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Lump Sum Advice

Old 09-02-2015, 07:02 PM
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So...long story short; I am due a lump sum payout at the end of this year as part of an employment agreement. Although I have looked forward to this payout for a while, the reality is now setting in that I am going to be hit with an extreme amount of taxes.
The payout is $750k and will be administered through payroll which of course will mean a very heavy tax. Any advice as to effectively reduce the hit on taxes or how to best reinvest the balance to regain the tax hit?
I have my 'guy' looking at this but would appreciate any advice / comments from the THT brain trust as I have seen some pretty solid advice thus far on this site.
Thanks!
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Old 09-02-2015, 07:08 PM
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1st world problems..lol

Wish I could help.
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Old 09-02-2015, 07:27 PM
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What company did you run into the ground? J/k
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Old 09-02-2015, 07:53 PM
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Not sure about the tax piece. Need to get with your accountant on that one. However, on the reinvestment side I would dollar cost average the funds into the market to mitigate risk. Obviously, taking a diversified investment approach also serves to protect the downside. Good luck with your investment.
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Old 09-02-2015, 07:55 PM
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hookers and blow.
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Old 09-02-2015, 07:59 PM
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Hire an accountant. It will cost you ,but probably not as much as trying to figure out what is best on your own. You have to decide before you talk to an accountant what you will be more comfortable with in the long run.
Don't go investing in something that could cause you to loose your money. Do you want peace of mind or do you want to try to make more money is what you have to decide and then the accountant can work for you.
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Old 09-02-2015, 08:04 PM
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No advice on how to minimize the tax - that's for a tax attorney and/or advisor.

BUT... I strongly advise you to pay the taxes - whatever they are - immediately, i.e. do not wait until the end of the year.

I've been in your shoes - made a big lump sum, got a tax estimate, segregated that amount and thought I'd get all smart and cute and "invest" it to make a return off the six figure amount I owed Uncle Sam.

A few issues with that: 1) I didn't make that much off the money, 2) It was a "thing" hanging over my head all year - a debt I owed, and 3) Having that "extra" six figures in my control led me to feel - however irrationally - richer than I actually was, which I learned can be a dangerous thing.

I would have been MUCH better off paying it and being done with it.
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Old 09-02-2015, 08:08 PM
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ah , the bad news , is that you need to decide how to take the money, before you sign the agreement.

If as you said, it is on a paycheck, it is ordinary income, and that's hard to tax shelter, as you have no basis or expenses to deduct against it, no ongoing enterprise to depreciate it against.

If however, you had had a business that lost money every year ( on paper anyway ), you could be accumulating losses for a couple years and lowering the sting of the tax bite.
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Old 09-02-2015, 08:27 PM
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I'll be surprised if you have any options to get out of the tax liability. Your effective overall tax rate will be around 36%. If you DO figure a way out of it... let us know.

The good news, if you HAVE any deductions you can accelerate...take them this year but the truth is it'll be a trivial difference compared to the pill you'll have to swallow on the tax bill.

To paraphrase what an accountant told me one year - Enjoy your $500k, it's better than $400k.
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Old 09-03-2015, 03:04 AM
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Since it's coming through payroll, how much of it can you have payroll put directly into a 401k plan? It doesn't avoid taxes, but it defers them.
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Old 09-03-2015, 03:24 AM
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i need a new job..
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Old 09-03-2015, 04:00 AM
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wish i had me a golden parachute
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Old 09-03-2015, 04:02 AM
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Are you charitably inclined? If you are, you might consider funding a donor advised fund this year. If your tax bracket will be lower in the future, this would allow you to bunch future deductions in the current year.

I also assume you have already maxed out your retirement plan contributions.

Do you have a side business that generates income? If so, be sure you have a SEP or other plan there to maximize the deduction and deferral.

With the higher income, your itemized deductions will be more limited than in the past. You need to run the numbers to determine whether this advice fits your situation.
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Old 09-03-2015, 04:24 AM
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Originally Posted by Alureing View Post
i need a new job..
Me too
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Old 09-03-2015, 04:42 AM
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You are going to pay dearly for that success.
Assuming your regular income is $200k or more, that additional $750k will be taxed as ordinary income at 39.6% federal + Medicare at 2.35% and any state income taxes; and at close to $1m in income your tax deductions will be virtually zeroed out (you will still get $17,000 in 401k contributions and any charitable contributions, but that is about it) by the claw back rules, so your withholding on your regular salary, if it wasn't at least 30% federal will be low and you will owe even more at year's end.
Hope you enjoy the government bend-over as much as the rest of us who don't pay our fair share of taxes.
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Old 09-03-2015, 05:14 AM
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Keep in mine the estimated taxes you will
have to pay on next years return.
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Old 09-03-2015, 05:28 AM
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And the 3.8% Federal Medicare surtax you'll be paying on all your unearned income.
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Old 09-03-2015, 05:33 AM
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Originally Posted by LI32 View Post
You are going to pay dearly for that success.
Assuming your regular income is $200k or more, that additional $750k will be taxed as ordinary income at 39.6% federal + Medicare at 2.35% and any state income taxes; and at close to $1m in income your tax deductions will be virtually zeroed out (you will still get $17,000 in 401k contributions and any charitable contributions, but that is about it) by the claw back rules, so your withholding on your regular salary, if it wasn't at least 30% federal will be low and you will owe even more at year's end.
Hope you enjoy the government bend-over as much as the rest of us who don't pay our fair share of taxes.
Exactly correct.
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Old 09-03-2015, 05:38 AM
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Welcome to ridiculous tax rates, the good thing is the government will spend your money wisely. Agree with a previous statement, this should have been looked at when the agreement was signed. Tax planning is done in the beginning not when you file.

On another good note, they are not taxing you anywhere near as much as they're spending. Depending on where you live and your income, with state taxes you could be looking at close to a 50% tax hit.
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Old 09-03-2015, 05:41 AM
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Originally Posted by B_EDWARDS View Post
So...long story short; I am due a lump sum payout at the end of this year as part of an employment agreement. Although I have looked forward to this payout for a while, the reality is now setting in that I am going to be hit with an extreme amount of taxes.
The payout is $750k and will be administered through payroll which of course will mean a very heavy tax. Any advice as to effectively reduce the hit on taxes or how to best reinvest the balance to regain the tax hit?
I have my 'guy' looking at this but would appreciate any advice / comments from the THT brain trust as I have seen some pretty solid advice thus far on this site.
Thanks!
You said "end of year" can you them to cut two checks, one in 2015 and another a day later in 2016?
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