Consider contributions to a non-qualified deferred compensation plan, if available through your employer. These plans can be used to defer wages to a later year, therefore reducing your current taxable income.

Specific Details

As an employee of XYZ Inc, you earn a wage of $70,000 and a year-end bonus of $10,000. Your employer offers a non-qualified deferred compensation plan. You elect to defer your year end bonus through this plan to a later year, therefore, deferring the tax on the $10,000.

Potential Savings

If you are in a combined (federal and state) tax bracket of 35%, you could reduce your taxes up to $350 for every $1,000 of wages that you defer.