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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: oldtoyota on October 21, 2014, 02:27:20 PM

Title: What to Do With Large Chunk of Income All at Once?
Post by: oldtoyota on October 21, 2014, 02:27:20 PM
I think we're going to earn a chunk of income all at once. It's not an inheritance.

It'll be subject to tax, of course. What do I need to look at in order to shelter this legally from taxes as much as possible?

Do I just need to speak with an accountant?

This will definitely shorten my time to FI!!

Title: Re: What to Do With Large Chunk of Income All at Once?
Post by: frugalnacho on October 21, 2014, 02:35:28 PM
(http://teacherstraining.com.au/wp-content/uploads/2012/05/waste-money.png)
Title: Re: What to Do With Large Chunk of Income All at Once?
Post by: Cheddar Stacker on October 21, 2014, 02:57:24 PM
Is it earned income, capital gains, other? If earned, is it self employed or wages?
Title: Re: What to Do With Large Chunk of Income All at Once?
Post by: oldtoyota on October 21, 2014, 03:43:00 PM
Is it earned income, capital gains, other? If earned, is it self employed or wages?

Good question. It would count as self-employed.
Title: Re: What to Do With Large Chunk of Income All at Once?
Post by: KS on October 21, 2014, 04:24:22 PM
Step 1:  Quit your Horrible Soul-Sucking Job!!!!! 


+1! :)
Title: Re: What to Do With Large Chunk of Income All at Once?
Post by: oldtoyota on October 21, 2014, 06:08:30 PM
Step 1:  Quit your Horrible Soul-Sucking Job!!!!! 

Step 2:  If it really is possible to treat it as self-employment income, look into setting up SEP-IRAs for yourself and spouse -- if I understand how those work, you should be able to shelter up to 104k that way (52k each).  A meeting with a good tax planner would be worth the investment. 

Step 3:  Enjoy FIREd or semi-FIREd life for awhile.  If you feel you must work, hold out for a job that won't make you miserable.  Working a couple of extra years in a job that isn't sucking the life out of you is smarter than continuing to push yourself and dying at your desk of a heart attack or stroke.

Hope this works out for you....

Haha. I know. I am SO HAPPY. This news could NOT come at a better time.

Also, I was invited to have a conference call up until 10 pm. No, thanks! I ignored that offer. LOL. And I keep reading the email and laughing. I guess I am crazy after all! LOL

Title: Re: What to Do With Large Chunk of Income All at Once?
Post by: Cheddar Stacker on October 21, 2014, 06:20:40 PM
Is it earned income, capital gains, other? If earned, is it self employed or wages?

Good question. It would count as self-employed.

lhamo is on the right track, particularly with regards to sheltering the taxable income with step 2. First you need to consider expenses because you are only taxed on the net income. So start tracking everything and read through schedule c and its' instructions. Can you defer some of the income into 2015 to spread it between two years? A sep-ira is a good step-read the rules on that and keough, and simple ira. They are all different but will help defer some of this.  A solo 401k could also be good but might be limited if you've already maxed out work plans.

The SE income will either be attached to you, your husband, or both and this is important. If it's all yours, your husband can't use it to max a sep ira for him, only you can. In any case, there are only a few circumstances where you can defer more than $52k for one person in a year between all the different tax deferral vehicles. The easiest exception is to be over 50 years old.

Congrats on the windfall, and please send me a PM if you need to. I still owe you one OT.
Title: Re: What to Do With Large Chunk of Income All at Once?
Post by: scottish on October 22, 2014, 03:54:31 PM
Quote
Also, I was invited to have a conference call up until 10 pm. No, thanks! I ignored that offer. LOL. And I keep reading the email and laughing.

I love it.   I've somehow learned to do that will many types of ridiculous e-mails at work.   They used to get me all stressed out.