Being Downsized

[Ehud]

Client is receiving a buyout due to a corporate downsizing. The buyout is a lump sum cash payment equal to 12 months salary. He already has another job lined up. So in 2007 he will receive roughly 2 years pay. This will bump him from the 25% bracket into the 33. He is wondering what he can do to soften the tax blow.

The 401k will be maxed out. The income will be too high for a non working spouse ira deduction. I told him he can take up to $3000 capital loss if he has any bad stock market investments that he was considering dumping otherwise there wasn't much available other than the regular deductions.

I know there isn't a lot of options, but I'm sure there's a couple of things I'm just not thinking of. Any suggestions?

[Brad Imsdahl]

Its a good year to make a charitable contribution. The Katrina disaster area is still a long way off from being re-built.

[Koss]

Softening the blow...

Someone once said:

"The only thing worse than paying income tax is not having any income on which to pay it."

Soooo....

Your client could decline the buyout. Then he wouldn't have to pay tax on it.



Burton

[RJM]

If the TP does charitable contributions each year, maybe arrange with his church or other charity to do 3 years' worth of contributions this year, and none the following years. With a little luck for the church he would still make contributions in 08 and 09 anyway. -Bob