MML #049: Income and Expense Timing: Small Moves That Add Up

Throughout the month of December we’ve been exploring meaningful strategies to optimize your tax plan before year end. Today, that theme continues as we review notable 2025 legislative updates that have introduced meaningful planning opportunities.

Let’s dive in:

Most people think of taxes as something that just happens to them. Income comes in, expenses go out, and at the end of the year you calculate what you owe. And honestly, sometimes that’s simply how it goes. But you may be surprised to learn that with a little planning around the timing of these income and expense sources that you may be able to reduce your tax bill. 

You can't always control when income arrives or when expenses hit. Your employer decides when bonuses get paid. Your clients decide when they cut checks. But when you do have flexibility, even small adjustments can create real savings.

The SALT Deduction Opportunity

Let's start with an immediate opportunity that's only available for a limited time. The One Big Beautiful Bill passed earlier in 2025 increased the state and local tax (SALT) deduction limit to $40,000—up from the previous $10,000 cap. This applies for 2025 through 2028, subject to income limits.

If you're in a high-tax state like California, New York, or New Jersey, this change is significant. And here's where timing comes into play—if you haven't maxed out this benefit for 2025 and your jurisdiction allows it, consider prepaying your 2026 first-quarter estimated state taxes before December 31st.

What does this accomplish? You lower your 2025 taxable income by taking the deduction this year, and then you get to maximize the deduction again in 2026 when you pay your remaining state taxes (estimated income or property). Essentially, you're using the deduction twice across two years instead of leaving money on the table.

You'll need to itemize to claim this, but with the OBBB changes pushing the SALT limit to $40,000, it's worth running the numbers even if you typically take the standard deduction. For many lawyers in high-tax states, itemizing suddenly makes a lot more sense.

Pulling Income Forward

On the income side, there are situations where accelerating income into the current year makes strategic sense. This might sound counterintuitive—why would you want to pay taxes sooner? Let’s take a look at an example:

The new senior bonus deduction put into legislation by the OBBB gives couples over 65 an additional $12,000 in deductions (subject to income limits). If you're not fully utilizing your available deductions this year, pulling some income forward lets you take advantage of that extra deduction space before it potentially goes away.

Another reason to accelerate income: filling up lower tax brackets in low-income years. If you're recently retired and your income is unusually low—maybe you're between your last paycheck and starting Social Security—this might be the perfect year for a Roth conversion.

A Roth conversion involves moving money from a traditional IRA to a Roth IRA. You pay taxes now at today's rates, but then you get tax-free growth and tax-free withdrawals later. The key is doing this in years when your income is low enough that the conversion doesn't push you into a higher bracket.

Deferring Income

On the flip side, sometimes you want to push income into the next year. If you're self-employed or have control over billing, delaying invoices until early January pushes that income into 2026. This can be useful if you know next year will be a lower-income year, or if you're right on the edge of a tax bracket or important threshold this year.

The same logic applies to year-end bonuses. If your employer gives you a choice of when to receive a bonus, think about which year makes more sense from a tax perspective. Are you retiring early next year? Will your income drop significantly? That bonus might be better received in 2026.

Medicare and Other Thresholds

Income timing also matters for means-tested benefits. Medicare Part B and Part D premiums are based on your income from two years prior. High income in 2025 means higher premiums in 2027. If you're close to one of those IRMAA brackets, managing your income timing strategically can save you thousands in Medicare surcharges down the road.

The same concept applies to the 3.8% net investment income tax, which kicks in at certain income levels. If you can shift income or deductions to stay below those thresholds, you avoid an extra layer of tax.

The Bottom Line

Tax planning isn't just about what you earn or how much you spend—the timing also matters. With several weeks left in 2025, review your income and expenses with an eye toward timing. Look at your tax bracket, your available deductions, and any thresholds that matter for your situation.

Prepaying state taxes, accelerating or deferring income, timing Roth conversions—these aren't complicated strategies. But they require thinking ahead and being intentional about when transactions happen.

Coordinate with your tax advisor and trusted fiduciary financial planner about which moves make sense for your specific situation. Small adjustments now can add up to meaningful savings come April.