As the end of the year approaches, many individuals and small business owners start to evaluate options for managing their tax liability. One technique to consider is deferring income into the following year. This practice simply means postponing the receipt of certain income until after December 31, so it becomes taxable in the next calendar year.
Why Consider Deferring Income?
If you believe your tax rate may be lower next year, deferring income can help reduce your current year’s tax burden. This strategy can also make sense if you expect higher deductions next year due to life changes or large expenses.
For employees, deferral may involve asking for a year-end bonus to be paid in January instead of December. Small business owners or self-employed individuals might delay sending invoices or hold off on finalizing new contracts. This shifts income and the corresponding tax obligation into the next tax year.
Situations Where Deferral Might Help
- You expect to be in the same or a lower tax bracket next year.
- You anticipate large deductions or new expenses in the upcoming year.
- You receive variable income, such as commissions or bonuses, and have flexibility in the timing.
Key Considerations
While deferring income can have advantages, it is important to weigh the potential risks and impacts. If your income is expected to increase significantly next year, the benefit may be lost. Legislative changes can also alter future tax rates or rules. Consider the timing of expenses and any planned deductions for both years.
For self-employed individuals, tax payments, cash flow, or requirements for health insurance and retirement plan contributions may influence the decision.
How to Decide
A review of your recent earnings, upcoming tax bracket position, and anticipated major expenses can help you assess whether deferral makes sense. Consulting with a tax professional or advisor can clarify your unique situation, especially if your income fluctuates from year to year.
Deferring income is one tool that may help prepare for the coming year’s tax obligations. This strategy works best when coordinated with other year-end planning moves, such as reviewing deductions, managing withholding, and evaluating investment contributions.
If you have questions about what fits your situation, consider a conversation with a trusted advisor who can help you review your overall plan. Schedule a free, no-obligation 15-minute consultation with our wealth advisors at Gregory Ricks & Associates by phone or Zoom today by clicking “Schedule A Visit” below.
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The free consultation provides an overview of products and services offered by Gregory Ricks & Associates. Investment advisory services made available through AE Wealth Management, LLC, a Registered Investment Adviser, and there is no obligation. This article summarizes IRS and SECURE 2.0 rules as of October 2025. Regulations and relief provisions are subject to change; check with the IRS, FEMA, or your plan administrator for the latest updates. This article is meant to be general and is not investment or financial advice or a recommendation of any kind. Please consult your financial advisor before making financial decisions. For more detailed information, contact a financial advisor with Gregory Ricks & Associates, Inc. Investment advisory products and services through AE Wealth Management, LLC. (AEWM) Insurance products are offered through the insurance business Gregory Ricks & Associates, Inc. AEWM does not offer insurance products. The insurance products offered by Gregory Ricks & Associates, Inc. are not subject to Investment Adviser requirements. Firm does not offer tax or legal advice. 3545874 – 12/25