Can I avoid the tax man on this one?

I am trying to avoid paying taxes on a monetary bonus. Can anyone tell me if there is a way to avoid paying taxes on this money? (gift to spouse, etc). Thank you in advance for any information.

Leaam,

Put the entire bonus into your 401k plan...That would defer the tax.

Give the entire bonus to charity and itemize your deductions.

The bonus is earnings. As such it will show in your W-2 box 1 and will be taxed accordingly.

i assume you are talking about income taxes on the distribution. if you cant avoid these; of course, there are ways to avoid (defer and exempt) future taxes on the growth of what you get to keep. lets assume if this is what you want, it will be discussed as a separate topic.

if you are looking at immediate tax avoidance, the BIG question is whether you have already received it. if you have ALREADY received it, then the answer is no. income received (even if not technically paid in 2007) will be taxed for 2007.

what you can do for THIS year is speak with your employer and determine if they have a deferred compensation program of some nature. while you "earn" the money in a given year, they can put it aside (in an interest bearing account situation) where it continues to grow until you take some future distribution of it.

while this can be an extremely valuable option, several pros and cons exist as well.

something to think about.

lets say you have a 100K bonus coming. is it better to take the 70K you get AFTER taxes and invest it now at 10% in a taxable future account or to keep the 100K in the deferred account growing at 6%. remember, when you take distributions later (normally) it will be taxed at normal income rate. if you are in the 30% tax rate today but you are in a higher tax bracket later (lets say the government raises you to the 40% bracket by the time distribution begins) then you could end up with having less by deferring.

this legislative risk and opportunity cost needs to be factored for several different potentialities.

on a personal note, while i have deferrment opportunities, i have personally opted for taking it in present value today with known tax implications. of course, what is right for me is not right for all.

let us know where you go from here.