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Strategic Way to take Bonus to minimize Taxes?

Posted: Wed Oct 09, 2019 10:25 pm
by Lucky2Invest
Hi everyone. I’m a contractor (single member llc)for a large, not quite Fortune500 company. I have worked there for 10 years and make a salary. 3 years ago they started a bonus program to offer additional incentive. They have deferred the bonus for 3 years until I tell them how I want to receive it. The 3 years have added up to quite a bit of money(mid 6 figures) and I don’t want to put it off anymore as I don’t want to risk it any longer. Is there a strategic way to take this bonus to minimize taxes?

Unfortunately they cant offer company stock. I’m very close with the VP and believe they would honor any request as long as it’s obviously legal. I could ask them to just add it to my next years salary but then I’m losing half to taxes. Is there anything I can do to get the money in the next year or two at the lowest possible tax hit?

Re: Strategic Way to take Bonus to minimize Taxes?

Posted: Wed Oct 09, 2019 10:28 pm
by Sandi_k
Can you ask for a 100% match for 2019 and 2020 in the 401(k), and then max it out?

And then get the remaining 50% by Dec 31 2019, and the next 50% in January 2020?

Re: Strategic Way to take Bonus to minimize Taxes?

Posted: Wed Oct 09, 2019 10:31 pm
by HomeStretch
Are you an employee with a workplace 401k or an independent contractor with a Solo 401k?

You could spread it over two years if it lowers your marginal tax rate - 1/2 this year and 1/2 in January. Don’t wait too long for significant money owed to you just because of taxes. Thing can happen with businesses and their ability to pay. You are also losing out on potential investment returns.

Re: Strategic Way to take Bonus to minimize Taxes?

Posted: Wed Oct 09, 2019 10:44 pm
by MathIsMyWayr
Sandi_k wrote:
Wed Oct 09, 2019 10:28 pm
Can you ask for a 100% match for 2019 and 2020 in the 401(k), and then max it out?

And then get the remaining 50% by Dec 31 2019, and the next 50% in January 2020?
Isn't the company bound by its 401(k) plan for match?

Re: Strategic Way to take Bonus to minimize Taxes?

Posted: Wed Oct 09, 2019 10:45 pm
by Lucky2Invest
I’m an independent contractor with a solo 401k. They won’t match my contributions. I’m already maxing my Solo401k. I’m a contractor so not offered the companies 401k

Re: Strategic Way to take Bonus to minimize Taxes?

Posted: Thu Oct 10, 2019 12:03 am
by FiveK
Lucky2Invest wrote:
Wed Oct 09, 2019 10:25 pm
Hi everyone. I’m a contractor (single member llc)for a large, not quite Fortune500 company. I have worked there for 10 years and make a salary.
...
Is there anything I can do to get the money in the next year or two at the lowest possible tax hit?
Lucky2Invest wrote:
Wed Oct 09, 2019 10:45 pm
I’m an independent contractor with a solo 401k. ... I’m a contractor so not offered the companies 401k
Seems debatable whether you should be classified as an employee or a contractor, but that's a different question.

Splitting the money 50% this year and 50% next might reduce the marginal rate you'll pay - have you looked at that?

Splitting it 1/3 for this and the next two years might reduce the marginal rate more, but your "don’t want to risk it any longer" concern comes into play.