Lottery winnings, a large bonus from your job, an inheritance from a relative, or earnings from a big investment…each of these windfalls are amazing for your wallet  when they come, but you do want to make sure that you think about potential tax implications.

 

A windfall can put you in a higher tax bracket, or can push you past the Alternative Minimum Tax threshold so that you are no longer able to take helpful deductions.

At the very least, you need to be ready to pay a chunk of your windfall in taxes directly to the IRS.

Here are some basic tips to help minimize the tax burden and maximize that windfall!

 Invest in Your Retirement

Of course, you may want to do something fun and exciting with a portion of the extra money that has come in, but one way to mitigate some of the tax implications is to also put some of this money into your retirement.

Currently, you can contribute to a maximum of $17,500 to your 401K and $5,500 to your IRA. If you invest that in your future, some of that extra money will be protected.

Make Charitable Contributions

Another way to minimize the impact of a windfall on your tax situation is to use some of the extra cash to support your favorite charity.

You can claim a tax deduction for any/all charitable contributions that you make for the year. You can even set up what is called a donor advised fund, which allows you to set up regular contributions to your favorite charity.

Set Aside Money for Your Taxes

Whether you decide to pay some of the taxes you think you will owe, go ahead and pay your estimated taxes, property taxes or pay any back taxes that you may owe. Getting ahead with the IRS is not a bad idea, and can save you in interest and penalties down the road.

Purchase Items You Can Deduct Later

Another way to protect a bit of the money that you received is to go ahead and purchase business or personal items that will be tax deductible. You could upgrade your computer or buy other office supplies. One other idea is to put additional money in your health care spending account if it rolls over to the following year.

Get in Touch With a Tax Professional

A windfall is a great problem to have, but the fact is that you do need to spend time planning how best to use it so that you are not surprised come tax day that you owe a huge chunk of it to the IRS. Getting help from a tax firm can help with this process and can help you look ahead and anticipate how this will impact your bottom line.

Success Tax Relief Will Help You Plan for Your Windfall

Success Tax Relief can review your tax situation and give you specific advice about how your windfall will impact your taxes this year. Our experienced team can offer options that you can use to protect some of this money and help determine just how much you will owe the IRS. Give us a call today at 1-877-825-1179.