If you want to defer income to next year, the goal is simple: keep money you would otherwise receive in December from becoming taxable until the following tax year, which pushes the tax bill out to April 15 of the year after that. Done right, that gives you roughly 15 months of interest-free delay on the taxes owed.1Internal Revenue Service. When to File The strategies that work depend on how you earn the money. Employees lean on retirement and health accounts, business owners control their invoicing and expenses, and investors control when they sell. All of them share one rule that decides whether any of it holds up.
The Rule That Governs Every Deferral
Under Treasury Regulation Section 1.451-2, income is taxable when it is credited to your account or otherwise made available to you, whether or not you actually take it. This is the doctrine of constructive receipt.2eCFR. 26 CFR 1.451-2 – Constructive Receipt of Income If your employer cuts a bonus check on December 30 and you decide to hold it until January 3, the IRS still treats it as December income. The same is true if you ask a client on December 20 to please wait until January to pay an invoice you’ve already sent.
The practical upshot: to move income out of the current year, the restriction on receiving it has to exist before you have the right to the money. That is why the formal deferral tools that follow work at all. A 401(k) contribution, an installment sale contract, a Section 409A deferral election, all impose real restrictions on your access to the funds, and that is what keeps them out of this year’s income.
If You’re a W-2 Employee
Salaried workers have limited leverage over when a paycheck arrives, so the deferral tools are the tax-advantaged accounts that come out of gross pay or reduce AGI directly.
401(k) and 403(b) Contributions
Elective deferrals into a traditional 401(k) or 403(b) come off your gross wages, cutting federal taxable income and, in most states, state taxable income too. For 2026, the employee deferral limit is $24,500. Workers 50 through 59, and 64 and older, can add an $8,000 catch-up. A SECURE 2.0 provision creates a higher “super catch-up” of $11,250 for participants who turn 60, 61, 62, or 63 during the year, bringing that group’s maximum employee deferral to $35,750.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Not every plan has picked up the super catch-up yet, so confirm with HR.
The deadline is the last payroll of the calendar year. You cannot go back in January and boost your prior-year 401(k) contribution the way you can with an IRA. This one takes planning during the year, not after it.
Traditional IRA
The 2026 traditional IRA limit is $7,500, plus a $1,100 catch-up at 50 or older, and you have until April 15, 2027 to make a 2026 contribution.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 That timing lets you look at your finished return and decide whether the deduction is worth it.
The catch is the deduction phase-out for anyone covered by a workplace retirement plan. For 2026, a single filer covered by an employer plan loses the deduction as modified AGI moves from $81,000 to $91,000, and a married couple filing jointly (contributing spouse covered) phases out between $129,000 and $149,000.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Above those ranges, the contribution is still allowed but it doesn’t defer any income.
Health Savings Account
If you’re enrolled in a qualifying High Deductible Health Plan, an HSA gives you a deduction now, tax-free growth, and tax-free withdrawals for medical expenses. For 2026, the HDHP minimum deductible is $1,700 self-only and $3,400 family.4Internal Revenue Service. Rev. Proc. 2025-19 The contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, plus $1,000 more at age 55 or older.5Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans The contribution is above the line, so it reduces AGI whether you itemize or not, and you have until April 15 to fund the prior year.
If You’re Self-Employed or Run a Small Business
Cash-method sole proprietors, partnerships, and S-corporations recognize revenue when payment arrives, not when the invoice goes out. That gives you real control over what falls into this year and what falls into next.
The most direct move is to hold late-year invoices. Finish the work in December, bill in January, receive payment in January. The one thing you cannot do is let the money become available in December and then ask the client to sit on it. If the client mails a check on December 28 and you have it in hand December 30, you’ve received it, invoice date or not.
On the expense side, cash-method businesses can accelerate deductible spending before December 31. Prepay insurance, buy supplies, schedule maintenance. Every dollar of deductible expense reduces the net profit flowing through to your Schedule C or K-1.
SEP IRA and Solo 401(k)
Self-employed retirement plans allow much larger contributions than employee-only options, and they do the same double job of sheltering current income and building retirement savings.
A SEP IRA lets you contribute up to 25% of net self-employment income, capped at $72,000 for 2026. You can establish and fund a SEP as late as your tax filing deadline, including extensions.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 For a sole proprietor on extension, that can mean opening a plan in October and still claiming the deduction on the prior year’s return.
A Solo 401(k) lets you contribute as both employee and employer. The employee deferral follows the standard $24,500 limit (plus applicable catch-ups), and the employer piece can add up to 25% of compensation, with a combined ceiling of $72,000 before catch-ups. The plan must be established by December 31 of the tax year, though contributions can be made up to the filing deadline. If your net income is on the lower side, the employee-deferral component can let you shelter more than a SEP would at the same profit level.
If You’re Selling Investments or Assets
Investment gains aren’t taxed until you sell, which is itself a form of built-in deferral. Beyond that, three tools shift the tax year of income you’ve already decided to recognize, or spread it out.
Tax-Loss Harvesting
Selling losing positions creates realized capital losses that offset realized gains dollar for dollar. If losses exceed gains, up to $3,000 of the net loss ($1,500 for married filing separately) offsets ordinary income for the year, and anything left carries forward indefinitely.6Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Watch the wash sale rule. If you buy the same or a substantially identical security within 30 days before or after the loss sale, the loss is disallowed for the current year.7Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities To keep market exposure while staying clear, buy a different fund tracking a similar segment rather than the identical one.
Delaying a Sale Past December 31
If you’re sitting on a large unrealized gain in late December, selling in January moves the entire gain into next year. Beyond bracket effects, this can keep modified AGI below the $200,000 (single) or $250,000 (married filing jointly) thresholds where the 3.8% Net Investment Income Tax attaches.8Internal Revenue Service. Topic No. 559, Net Investment Income Tax9Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
Installment Sales
For a large non-publicly-traded asset such as real estate or a private business, an installment sale under IRC Section 453 spreads the gain across the years payments are received, as long as at least one payment comes after the year of sale.10Office of the Law Revision Counsel. 26 USC 453 – Installment Method Sell a rental for a $200,000 gain paid over five years and you recognize roughly $40,000 each year instead of the full amount up front.
The method is not available for publicly traded securities, dealer property (inventory), or sales of depreciable property to related parties. Depreciation recapture also gets recognized in the year of sale regardless of when cash arrives, so that portion cannot be spread.10Office of the Law Revision Counsel. 26 USC 453 – Installment Method
If You’re an Executive with a Deferred Comp Plan
Nonqualified deferred compensation lets highly paid employees push salary, bonus, or equity comp into future years well beyond retirement plan limits, by agreement with the employer. The rules are governed by IRC Section 409A, and they are strict.
The deferral election must be made before the start of the tax year in which you’ll earn the compensation. For performance-based bonuses tied to a service period of at least 12 months, the deadline is six months before the end of that period. Miss the election window and you cannot retroactively defer.11Office of the Law Revision Counsel. 26 USC 409A – Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans
Distributions can only happen on specific triggers: separation from service, disability, death, a predetermined date, a change in company ownership, or an unforeseeable emergency.11Office of the Law Revision Counsel. 26 USC 409A – Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans That restriction is what defeats constructive receipt. The trade-off is credit risk. Unlike a 401(k), deferred comp is typically an unsecured promise from the employer, and in a bankruptcy you’re a general creditor.
What Can Go Wrong
The penalties for getting deferral wrong can be worse than the tax you were trying to postpone.
Excess IRA or HSA contributions. Contributing over the annual limit triggers a 6% excise tax on the excess for every year it sits in the account. You report it on Form 5329.12Internal Revenue Service. Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts Pull the excess plus any attributable earnings out before your filing deadline and the problem goes away.
Section 409A failures. A noncompliant deferred comp arrangement causes the deferred amount to be included in income immediately, with a 20% additional tax on top of regular income tax and an interest charge at the underpayment rate plus one percentage point.11Office of the Law Revision Counsel. 26 USC 409A – Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans Late elections, accelerating a payout outside a permitted trigger, and sloppy plan documents are the usual causes.
Constructive receipt challenges. If the IRS decides you had the right to collect income you claimed to defer, the income snaps back to the earlier year, with interest and possible accuracy penalties. Informal “hold my check” requests are the most common target. The deferral arrangement has to reflect a real business practice, put in place before the money was owed.
The Cost You’ll Pay Later
Every dollar you defer into a traditional retirement account eventually gets taxed. Starting at age 73, required minimum distributions begin from traditional IRAs, 401(k)s, SEP IRAs, and similar tax-deferred accounts. The first RMD is due by April 1 of the year after you turn 73, and each subsequent year’s RMD is due by December 31.13Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
Missing an RMD carries a 25% excise tax on the shortfall, dropping to 10% if you correct it within two years.14Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs It’s also worth asking whether the arithmetic actually favors deferral in your case. If you’re in a high bracket now and expect to stay there in retirement, pushing income into a traditional account only to pull it out later at a similar rate saves less than it looks like it should. Roth contributions in a 401(k) or IRA have no RMDs during the owner’s lifetime and no tax on qualified withdrawals, which can make more sense when you expect your future bracket to match or exceed today’s.