How can I avoid increasing my taxable earned income?

Question

I have a full time job. I want to do some commercial voice-over work on weekends. The weekend work will not be for an employer, but it will still generate income. How can I keep this extra income from putting me into a higher tax bracket? (I've already maxed out my 401k)

Answer 1

Remember that taxes are levied on a percentage of what you earn... If you earn an extra $1,000 and the government takes $250 of that you still have a net gain of $750. Some people are so intent on not paying taxes that they spend more than the taxes would have cost them. Example: Your tax preparation fee is deductible... just pay your CPA $40,000 for preparing your taxes. He'll be happy, and if all you want to do is save taxes then you will be happy too...

My point, look for ways to further your economic position by using the tax code to minimize taxes... but don't get so wrapped up on what you are paying in taxes that you forget that you are still keeping more of your money than you are paying in tax... usually :-)

Depending upon your income tax bracket you may save taxes by incorporating the side business. But that opens up a whole different "can of worms..."

Answer 2

If you take on the side job, it's taxable income - no way around that. Since it would be as an independent contractor, you could subtract any allowable associated expenses, and would only pay tax on the net. But you'd pay income tax, and also self-employment tax on the side job.

If the additional net income takes you into the next bracket, then part of the additional income would be taxed at the rate for the higher bracket.

Answer 3

You can establish a SEP IRA (SEP is "Simplified Employee Pension Plan). Your income level will not disqualify you from making deductible contributions.

As a self-employed person, you can contribute basically 20% of your net income (there are some technical adjustments) and deduct the full amount. You can establish one through a brokerage or mutual fund company. More information is in IRS Publication 560.

http://www.irs.gov/pub/irs-pdf/p560.pdf

If you are married and your spouse does not have a retirement plan (perhaps does not work), then you can establish a spousal traditional IRA and deduct the full amount (if your income is below $160K).

Do you have a high deductible health insurance policy? If not, you might look into whether one will meet your needs. If you have a high deductible policy, contributions to a Health Savings Account will be deductible as a adjustment to income. This deduction is available to you whether or not you are self-employed and is not limited by your income.

Answer 4

No one in Europe earns less than 3000 yuan a month - the state in Britain gives unemployed people more than this per month and free housing. You need to be earning 6000 yuan (£600) a month in the UK before you pay any tax. You also get free heath care if you work or don't work. If you are a child with cancer in China what happens? 我住在上海 （闵行区） the price of bread is about the same really since bread isn't a Chinese staple, many other things are cheaper in China, but if you have cancer and are and average person here you can expect to die a very bad death. My father had a quadruple heart bypass operation in Britain and didn't pay 1 yuan. China is a wonderful country - it is completely safe to walk the streets and the people are generous and kind. I just wish something could be done about the health system as it seems to be the one point of weakness. I agree with you - the average income of the people of China is currently the same as that of Mexico, but China has none of the problems of Mexico - there are no death squads, and no drug problems and no real poverty. I have great hopes for China, and I don‘t think the West views China fairly at all on the whole (most westerners still think of China in Maoist terms, but when you live here it's a better life than Britain - and China has a huge cultural heritage which is very strong). I don;t wan;t to be negative about China, but it's best to face reality so it can be dealt with scientifically (China has more science graduates than the US now, so every problem has a solution). But the one thing I hear Chinese people complaining about is the health system. If you are ill it can destroy a whole family. I saw a TV program today about a child with leukemia - he needed 30万 yuan for a bone marrow transplant. His family couldn‘t earn that in their lifetime, so 没办法。

Answer 5

The high tax rate only applies to ADDITIONAL income, not the income below the new bracket cutoff.
For example, if you are single and and have a taxable income of $31,849.99 ($0.01 dollar under the 25% bracket), your tax is $4386.25. If your taxable income is $40,000, your tax is $6,423.75. The difference in income is $8,150. The difference in tax is $2,037.50 or 25% of the increase in income.the first $31,850 is taxed at the same rate as before. You still keep 75% of every additional dollar earned.

Answer 6

If your income is low enough to make deductible contributions to a traditional IRA, dump the funds there. You'll still have to pay the self-employment tax (at 15.3%) on the net income even if you dump it all into an IRA. Once you exceed $4,000 in IRA contributions ($5,000 if 50 or over) you won't be able to do that any more and will have to start paying income tax on it.

Answer 7

By making more money, it is impossible to come out behind. Having to pay taxes because your income is high is not a bad problem to have. Make as much as possible and don't look back. Thinking about the tax consequences first is putting the cart before the horse.

Make quarterly estimated payments if needed but always make as much as possible!!

Answer 8

Open a Roth 401k, they have more limits
Also, charities is good way to get rid of it.

But I would suggest keep the money, moving into a higher tax bracket means that only the money that put you in the higher tax bracket is taxed at that rate, so really its not too much to worry about.

Answer 9

Do the side work under a business or trade name and then you can have business deductions you may also qualify to open a retirement account under the seperate business name and with the right account you can put up to 200k a year in your retirement account..