Year-End Tax-Saving Move: Time Your Bonuses
Here in the United States, it’s Thanksgiving. I hope all readers are able to spend time with their family or friends. I’m still in California visiting my relatives and enjoying a relaxing vacation. Well, it’s relaxing in some sense. I’ve actually been working hard at moving some of my major websites, like pfblogs.org and the MoneyBlogNetwork (and its forums) to new hardware.
I’m also managing to find time for blogging. Here is the next year-end tax saving move from CNN Money. The writers suggest timing your bonuses and investment gains in the year that will be most beneficial when looking at your taxes.
Generally speaking, if you’re in a high tax bracket it may reduce your tax bite if you postpone some income to next year. That’s because the income ranges that apply to each tax bracket go up with inflation annually, so more of your income will be taxed in 2008 at lower rates.
If you’re like me, then you don’t have a choice regarding the timing of your bonus. My 2007 bonus will be included in my paycheck around the first week of March 2008. As I understand it, most people receive their bonuses towards the end of the year.
The article also includes advice for taking large distributions from retirement plans. These distributions, if large enough, can move the recipient from one tax bracket up to another. If you can take part of a distribution in one year and postpone the other part, then you are diversifying your tax exposure, at least for one year.
CNN also mentions that it make more sense to take more income this year than next year, particularly if you think you’ll be in a low income bracket next year.
f you’re planning to sell some appreciated stocks or funds and you have a good chance of being in the 10 percent or 15 percent tax bracket next year if you take more income this year, you’ll enjoy a 0 percent capital gains and dividend rate in 2008.