When a “Good Year” Creates a Tax Problem and How to Solve It

Most tax planning is built around predictable income. But occasionally, a very good year creates a very specific problem.

Recently, we worked with a high-earning professional who received a substantial year-end bonus that pushed his income far beyond its normal range. His baseline planning was sound. Retirement contributions were already maximized. Charitable giving was intentional. There were no obvious gaps.

And yet, his projected tax bill told a different story.

The bonus compressed a large portion of his income into the highest marginal brackets, creating a one-year tax spike that traditional planning tools simply couldn’t absorb.

The question wasn’t “How do we avoid taxes?” It was “How do we respond intelligently to a one-time event without distorting everything else?”

STEP ONE: DEFINE THE TAX PROBLEM CORRECTLY

The first mistake many people make in years like this is treating a temporary issue as a permanent one.

This was not a recurring income problem. It did not justify wholesale restructuring or long-term commitments that would outlive the event itself.

The objective was narrow and specific:

• Reduce the current-year tax impact

• Preserve capital flexibility

• Avoid decisions that would create regret once income normalized

STEP TWO: EVALUATE FINANCIAL OPTIONS, NOT FINANCIAL PRODUCTS

Rather than defaulting to a single tactic, we evaluated a stack of potential strategies the client qualified for—each with different implications around deductions, liquidity, complexity, and long-term economics.

A real-estate-based strategy (often referred to as a “Box House” structure) stood out because it offered:

1. Meaningful current-year tax losses to offset bonus income

2. Potential future return on capital, rather than being purely consumptive

This distinction mattered.

STEP THREE: LAYER FINANCIAL STRATEGIES STRATEGICALLY

Two complementary layers were added.

First, a leveraged charitable gifting strategy allowed the client to support causes he cared about while amplifying tax efficiency during a peak-income year.

Second, a portion of assets was placed into a fixed indexed annuity selected for its up-front premium bonus. This helped counterbalance the economic drag of executing tax strategies and kept capital productive.

WHAT CHANGED FOR OUR CLIENT IN REAL TERMS

Across a multi-year window:

• Federal and state taxes were reduced by hundreds of thousands of dollars

• Tax losses carried forward into future years

• Those carryforwards are now offsetting Roth conversion income, allowing tax-free repositioning at a lower cost

THE BIGGER LESSON FOR ATTORENY-ADVISORS

High-quality tax planning isn’t about finding one strategy. It’s about judgment, sequencing, and alignment.

That’s the difference between reacting to taxes and planning through tax events intentionally.