Jonny Jonson is a financial advisor at Compound who specializes in helping high earners navigate complex financial decisions, including career transitions, family planning, and major life changes.

You Just Got a Six-Figure Tax Bill. Here's What to Do Next.

So, you got your tax bill, and it’s much higher than you expected. 

It happens, even to people who think they did everything right: maxed out their 401(k), updated W4s, paid estimated taxes. 

But they may not have had a tax strategy for planning ahead. 

Consider the example of an employee working at a private company and had options expiring, who then got hit with a six-figure tax bill. They probably had no idea why the bill was so large, through no fault of their own. They likely had more questions than answers. Is it because I need to exercise? Is my withholding too low?

When you’ve built a strategic plan around your equity with your advisor, taxes should never be a surprise. In this case,  the individual option exercise triggered withholding at 22% vs. their 37% marginal bracket. That gap between what was withheld and what was actually owed ran into the tens of thousands.

By tracking estimated tax payments alongside equity events throughout the year, the bill becomes a number you planned for — not one that blindsides you in April.

You can't undo this year. But understanding why you got that huge bill is the first step to making sure next year looks different. 

When your tax bill is a surprise: You're left scrambling to figure out why, and reacting instead of planning.

When your tax bill’s expected: Your advisor told you in Q4 the bill was coming in around $80,000. You weren't panicked. You had time to plan. That's the difference.

Taxes are actually a good problem to have — they mean you're making money. The goal is just to make sure you're not surprised by what you owe.

Key takeaways: 
• A surprise tax bill is often due to underplanning. The most common causes — RSU underwithholding, outdated W-4s, ISO exercises without paying AMT, underwithholding/not withholding after a tender sale — are predictable. With the right strategy, they can be preventable.
• Identify what you can and can't control around your taxes. RSU income is taxed as ordinary income when it vests — that's fixed. And the IRS sets the supplemental withholding rate, not you. But you can control estimated tax payments, retirement contribution choices, when you sell equity, and how you offset gains.
• Proactive advisors turn tax season from an unexpected shock to a predictable event. High earners who don’t get blindsided share their pay stubs quarterly, loop in their advisor before vesting events, and communicate before major financial moves. 

Why the Surprise Tax Bill Happens

High earners often have supplemental income, and withholding isn’t always set up to account for that. That's the root cause behind most surprise bills. Supplemental income — RSUs, bonuses, commissions — is withheld at a flat rate that doesn't account for your actual tax bracket. The higher your total comp, the more that mismatch adds up.

The reasons are usually income-related (like supplemental withholding, variable income, or payroll not keeping up with your situation), investment-related (gains or distributions, with no withholding built in), or life event-related (changes that shift your tax picture in ways you didn't anticipate).

Reasons you might end up with an unexpectedly large tax bill

Income-related

• A job change or midyear raise leaves your withholding too low for the rest of the year
• Large commission payout or bonus in a single year
• Self-employment income with no withholding built in
• Deferred compensation vesting in a single year, pushing more income into one tax year than expected
• Uneven quarterly income from business ownership or partnerships leading to underpayment penalties (if estimated payments aren't made)
• Your W4 hasn’t been updated for withholding, probably since you were hired

‍Investment-related

• Crypto gains, especially across multiple wallets with no consolidated reporting
• Selling a rental property with significant appreciation
• Mutual fund capital gains distributions (even if you didn't sell anything)
• Large Roth conversions triggering unexpected taxable income
• You have pre-tax dollars in a traditional IRA and attempted a backdoor Roth — the pro-rata rule made most of the conversion taxable
• You sold a concentrated position without accounting for short vs. long-term treatment, or losses to offset
• Your ISO exercises have no withholding at all, so you may be hit with AMT
• Your NSO exercises are withheld at a flat 22%, but your marginal rate may be significantly higher
• Your RSUs are similarly withheld at a flat 22% despite your marginal rate — that difference adds up on every vest

Life event-related
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• Spouse returning to work after a gap (two incomes pushing into a higher combined bracket with neither W-4 accounting for it)
• K-1 income from partnerships or private funds (no withholding, and the K-1’s timing can make estimated payments hard to plan)
• Marriage changes your income, but the SALT cap is the same for single and joint filers (people call it a “marriage penalty”)

The good news: most of the variables that drive your tax bill are ones you can actually do something about. Once you know what's in your control, you and your advisor can build a plan.

A 3-Step Framework for High Earners Who’ve Faced a Big Tax Bill

Now that the bill’s come, you can diagnose why it happened and understand your options for the future. Then, you can take the decided-upon steps so you're not caught off guard next season.

Unfortunately, it’s often too late to fix a bill that’s already arrived; but if you got a surprise bill once, you can get a surprise bill again (and it could be for a totally different reason). So it’s important that you know why your bill spiked to get ahead of it next year.

Step 1: Understand Why It Happened 

Start with last year's tax return to trace the bill to its source. When you look at your total compensation breakdown — base, bonus, and stock — you can see exactly where the underwithholding started. 

Specifically, take a look at Line 4C on your W-4. That’s the catch-all for extra withholding per paycheck. Most people leave it blank on day one and never look at it again. Your advisor can help you calculate the right number.

What RSU withholding actually means
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Imagine you have $700,000 in total compensation, and $400,000 of it is in stock. Your marginal tax bracket is 37%. 

But your RSUs will be withheld at 22% — a 15% difference on every vest. 

$400,000 x 15% = $60,000 owed at filing

The same applies to bonuses and commissions — supplemental income is withheld at 22%, regardless of your bracket.

There's a chance your tax bill was high because of: 

• A Roth conversion that triggered unexpected taxable income 
• Forgetting to update a W4 after a raise or after your spouse changes jobs
• Underestimating quarterly payments (for self-employment or distributions)
• ISO exercises: there's no withholding at all at exercise, and depending on the spread between your exercise price and the stock's fair market value, you may owe Alternative Minimum Tax. 
• RSU withholding is also a common reason for a bigger tax bill, and affects high earners at publicly traded companies with equity compensation.

For example: Some employees who went through Anthropic’s first tender event sold NSOs and could see six-figure tax bills they don’t see coming. Those who worked with an experienced advisor ahead of time may have been able to pair the NSO sale with ISO exercises — a strategy that can offset AMT exposure from exercising ISOs.

Step 2: Run the 4-Variable Assessment

Let’s say you and your coworker each owe $60,000 in taxes. The way that bill affects each of you will look completely different depending on your income, equity mix, cash position, and goals. 

You can determine how to plan next by thinking about four variables:

1. Liquidity: How much does this bill hurt given your liquid position? Someone with $2M in Anthropic stock and $50,000 in cash has a very different problem than someone with $2M in a diversified brokerage account.

2. Cash: Can you pay the bill from cash on hand, or is your wealth tied up in illiquid or concentrated assets? A $60,000 bill hits differently when your only option is selling company stock, or other assets, to pay it.

3. Taxes: What caused it, and what's actually changeable for next year? 

4. Concentration: Is this a tax problem, or a sign that you're overly concentrated in company stock and haven't started diversifying? For those with recurring annual vesting, the two are often connected.
Once you know where you stand based on these factors, you know which levers are available to you.

Step 3: Pull the Levers You Can Control

For my clients navigating complex income — equity, consulting, real estate — I start with last year's tax return and look for signals. Signals might include a Schedule C, Schedule D,  Schedule E, or employer benefits not fully maxed. Each one points to a potential lever. These are three that tend to come up often.

Doubling up on retirement plans

Say you have a W-2 job and a consulting side hustle, so you have a Schedule C on your return. A lot of your self-employment is getting taxed at full rates, with nowhere to shelter it. 

Because you have two separate income streams, you can layer employer contributions on top of your single employee deferral. Your $24,500 employee deferral, your employer match, and profit sharing through a solo 401(K) for the consulting business all count toward that total. 

Depending on your consulting income, you could contribute $72,500 or more in a single year and significantly reduce your taxable income. 

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Unlocking suspended rental losses

Say you've been renting out a property for years, accumulating passive losses the whole time — and because rental income is treated as passive activity by the IRS, those losses were suspended and couldn't offset your regular income.

When you have a large liquidity event, coordinating the sale of the rental can unlock suspended losses — in one case, $120K — and offset the liquidity event's taxable gains. Rental and equity events are more connected than most people realize. Timing them together can turn a dormant tax asset into real savings.

Tapping donor-advised funds (DAFs) and concentrated stock

If you're already planning to give to charity, donating cash every year is the standard approach — but it's rarely the most tax-efficient one.

You could bunch five years of giving — say, $250K — into a single DAF contribution funded with concentrated stock instead of cash. No capital gains. And you get the full deduction in the year of contribution. Plus, you don’t have to make the donations all at once — you decide when and where the money goes. The tax savings don’t come from giving more, but from giving smarter.

Taking Control of Your Tax Situation 

The strategies above are examples. What's available to you depends on your specific situation, but the underlying logic is the same: know what's fixed and know what you can move. 

What you can't control:

• RSUs vesting (it’s treated as ordinary income, which means it’s taxable when it hits — there’s no way around it)
• Bracket math — your marginal rate is determined by your total income, and at high comp levels it's likely 37%
• Supplemental withholding (the IRS sets it at 22% for the first million in supplemental income, and most companies can't change that for most of their employees)

What you can control:

• Making estimated tax payments
• Whether your 401(k) contributions are pre-tax or Roth — one reduces your taxable income now, the other one doesn’t now (but does later)
• When you sell equity (short-term vs. long-term treatment) 
• Whether you have losses in your portfolio that offset your gains
• Structuring charitable giving (cash vs. appreciated stock, bunched vs. annual)
• Keeping track of your estimated tax liability throughout the year, not just at filing time

These variables are manageable, but only if someone is actively watching them throughout the year.

Your advisor has the full picture. They see everything that affects your tax bill throughout the year, not just what shows up on your W-2 at filing time. We work with you throughout the year so you're better positioned going into tax season.

Here’s how that looks in practice:

Example 1: In one case, paying $40,000 in taxes to exit a capped annuity allowed the assets to be redeployed into a strategy aligned with their long-term growth targets.

The other benefit of being proactive: the strategies build on each other over time.

Example 2: In another case, an individual was facing retirement with significant pre-tax assets. By running Roth conversions in low-income years, before required minimum distributions kicked in, their projected lifetime tax liability dropped substantially.

At Compound, we track your tax exposure in real time so you know what to expect well before your bill arrives. At the end of the year, we'll either handle your taxes directly or give your CPA exactly what they need: what you earned, what was withheld, what estimated payments were made, and any major transactions from the year.

From Blindsided By the Bill to Controlling Outcomes

Every high earner with complex finances should have a tax plan in place long before their tax bill arrives. Sometimes, getting that surprise tax bill is the reminder, for better or for worse. And it’s always better having a plan, and knowing what to expect. It’s the difference between being told “dinner is ready right now” and “dinner will be ready in 30 minutes.” One catches you off guard. The other gives you time to prepare. 

The high earners who stop getting surprised are sharing their pay stubs with their advisor quarterly. They loop in their advisor before  exercising options, a real estate sale, major life event, or a Roth conversion. One client even checked in before approving a home improvement project.

The sooner we talk about taxes, the more I can do for you. Reach out and we’ll start a conversation. 

You can also see your full financial picture in one place.

FAQs

Why did I get such a large tax bill if my employer was withholding taxes from my paycheck?

Your employer's withholding is probably not keeping pace with your actual tax liability. RSUs and bonuses are withheld at a flat 22% supplemental rate, but if your total compensation puts you in the 37% marginal bracket, that's a 15% difference on every dollar of equity or bonus income.

Is there anything I can do to lower my tax bill?

You can make estimated tax payments throughout the year, maximize pre-tax retirement contributions, time when you sell equity, harvest losses to offset gains, and give through a DAF using appreciated stock instead of cash.

How do I make sure I'm not blindsided by a big tax bill again next year?

The most important step is working with a financial advisor proactively — not just at tax time. When your advisor has full visibility into your finances throughout the year, they can build a strategy that keeps you ahead of surprises before they happen.