Year-End Income Shifting: Tax-Smart Moves for Families and Business Owners

As the year winds down, the clock doesn’t just tick—it shapes the outcomes you can still influence before December 31 closes the books. Whether you run a business, lead a team, or manage family finances, a few well-timed decisions over the next few weeks can save thousands, smooth cash flow in Q1, and make tax season feel far less stressful. This isn’t about tricks—it’s about using timing, documentation, and coordination as levers that actually work for you.

At Aligned Wealth Advisors, our approach is simple: get clear on where every dollar lands and when, align deductions with strategy instead of habit, and coordinate across people, entities, and states so your plan actually holds up.

That means paying attention to how income is recognized, making sure compensation and distributions are right-sized, and claiming every deduction you’re entitled to—with the backup to prove it. Control replaces guesswork; process replaces pressure.

Why Year-End Planning Matters

Most people “do taxes” at filing time, but most savings happen before the year ends. Managing when income counts—this year versus next—lets you influence tax brackets, unlock or preserve credits, and control cash flow on your own schedule. Think of it as sequencing: the same income can have very different effects depending on whether it lands December 28 or January 3, and whether a deduction is used now or later. Small operational choices—invoice dates, receipt cutoffs, payroll runs—suddenly become powerful strategy moves.

Income Shifting 101

Income shifting is all about reallocating taxable income so your household pays the least lawful total while staying fully compliant. There are three ways to do it:

• Between people: Employ a spouse or teen for real work at reasonable, market-based wages. Run it through payroll, keep time sheets, job descriptions, and deliverables on file. This moves income from a higher to a lower bracket and builds real skills plus a financial paper trail they can use for years.

• Between entities: Decide where profits live. For S-Corps, confirm “reasonable compensation” and let leftover profits flow as distributions. For partnerships, check guaranteed payments and allocations. For C-Corps, weigh salary, bonuses, and dividends versus reinvestment. The right mix depends on growth plans, benefits, and state exposure.

• Between years: Accelerate deductions that belong this year—supplies, repairs, planned equipment—or defer revenue into next year if your projected rate is lower. If next year’s income will spike, pull income forward and save deductions for later when they’ll offset more tax. The goal is a lower overall tax while staying compliant and cash-efficient.
  

Family-Friendly Moves

If your business or household involves family members, these strategies can have a real impact:

• Employ children legitimately: Pay them for real work—moving income from your higher bracket to theirs (or even zero)—while giving them valuable experience.
  
• Gift appreciated assets strategically: Transfer assets to family in lower tax brackets to reduce capital gains, while keeping wealth in the family.

Max out retirement contributions: Fill 401(k)s, IRAs, and spousal plans before year-end to reduce taxable income now and benefit long-term compounding.

Tactical Moves for Business Owners

Small business owners and S-Corp shareholders have even more flexibility at year-end:

• Accelerate expenses or defer income: Pay vendors early or purchase planned equipment before December 31 to reduce this year’s taxable income. Delay invoices or payments to January if next year’s rate will be lower.
  
• Review compensation: Ensure S-Corp salaries are reasonable and distributions optimized; partnerships should check guaranteed payments and allocations.
  
• Leverage Section 179 & bonus depreciation: Deduct the full cost of qualified business equipment in the year purchased—invest in growth while lowering taxes.



Plan charitable giving: Donating cash or appreciated assets before year-end creates deductions while supporting causes you care about.

Timing Makes a Difference

Even a few weeks can matter:

• Deferring a client payment until January could lower your bracket.
  
• Prepaying January’s rent or utilities increases current-year deductions.
  
• Adjusting bonuses or dividends can balance personal and business liabilities.



Your tax year doesn’t just end on December 31—it’s an opportunity window that closes fast.

Coordinating with Family & Entities

High-net-worth families often have multiple entities—trusts, LLCs, partnerships. Year-end is when they need to sync:

• Are family members’ roles and wages properly documented?
  
• Have pass-through allocations been reviewed for efficiency?
  
• Are distributions planned to minimize self-employment taxes and state exposure?

This kind of alignment turns tax strategy into a long-term wealth strategy.

Don’t Forget the State Angle

Where you live, earn, and invest can dramatically affect your tax rate. Some states tax distributions or bonuses differently; others reward reinvestment or hiring credits. Well-timed shifts—between years or entities—can optimize both state and federal outcomes.

The Bottom Line

Year-end income planning isn’t about gimmicks—it’s about control. It’s the difference between reacting to taxes and orchestrating them. At Aligned Wealth Advisors, we guide families and business owners through every opportunity to improve tax positioning, protect wealth, and plan proactively. Whether it’s optimizing compensation, adjusting distributions, or coordinating entity-level strategy, we help make sure every move has purpose—and payoff.

Because when your income works smarter, your wealth grows stronger.

Andrea Ward, CPA

Andrea has worked in the finance industry for nearly all of her professional life. Taking over the family business she continues to combine her tax and investment knowledge to leverage the investment power of money while reducing gains taxes paid to the IRS. She lives in the Fort Worth, Texas area, (although is happy to work with virtual clients all over the United States!) Andrea loves to travel and dabble in home decorating.

Matt Ward

Matt began helping clients in the insurance industry. However, he struggled with big business’s emphasis on selling rather than helping, so he came to work with the family business focusing on investment advisory. In his free time, he shreds the gnar on his snowboard and jams on drums and guitar (but not at the same time).