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FIRM CLOSING AND GIVING YEAR END BONUS - HOW CAN I LOWER MY TAX BILL?

Santa Rosa, CA |

my firm is closing but will be giving out year end bonus. They are being extremely generous and i should be receiving about $200k as a bonus. This will definitely put me in the highest tax bracket. Is there a way, I put the money in 401? My firm used to provide profit sharing plan but that will not be available on this check. I just want to try and avoid paying so much taxes on this bonus. I have a few weeks left and need to know what steps to take. I want to try and reduce my agi as possible? Should I try and become of a small business partner (coffee shop) before year end to lower my taxes?

Attorney Answers 3


  1. I've shared your question with Avvo's tax law forum, where your question may be seen by more attorneys who practice in this area of the law.

    Becoming a business partner involves far more than an initial investment. There are likely on-going obligations, depending on how the partnership is structured. You also lose control of how the investment is handled. In this economy, investing in a small business can be extremely risky. Food service is particularly vulnerable to the economy. Look how many established restaurants have closed in your community over recent years, or changed their menus for the worse.

    The company may agree to pay you in two pieces if you ask – half in 2012 and half in 2013 – but it probably wants the tax advantage of paying it all to you in 2012. It may be willing to pay into a structured fund.

    Your best option is to consult with a tax professional who can review your overall tax liability for the year; this piece of income gets added into the rest of your income so an overall strategy makes sense. There is enough money at stake to warrant spending $2000 or so to speak with someone who can give you some meaningful guidance based on your circumstances and your needs.

    *** All legal actions have time limits, called statutes of limitation. If you miss the deadline for filing your claim, you will lose the opportunity to pursue your case. Please consult with an experienced employment attorney as soon as possible to better preserve your rights. *** Marilynn Mika Spencer provides information on Avvo as a service to the public, primarily when general information may be of assistance. Avvo is not an appropriate forum for an in-depth response or a detailed analysis. These comments are for information only and should not be considered legal advice. Legal advice must pertain to specific, detailed facts. No attorney-client relationship is created based on this information exchange. *** Marilynn Mika Spencer is licensed to practice law before all state and federal courts in California, and can appear before administrative agencies throughout the country. She is eligible to represent clients in other states on a pro hac vice basis. ***


  2. It all depends on what other sources of income and or potential investments decisions you have available. If you would like to speak further please give me a call 714-943-2336,


  3. Save your money in attempting to consult with tax counsel. This is earned income to you and you must pay taxes on it. As it is earned income from employment you cannot set up a Keogh plan. If your employer does not have a profit sharing plan and you are maxed out of your 401(k) you have no recourse there. Becoming a small business partner would not generate any year end deductions. The usual year end planning of accelerating deductions into the current year and deferring other income may make sense but my sense is that this may not result in signficant change in your tax posture. Take the money as what it is a pure bonus and move on as you have very little options here. Just one dumb tax attorney's opinion.

    LEGAL DISCLAIMER Mr. Fromm is licensed to practice law throughout the state of PA with offices in Philadelphia and Montgomery Counties. He is authorized to handle IRS matters throughout the United States. His phone number is 215-735-2336 or his email address is sjfpc@comcast.net , his website is www.sjfpc.com. and his blog is <http://frommtaxes.wordpress.com/> Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received. By using this site you understand and agree that there is no attorney client relationship or confidentiality between you and the attorney responding. This site should not be used as a substitute for competent legal advice from a licensed attorney that practices in the subject area in your jurisdiction, who is familiar with your specific facts and all of the circumstances and with whom you have an attorney client relationship. The law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question or omitted from the question. Circular 230 Disclaimer - Any information in this comment may not be used to eliminate or reduce penalties by the IRS or any other governmental agency.

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