progressive structure.

Planning tips:

1. Intentionally recognize more income in lower-income years to take advantage of lower tax rates, up to the next tax bracket
2. Focus on limiting additional taxable income in years when you’re stuck in higher tax brackets
3. Calculate your RMD withdrawal requirements when you hit age 73 to know how much you will be required to withdraw and understand the projected tax rate
4. Avoid stacking multiple income events into the same year when you have flexibility
5. Be mindful of how portfolio distributions, rebalancing, and external income may overlap

Strategy 2: Coordinate income with losses and deductions

Who should consider this approach? Anyone whose income or deductions vary from year to year. If you expect a spike in income this year or in the near future, whether from a bonus, business income, asset sales, or a one-time event, you can begin identifying deductions now to help offset that income when it occurs.

Planning tips:

1. Time the sale of appreciated assets in years when you have realized losses available
2. Be mindful of timing so losses and deductions aren’t wasted in lower-income years
3. Consider bunching itemized deductions, such as property taxes or charitable contributions, in a year you anticipate a large bonus or spike in income

For business owners, consider timing major expenses, such as equipment purchases, to coincide with higher-income years, allowing you to immediately expense the cost and offset the increase in income.

Strategy 3: Manage which income to use each year

Who should consider this approach? You’re not always stuck with how your income gets taxed. The order in which you pull income, and which sources you rely on in a given year, can significantly change whether that income is taxed at lower capital gains rates or higher ordinary income rates.

Planning tips:

1. Manage the mix of ordinary income and capital gains to avoid unnecessary tax increases
2. Coordinate portfolio income with external income like salary, bonuses, or business earnings
3. Adjust withdrawals or distributions to keep total taxable income within target ranges
4. Use flexibility across accounts to avoid stacking multiple high-tax income sources in the same year

How to be tax-efficient with multi-year planning strategies

A multi-year approach to tax planning is less about reacting and more about controlling outcomes. By spreading income, coordinating deductions and offsets, and choosing where to draw your income, you can reduce unnecessary tax increases and create more consistent, tax-efficient results over time. Contact our RRBB advisors if you have any questions.