Keeping the Tax Grinch Away from Your Holiday Bonus
If you are lucky enough to receive an end of year, holiday bonus you may want to consider your options and potential tax consequences of receives such a bonus. With all the spending that comes with the holidays, why wouldn’t you want to get your hands on any extra money right away?
First, it pays to be aware of the income tax brackets. If you are on the cusp of a higher income tax bracket and the bonus will push your income over that limit, deferring your receipt of the bonus until the following year may be the best choice and could prevent any unfortunate surprises come April. This impact is even more helpful if the amount of income (that would have exceeded the 2019 threshold) is less than the following year’s, inflation adjusted tax brackets. Basically, you would defer the payment and remain in a lower tax bracket, possibly saving a great deal more on income taxes than received from the bonus.
Second, consider savings. Holiday bonuses can be put into retirement plans to help limit income tax burdens. In 2019, you can place up to $19,000 in your 401(k) plan, and an additional $6,000 if you’re over 50 years of age.
For more information on how to help save on taxes this year end, please contact the Tax Planning professionals at The Center for Financial, Legal and Tax Planning at (618) 997-3436.