Have a Tax Question? Ask a Tax Expert
Hello JA Customer,
It is somewhat confusing as to why the agreement would state that this compensation becomes taxable when the agreement is signed, as that is not what dictates taxable compensation. Compensation that you receive is always taxable in the year that it is paid to you. If the organization does not actually cut you a check until January 4, 2011, then the money would be taxable in 2011 ... and not in 2010 when you presumably sign this agreement. You are not liable for paying taxes on income until the year you actually receive that income. So first of all, I would suggest that you clarify with the organization just exactly why that statement is in that agreement, and ask them just how they think that would work?
When the organization makes this payment to you, they will issue you a W-2 form to report the payment made. The W-2 form cannot be issued except in the year the payment is actually made to you. So they could not issue you a W-2 form in 2010 if they do not make this payment until 2011. They really need to clarify that statement, as it is not correct.
Secondly, there is no way to defer your tax liability or to even spread it out over a number of years. The only thing you could request is that the organization pay you part of the payment in 2010 and part of it in 2011. That would at least spread out your tax liability over a two year period and perhaps help to keep you in a lower tax bracket each of those years, rather than having the full amount paid to you all in one year.
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Thank you JA Customer