HOW TO REDUCE TAXES ON SEPARATION PAYMENT
Losing your means of livelihood unexpectedly is clearly bad news for everyone, especially given the expensive costs of living nowadays. Fortunately, companies now offer what is known as severance package, which are benefits given to an employee as he exits the workplace. It comes in many forms, such as an addition to regular salary, and compensation for unused leaves. This sum of cash will allow you to finance your daily needs and prevent debts from mounting, plus can give you time to have training as you look for a new job. However, many are not familiar that this money is also subject to taxes. Fortunately, there are several ways you can offset these so as not to burden your pockets further.
Fund your retirement account
If you want to lessen your taxes on your severance fee, allocate some of it to a tax-deferred account like an IRA. The maximum contribution is $5,500, and those over 50 years of age may put as much as $1,000. According to a financial planner, the best move for this is to give the highest possible amount to take advantage of the opportunity.
Include health care expenditures
If you possess a high deductible insurance plan, set aside a chunk of the cash you will be getting from work for your HSA. This is a reliable measure to gear up for future expenses if you want to put the funds other than for retirement.
Diversify your payout
A simplified way to slash you separation fee taxes is to have them given to you in two different years. Spreading out the money is beneficial since it will help you avoid facing the whole totality of your taxes in a single year, which could highly impact how much you owe.
Start an educational plan
If you want to support one of your relatives in terms of education, you can open a 529 account, which makes you eligible for deductions because of your contribution. However, it is necessary that you understand the rules that apply here carefully to determine the limits wherein your investments don't count as a gift.
Donate to a donor advised fund
This is an uncommon yet good way to cut down your severance tax because it enables you to support an organization of your choice as well. It also enables you to obtain a benefit while having the ability to interfere with how the foundation collects the money.
Obviously, the amount you will be getting upon leaving your job counts as a gift coupled with a an important financial decision. The first time you learn you will be receiving one, consult an expert, even though your feel sure about where you want to use it, just to give you the best ideas.
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