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

Asked almost 2 years ago - 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. Marilynn Mika Spencer

    Contributor Level 20

    9

    Lawyers agree

    Answered . 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... more
  2. Samuel R Walker

    Pro

    Contributor Level 10

    6

    Lawyers agree

    Answered . 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. Steven J. Fromm

    Contributor Level 20

    5

    Lawyers agree

    Answered . 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... more

Can't find what you're looking for? Ask a Lawyer

Get free answers from experienced attorneys.

 

Ask now

24,299 answers this week

3,209 attorneys answering

Ask a Lawyer

Get answers from top-rated lawyers.

  • It's FREE
  • It's easy
  • It's anonymous

24,299 answers this week

3,209 attorneys answering