💰 Last Chance Tax Moves With RSUs, Bonuses, and Other Variable Pay

☕ Good morning SenseMakers!

Maya had a great year. $400,000 base salary as a VP of Product, three RSU vests totaling $300,000, and a year end cash bonus of $100,000. By any measure, it was a career high.

But when she sat down with her CPA in March, the news wasn't as good as the income suggested. Her company had withheld about 22% federal tax on her RSUs and bonus, which sounds reasonable until you realize her actual marginal rate was 35%. 

The shortfall? A $42,000 tax bill due in April, plus underpayment penalties because she hadn't made estimated payments throughout the year.

Maya's situation isn't rare. It's the silent risk of a strong income year, especially for executives and business leaders earning RSUs, bonuses, or commissions on top of their base salary.

If this year brought a bigger vest, bonus, or commission, December is your last and best chance to keep that spike income from spilling you into higher tax brackets, capital gains thresholds, and avoidable penalties, while setting up a simple equity sale playbook for next year.

Today, we're walking through three December levers you can still pull to clean up this year's tax picture, and how to build a repeatable system so next year doesn't feel like a scramble.

📊 How RSUs, Bonuses, and Commissions Stack on Top of Your Salary

Here's what most people miss: RSUs, cash bonuses, and commissions are all taxed as ordinary wage income when they vest or are paid. They stack on top of your base salary, filling up the higher tax brackets faster than you think.

Your regular paycheck gets withheld based on your W-4. But RSUs and many bonuses are treated as supplemental wages, which means they're often withheld at a flat federal rate of 22% up to $1 million, and 37% on amounts above that.

For many executives already earning in the $300,000 to $600,000 range, that 22% supplemental withholding rate is nowhere close to their actual marginal rate, which could be 32%, 35%, or even 37%.

Let's walk through a simple example.

You earn $400,000 in base salary. This year, you also had $300,000 in RSUs vest and received a $100,000 bonus. Your total W-2 income is now $800,000.

In 2025, the 37% federal tax bracket starts at around $626,000 for single filers and about $751,000 for married couples filing jointly. 

If you're single, roughly $174,000 of your income lands in the top bracket. If you're married filing jointly, you're sitting at the edge, with $49,000 in the 37% bracket.

Now add in the 0.9% Additional Medicare Tax on wages above $200,000 for single filers ($250,000 for couples), and you're paying an extra $5,400 to $4,950 in Medicare taxes alone.

And if you realized any long term capital gains this year, maybe you sold some company stock or mutual funds, your higher ordinary income pushes more of those gains into the 20% capital gains bracket instead of 15%. Plus, you'll likely trigger the 3.8% Net Investment Income Tax on investment income above certain thresholds.

The math gets complicated fast. But the takeaway is simple: supplemental withholding at 22% can leave you seriously under withheld if your actual marginal rate is 35% or higher.

⚙️ Three December Levers to Avoid Tax Pain in April

The good news? You still have time to fix it. Here are three moves you can make before December 31 to clean up this year's tax picture.

Lever 1: Use Your Last Paychecks to Fix Withholding

First, project your total income and tax for the year with your tax advisor or planning software. If you're short on withholding, one of the best options is to submit an updated W-4 and have extra federal and state tax withheld from your last few paychecks or year end bonus.

Why is this better than waiting until April? Because withholding is treated as if it were paid evenly throughout the year for safe harbor purposes. This can help you avoid underpayment penalties even if the adjustment happens in December.

The IRS safe harbor rules generally say that if you pay at least 100% of last year's tax (or 110% if your adjusted gross income was over $150,000), you avoid penalties. Increasing withholding now is often the cleanest way to meet that threshold.

Lever 2: Top Up with an Estimated Payment if Needed

If you can't adjust withholding or it's not enough to cover the gap, you can make a one time estimated payment to federal and state tax authorities.

The typical deadline for fourth quarter estimated payments is January 15, but don't wait. Make the payment in December if you can, and coordinate with your tax advisor to make sure you're covering both federal and state shortfalls.

This isn't glamorous, but it's simple. Log into IRS Direct Pay or your state's tax portal, calculate the amount you're short, and submit the payment. It takes 10 minutes and can save you thousands in penalties and interest.

Lever 3: Turn Generosity into a Tax Strategy

If you're already planning to give to charity this year, December is the time to be strategic about it.

Targeted charitable giving can reduce your taxable income in a spike year, especially if you're near the threshold where itemizing deductions starts to make sense. You have a few options:

Cash gifts: Simple and immediate deduction, but you're giving away after tax dollars.

Gifts of appreciated stock: If you've held company stock or mutual funds for more than a year and they've appreciated, donating the shares directly to a charity or donor advised fund lets you avoid capital gains tax and still claim the full fair market value as a deduction.

Donor advised fund: This is especially powerful in spike years. You can contribute $25,000 or $50,000 (or more) this year, take the full deduction now, and then grant the money to charities over time. It pulls a larger deduction into the year you need it most while giving you flexibility on when and where the money goes.

If you're over age 70½ or have parents in that range, you can also make qualified charitable distributions (QCDs) directly from an IRA to a charity. These count toward required minimum distributions and reduce taxable income without needing to itemize.

The key is coordination. Don't make scattered $500 donations to 10 different organizations on December 30 and hope it moves the needle. Work with your tax advisor to calculate how much charitable giving will actually reduce your tax bill, then execute a focused plan.

📈 What to Do with This Year's RSUs and Company Stock

Let's talk about the elephant in the room: you've already paid tax on your RSUs when they vested. The question now is whether to hold or sell the shares.

This is where most people get stuck. The company had a strong year. The stock is up. It feels wrong to sell after all that appreciation.

But here's the reality: the tax hit from RSUs happens at vesting, not at sale. Your sale decision is about risk and future flexibility, not taxes.

If you're already at or near the top ordinary income bracket and the 20% long term capital gains threshold, additional sales this year will mostly be taxed at the highest rates. In that case, it might make sense to hold off on large sales until next year when your income might be lower.

But if you had a mid level spike year and expect income to be even higher next year, it may make sense to harvest some gains now while you still have room in the 15% capital gains bracket.

Here's how I frame it with clients using our Life Driven Investing bands:

Shares that will fund cash needs in the next 0 to 2 years belong in a very low risk band. It makes sense to sell and move them into cash or short term bonds regardless of current market excitement. You don't want to be forced to sell into a correction when you need the money for a down payment or a kid's tuition.

Shares that support longer term goals can be sold more gradually via a plan based approach. This is where a 10b5-1 plan becomes invaluable.

The key is to stop treating each vest or sale as a one off emotional decision and start treating it as part of a system.

🗓️ Lay Groundwork Now with a 10b5-1 Equity Sale Playbook

If you take away one thing from this newsletter, let it be this: December is the right time to start thinking about next year's equity strategy, not waiting until you're in the middle of another vest wondering what to do.

A 10b5-1 plan is a pre arranged set of stock trades that helps insiders sell company stock over time, even during blackout periods, as long as the plan was set up when you didn't hold material non public information.

Under current SEC rules, there's usually a cooling off period of around 90 days between adopting a plan and the first trade. That means if you want to start selling in Q2 2026, you need to get the plan in place by early 2026 at the latest.

Here's what December planning looks like:

1. Look ahead to next year's expected vests. Pull your equity grant schedule and map out when RSUs will vest and when bonuses are likely to hit.

2. Decide how much stock you want to hold versus sell. A common rule of thumb: sell at least enough shares from each vest to cover taxes and prevent company stock from exceeding 15% to 25% of your investable net worth. The exact percentage depends on your risk tolerance and time horizon, but concentration above that level starts to introduce real risk.

3. Start coordinating with legal or compliance to draft a plan. Your company's legal team or your financial advisor can help you structure a 10b5-1 plan that ties sales to your Life Driven Investing bands. Map trades to calendar quarters so you're not guessing when volatility shows up.

Think of it like a standing order in your business life. Just as you have vendor agreements or hiring plans that run on autopilot, a 10b5-1 plan is a standing agreement for your own stock decisions. It removes emotion, reduces decision fatigue, and keeps you disciplined even when the stock is on a run or the market is tanking.

We help clients design these plans all the time. The result? They stop checking the stock price every morning and start sleeping better because they know the plan is working in the background.

🧠 Making Sense of Last Chance Tax Moves

You can't change that this was a spike income year. But you can choose how painful the tax bill is.

A few December moves can clean up under withholding, bring your giving in line with your values and tax brackets, and set you up for a calmer April. 

And a simple equity sale playbook, supported by a 10b5-1 plan, can turn next year's vests and bonuses into fuel for work optional life instead of a recurring tax headache.

The goal isn't perfection. It's progress. It's moving from one time scramble to an annual system that works whether markets are up, down, or sideways.

If this year felt messy, we can help you turn it into a clear plan before the calendar resets. Schedule a Wealth Clarity conversation in December to map your actual 2025 income picture, check for under withholding and opportunities for giving, and sketch a draft equity sale playbook tied to your Life Driven Investing bands.

As always, I hope this helps you to Prioritize Your Version of a Rich Life.

Until next week!

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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