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Guys, I (and many others) lost my job on September 30th due to a workforce reduction. So, I worked 75% of the year, and was paid regular income during that time. I did 401k deductions, etc as usual with that income. I was not given enough notice to front-load the 401k and HSA at a higher rate before being told to GTFO.
So, they gave us separation pay, (payable this Friday) (but they did it lump-sum like a BONUS). Which means they skimmed off a total of 36.9% of taxes from that pay! (25% bonus rate, both SS deductions, and state taxes). They refused to take out deductions for the 401k, and my HSA and such on this pay, ("you are no longer an employee, so don't qualify at that point", blah, blah) so I had NO way to shelter even a dime of it before the huge tax wipe-out.
So, 3/4's of the year regular income, + 1 year basic pay for severance + pay for unused vacation. Add's up to nearly double my normal income for this year.
Are there some ways to shelter some of this separation income, so when I file taxes for this year I get a lot of it back? I'm age 57, and we are talking around $65k needing to be sheltered. The tax bite on this was just short of $24k off the top! I file married filing jointly.
I do have a Roth IRA, but that's after tax, and I haven't made any contributions to this so far this year. Can I also open a regular IRA, and dump $6,500 into that? I could put more into my HSA, but since it's no longer from regular income, that would probably now be after-tax, and can't be deducted? If so, no help there.
Then, I can always pay my property taxes by the end of the year, and get a little shelter there (about $2,200.)
Not much you can do.
If you have no capital gains and have investment losses you could sell enough securities to give you a 3,000 loss which will reduce regular income.
Consider making next years charitable contributions this year.
If you are big on charitable contributions you could go to a mutual fund or brokerage company and set up a trust that you contribute too this year and direct the contributions to charities in future years. I think Fidelity has one so start looking there.
If you start a business you can deduct (instead of depreciate) some of the capital equipment.
You can still contribute to HSA to the max, and it is tax deductible (assuming you are in HDHP). You report it on line 25 of your tax return, and you will lower your income by the amount you contribute. Just find out how to fund your account from your regular checking account (I'm assuming it was withheld from your paycheck by your employer previously).
A couple of things, what the withheld isn't necessarily equal to your tax obligation so it's possible you could be getting some of that back. Additionally you will owe income tax on any unemployment you receive and you should be eligible Monday if you are being paid out in a lump sum Friday. If you itemize your taxes you can make your January mortgage payment in later December, you could prepay some of your 2017 property taxes in December in addition to your 2016 property taxes
A couple of things, what they withheld isn't necessarily equal to your tax obligation so it's possible you could be getting some of that back. Additionally you will owe income tax on any unemployment you receive and you should be eligible Monday if you are being paid out in a lump sum Friday. If you itemize your taxes you can make your January mortgage payment in later December, you could prepay some of your 2017 property taxes in December in addition to your 2016 property taxes
My rough calculations on what we'll actually owe on Federal taxes, compared to what they withheld for the year on my regular salary plus separation pay, shows we'd be getting back around a $6k~ refund if I do nothing more to shelter anything. Fully funding a new IRA and my HSA would up that refund some.
So you want to 'shelter' or deduct all of it? I don't see that happening. I'd be pleased with enough to either stay out of the next tax bracket up -- or stay as LOW into that next bracket as possible.
So let's do the math…
How much are we talking about with the various options at what your doubled income level will be this year?
-- HSA -- what's the max on that (you were already contributing so at most were talking about topping out that amount)
-- Roth IRA is after tax -- so nothing there
-- TRAD IRA -- is this year's double income in the phase out brackets? -- so what's the amount you can contribute
-- NEXT year's real estate taxes -- how much is that?
-- JANUARY's mortgage payment (the INTEREST) -- how much is that?
What's that total far? 10K, 15K?
-- You COULD make a charitable contribution -- BUT that's not dollar for dollar so you're still out some of that money. And donations are truly "elective." Various taxes and interest you'd have to pay anyway so you might as well get them in this year if you can. Charitable donations -- not so much. If I lost my job, at least for this year I WOULD BE MY OWN charity until I knew how things would pan out. So charities would get nothing from me this year.
But that's just me.
So you want to 'shelter' or deduct all of it? I don't see that happening. I'd be pleased with enough to either stay out of the next tax bracket up -- or stay as LOW into that next bracket as possible.
So let's do the math…
How much are we talking about with the various options at what your doubled income level will be this year?
-- HSA -- what's the max on that (you were already contributing so at most were talking about topping out that amount)
-- Roth IRA is after tax -- so nothing there
-- TRAD IRA -- is this year's double income in the phase out brackets? -- so what's the amount you can contribute
-- NEXT year's real estate taxes -- how much is that?
-- JANUARY's mortgage payment (the INTEREST) -- how much is that?
What's that total far? 10K, 15K?
-- You COULD make a charitable contribution -- BUT that's not dollar for dollar so you're still out some of that money. And donations are truly "elective." Various taxes and interest you'd have to pay anyway so you might as well get them in this year if you can. Charitable donations -- not so much. If I lost my job, at least for this year I WOULD BE MY OWN charity until I knew how things would pan out. So charities would get nothing from me this year.
But that's just me.
I want to get back as large of a refund as I legally can, yet keep my hands on what separation pay I already have after they took out the 36.9% off the top. Adjusted income before below possible deductions should be about: $92k
HSA = $4750.00 left that I can still contribute (I'm over 55, and it's a family plan)
Trad IRA = $6,500.00 I WAS in a 401k plan for 3/4's of the year, but no longer can contribute to it since I've been let go.
Next years RE taxes = $2,200
January mortgage interest = ~$285.00
You can still contribute to HSA to the max, and it is tax deductible (assuming you are in HDHP). You report it on line 25 of your tax return, and you will lower your income by the amount you contribute. Just find out how to fund your account from your regular checking account (I'm assuming it was withheld from your paycheck by your employer previously).
Nope, not that simple.
You can ONLY contribute to the full length of the HSA if you are enrolled in a HDHP for all 12 months of the year. The only exception to this occurs if you enroll in an HSA for that year and maintain eligibility for the next calendar year "the testing period."
So if OP enrolls in Cobra for his HDHP, or if he finds another employer with an HDHP HSA and enrolls in that, AND maintains the eligibility for all of next year, then he can contribute the max. Otherwise, he is subjected to overpayment penalties.
OP, don't contribute to your HSA until you know the situation. Overfunding your HSA can be a PITA to take care, as I was in that situation last year.
Honestly, there isn't much you can do at this point.
Trad IRA contributions if you are not over the income limit.
Prepay what taxes next year you can do for this year - for staggering itemized deductions.
Anything else that falls under itemized deductions.
You can ONLY contribute to the full length of the HSA if you are enrolled in a HDHP for all 12 months of the year. The only exception to this occurs if you enroll in an HSA for that year and maintain eligibility for the next calendar year "the testing period."
So if OP enrolls in Cobra for his HDHP, or if he finds another employer with an HDHP HSA and enrolls in that, AND maintains the eligibility for all of next year, then he can contribute the max. Otherwise, he is subjected to overpayment penalties.
OP, don't contribute to your HSA until you know the situation. Overfunding your HSA can be a PITA to take care, as I was in that situation last year.
Honestly, there isn't much you can do at this point.
Trad IRA contributions if you are not over the income limit.
Prepay what taxes next year you can do for this year - for staggering itemized deductions.
Anything else that falls under itemized deductions.
I was "retiree-separated" (one of the "lucky ones" since I made my FINAL retirement point by TWO WEEKS before getting told I'm one of the first batch out the door). So, I get continuing fully paid regular HDHP medical (my former company self-insures, but it's administered by Blue Cross/Blue Shield) for a full year after separation (part of the normal separation deal). Then, I go on the retiree medical plan, which is also an HDHP, and which is subsidized 80%~ by my former employer as one of the retiree perks. No Cobra for me.
So, I'm sure I still qualify for my regular HSA, at least for the next year. I contributed $2k to that under the cafeteria plan at work, and the company contributed $1k. So, I would think I can still put $4750 into it for the year. I think the $1k the company put in also counts against the yearly amount I can put in? (age 57, family plan)
I was "retiree-separated" (one of the "lucky ones" since I made my FINAL retirement point by TWO WEEKS before getting told I'm one of the first batch out the door). So, I get continuing fully paid regular HDHP medical (my former company self-insures, but it's administered by Blue Cross/Blue Shield) for a full year after separation (part of the normal separation deal). Then, I go on the retiree medical plan, which is also an HDHP, and which is subsidized 80%~ by my former employer as one of the retiree perks. No Cobra for me.
So, I'm sure I still qualify for my regular HSA, at least for the next year. I contributed $2k to that under the cafeteria plan at work, and the company contributed $1k. So, I would think I can still put $4750 into it for the year. I think the $1k the company put in also counts against the yearly amount I can put in? (age 57, family plan)
Good to hear. Yes, the company match reduces what you can put in.
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