Minimizing Taxes on a Bonus

A bonus motivates employees to work harder, and it contributes toward the job satisfaction required to give their best. But, with a bonus comes the stress of income taxes. Yes, the bonus is also a fully taxable amount. For this reason, people should learn the strategies of managing their bonus and using it properly. Also, the good news is that there are ways to reduce or avoid the bonus tax rate altogether. In this article, we will look at the top 5 easy tips to minimize taxes on bonuses. So, let’s get started -

1. Donations and Charity – One of the best ways to save taxes is to contribute money in the form of a charitable contribution or donation for a good cause. But one should never forget to donate only to a recognized organization. Even if you donate to a non-governmental organization, you will receive a 60% deduction on your taxes. It is recommended to look up the IRS’ list of organizations that are eligible to receive tax-free donations.
2. Retirement Contribution – A retirement contribution is efficient if you want to save taxes on your bonus or minimize them. You can reduce your gross income with a contribution to a tax-deferred retirement account. This would be an Individual Retirement Account (IRA). You can contribute a particular amount to the retirement account, and it will reduce your taxable income. Your contribution is subject to a limitation that keeps changing every year.
   
3. Health Insurance – You can contribute to health saving accounts (HSA) to reduce your gross income by the contributed amount. This should be done when a high-deductible health plan covers you. It is one of the best tax-management strategies because you can withdraw from your HSA to pay for qualified medical expenses.
4. Defer Compensation – You can ask the employer to delay the bonus until a later date. Some of the common forms of deferred compensation are retirement, pension, and stock option plans. Figuring out the best time to get a bonus will be helpful to you. Taxes on bonuses are deferred until it is paid out.
5. Request a non-financial Bonus – This is the last and best idea for saving taxes on your bonus. If possible, you can ask your employer for a non-financial bonus. However, you should know that not all non-financial bonuses are tax-free.

                    

The bottom line

Basically, there are seven Federal income tax rates. The tax bracket you fall into depends on your regular income. However, there are chances that the bonus of an employee may affect their tax bracket. Also, a serious concern is how much will the bonus be taxed? So people should know that even if the bonus is taxed, the rate may not be so high. As final words, these tax-saving tips can help you save some money on your bonus’ tax.

Sponsor Ads

• Ad Space Available - Rent it Now!

Report this Page

Created on Jul 20th 2021 02:44. Viewed 169 times.

Share on APSense

Comments