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Permalink Reply by Steven Kacerski on July 30, 2012 at 3:00am

You could max out your 401k and possibly contribute to an IRA, depending on your total income. This assumes you have W-2 income or other earned income.  There are other ways to minimize some of the tax burden.  It just depends on your overall tax situation.  I'm a CPA and have been working with various landowner helping them minimize the tax consequences.

The rich don't have secret tax deductions. They have people who know how to structure deals to take advantage of lower capital gains rates and maximize deductions/credits that are available in the tax code. 

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Permalink Reply by Kriste Sayel on August 4, 2012 at 4:35am

if only it had been capital gains income... this poor hick has no tax attorney or CPA, had to figure it out myself. Was told by others how foolish I was not to have stuffed the max contribution into an IRA, was told by a financial advisor at what used to be AIG that such income was a "windfall" and therefore not subject to income tax (?) but apparently he lives in another version of reality. In my version of reality, it was taxed fully, and was the biggest damn check I have ever written. 

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Permalink Reply by Daniel Riemenschneider CPA on August 2, 2012 at 10:05am

I am a CPA.  My first recommendation: if you have significant income from bonus or royalties, pay a good CPA with experience with oil & gas income to take care of you.

Bonus payments are taxed at ordinary rates (top rate is 35% for married joint - about $380,000 in taxable income (after itemized deductions and exemptions)).  The State of Ohio top tax rate is nearly 6% for those making more than $200,000.  Obamacare kicks in next year with an additional 3.8% medicare tax on unearned income.  Tax rates for 2013 are scheduled to increase from a top rate of 35% to 39.6% plus 3.8% = 43.4%.  In 2013, the 10% bracket goes away for lower income individuals (lowest rate will be 15%).  Inspite of what you hear everyone benefited from the "Bush" tax cuts. 

Royalties are taxed the same as bonus payments but with a 15% depletion deduction (Dems are trying to repeal this to take away tax breaks from BIG OIL - little oil (you) too).

 

Max deferrals into your 401(k).

 

Estimated taxes - you can pay 100% or 110% of prior year taxes depending on income or 90% of current year liability to avoid penalty.  Your withholding from paychecks count toward the total.  So if you owed $10,000 in taxes before withholding and estimates for 2011 and your payroll withholdings for 2012 will be $12,000, no estimated taxes are due.  If you get a million dollar bonus payment, plan on paying Uncle Sam, Ohio and City about 45% of that on April 15, 2013.  If you get nothing from O&G in 2013 you would need to have $10,000 paid in assuming income is similar to 2011.  Hire a good CPA.

 

The myth conveyed by media and dems of "the rich do not pay taxes", is not true.  Warren Buffet may pay taxes on his dividends of 15% on his personal return, but his corporations paid tax at 35%, so the federal government is taking 50% of the income earned by Mr Buffet.  If "Bush" tax cuts expire in 2013 the rate would be 78.4% on the earnings of his companies.  Hopefully the government believes that may be enough.

 

Anyone with a unique scheme to pay no taxes or at capital gains rates on bonus payments and royalties maybe simply taking your money and leaving you to answer to the government.

 

Hire a good CPA and thank God for your good fortune.

 

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Permalink Reply by Angela Smith on August 2, 2012 at 10:43am

Daniel,

Good advice, thanks.  The tax rates for 2013 will revert back to before "Bush tax cuts" percentages only if congress does nothing - which is certainly possible given their prior actions - but it is not a given.  Also on the Obamacare surtax, is the 3.8% applied to the lesser of the excess of your MAGI over the $250,000 married joint filing, etc. or your net unearned income? 

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Permalink Reply by Steven Kacerski on August 3, 2012 at 1:59am

The surtax is assessed on the lesser of net investment income or the excess of MAGI over the threshold amount. 

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Permalink Reply by jason smith on August 2, 2012 at 6:52pm

Good advice Daniel , I hope this class warfare ends this November with a new president ...

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Permalink Reply by Justmeinpa on August 3, 2012 at 12:38am

No offense to everyone giving advise here, but you need to simply go to an accountant or tax prep office like HR Block.  Everyone is very helpful in offering advice, and it is always much appreciated, but when it comes to money, go to the experts.  We put our sign on bonus in the bank and didn't spend a penny until we spoke to our tax preparer.  Once we started receiving royalties, my first call was to our tax preparer and we had a two minute conversation and received expert advice.  It's worth any money that you pay them in my opinion because they are in the know.

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