I have accepted a retirement buy out from my company and am looking for the best action to take in effort to retain the largest portion legally possible. I live in the state of Maryland and will obviously be subject to the highest tax rate both on the federal and state level. My buy out is around $390,000, brining my 2011 gross income to just over $400,000 (my buy out is effective 01 February 2011).
I have pondered different strategies to retain as much after tax income a possible, but am still unsure as to what my best route should be. I have inquired with my mortgage company regarding prepaying all of the remaining interest (approx. $200,000) and taking the mortgage interest deduction in 2011. While this seems viable, is it even able to be done?
I also have considered forming a consulting company to work in my current field. While there is plenty of opportunity to do just that, what would my ability to invest a large portion of my 2011 income in a start up business and take a deduction the same year? Is there a limit to the amount of start up business deductions? I also assume I would be able to start a Keogh Plan and maximize my contribution.
I am already maxing out my allowable 401k contribution and am not eligible to take an IRA contribution deduction do to income level. Are there any other alternative suggestions as to the steps I should take to obtain the best possible outcome?
Mon Nov 08, 2010 8:00 pm
coaster Senior Advisor
Cash: $ 1626.30
Joined: 11 Oct 2005
There's no limit to the start-up expenses of a new business, providing they're all legitimate expenses. Durable equipment needs to be amortized, though; you can't deduct the entire cost in one year. The access to self-employed retirement plans seems to me to be worth looking into. There are several kinds of qualified plans. I used to be in the biz, but honestly, it was so long ago and there've been so many changes I really can't offer advice or opinion on that.
The prepaid interest doesn't sound like a good idea to me. And it seems so obvious that very likely it raises a red flag for an audit.
If you want to do some research on the IRS website, I came up with quite a few hits on "severance pay", "separation pay", "voluntary separation incentive"; there might be something in there relevant to your case. It's not likely you're the first.