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USTaxAdvising, CPA
Category: Tax
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Experience:  US Taxation specialist.
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A large one-time performance bonus from my company is going

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A large one-time performance bonus from my company is going to take me to maximum federal and state (California) tax levels this year (2013 income). Apart from 401K and charitable donations, what are my options to reduce taxes. I am open to making 401K type (tax saving) investments. Also, anything that I can prepay (healthcare HSA type stuff) or gift to my kids or gift to my parents.

If there is a legal way for my employer to reduce my taxation, they may be willing to do it.

I do not have stock losses. I do not have a business with losses either. Deferred compensation is not an option.

I am open to weird stuff like oil/gas investments too.


Thank you for using justanswer. I can assist you with your questions today.


Congrats on reaching the highest tax bracket! Smile


Gifting will not reduce your taxable income it will only reduce your net worth which would help you when you pass away so that your estate is not subject to taxation.


An HSA is an excellent option but remember that you must be covered by a high deductible health plan "HDHP" in order to be eligible for the HSA. (minimum annual deductible is $2,400) For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. If you have family HDHP coverage you can contribute up to $6,450. These amounts are the maximum amounts available for deduction.


Oil and gas partnerships are not my preference but they are not subject to the passive activity loss rules so long as you are a royalty owner. They provide three good deductions from ordinary income: (1) Percentage depletion allowance which is the using up of a natural resource by drilling, mining, quarrying or felling, (2)Bonus and Royalty Deductions such as transportation, compression, processing and marketing costs and (3) Working Interest deductions such as drilling and development costs.


Purchase a vacation or second home with a mortgage. For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, Condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. You can deduct the interest on schedule A which will reduce your taxable income.


You will also want to accelerate any qualifying deductions like state taxes. If you know that you are going to have to pay state taxes come April 15 of 2014 then it is best to make that state tax payment in 2013 and get a federal tax deduction for it.


I hope this helps. Please let me know if you have any further questions.


Best regards,

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