sunil wrote:

- quote -

It is not clear from your post whether or not your employer
offers a retirement plan (either defined benefit pension or
income deferral (401K)), but if they do you could have saved
on income taxes by contributing to the plan. Too late for
2005 now, as the contribution or deferral has to occur by
the end of the calendar year.

If you are not covered by such a plan, you could contribute
to a deductible traditional IRA (up to $4,000 if under age
50) for 2005. You have until April 17 to open and fund the
account for 2005. That will defer the income taxes until
such time (in retirement) that you withdraw the funds. The
bonus is treated as additional wage income in the year paid,
so there is no way to avoid the SS and Medicare taxes
withheld.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

During 2005 I got a bonus from my employer for some X
dollars (lets say for sake of argument 20000). Since I didnt
have any retirement plan at that time and wasnt aware of
concept of tax shelters, this was taxed immediately, and
what I got was much less than the actual bonus (lets say
X/2). Now the question is I have heard people say I could
have saved had I moved some of this money to tax shelter.
But what I dont get it is anyhow this increased the total
amount of tax I paid to IRS by some amount and so I do get
some of that money back when I file my fed. tax 1040 for
2005. Is there any other advantage of transferring this
lumpsome amount to a tax shelter? The actual tax witheld was
federal, state, medicare, social sec, etc.... Could I have
avoided any of these taxes in a legal manner if say I am
enrolled in some retirement plan? If so how? I currently
dont invest......

Thanks a ton,
Sun.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >