This year I got an unusually large bonus (around 35% of salary) while I normally get around 10-15%. Is there any way I can smoothen the tax bite?
- I already max 401-K, have a employer retirement plan and am not eligible for IRAs based on household income.
- This is 2006 bonus, paid in 2007. So the delay a year option is already utilized.
Can I invest the excess money in any investment that would help me defer taxes a la 401-K or classic IRA (I don't know...some government bonds? 529? investing in business? buying a bigger home?)
Thanks in advance.
2007-02-26 08:55:32 · 4 answers · asked by Harry 3 in Business & Finance ➔ Taxes ➔ United States
BTW, I will be increasing my charitable contributions significantly, may be contributing the next years share as well...
2007-02-26 09:01:49 · update #1
I'm guessing from the tone of your post that you're looking for ways to reduce your taxable income for 2007. It's just not that easy to do. What I've always told my clients is "don't let the tax tail wag the dog", meaning that you shouldn't make investment/spending decisions solely on the notion that you want to pay less tax in the current year.
That said, you may want to consider an immediate income annuity or something like that. I'm not a huge fan of annuities because most are a rip-off (fees are way too high). If I were you, I'd do some research through Money, Smart Money or Kiplinger's Personal Finance to read up on what types of annuities can add value to your portfolio.
2007-02-26 09:12:06 · answer #1 · answered by SuzeY 5 · 2⤊ 0⤋
There's really not a lot you can do that you haven't already done. Only the 529 would possibly attract a deduction, and maybe an MSA. Munis might generate tax-free income but you won't get a deduction for them.
Annuities blow; I'd avoid them like the plague. Don't fall into the trap of spending a wad to save $2 in tax! Look at your TOTAL financial situation, NOT just the tax bite! The tax consequences of any financial decision should be factored in but they should NEVER be the sole determining factor!
Don't forget to adjust your withholdings as needed to cover the additional tax, especially if the bonus will kick you above the 25% tax bracket.
2007-02-26 09:12:25 · answer #2 · answered by Bostonian In MO 7 · 2⤊ 0⤋
Decline the bonus.
Be thankful that you receive a large bonus. Most people don't.
2007-02-26 09:12:51 · answer #3 · answered by Wayne Z 7 · 1⤊ 1⤋
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2015-02-09 15:01:51 · answer #4 · answered by Judi 1 · 0⤊ 0⤋