How can you avoid paying taxes on a large sum of money? (2023)

How can you avoid paying taxes on a large sum of money?

Research the taxes you might owe to the IRS on any sum you receive as a windfall. You can lower a sizeable amount of your taxable income in a number of different ways. Fund an IRA or an HSA to help lower your annual tax bill. Consider selling your stocks at a loss to lower your tax liability.

You may be able to defer tax on all or part of a lump-sum distribution by requesting the payer to directly roll over the taxable portion into an individual retirement arrangement (IRA) or to an eligible retirement plan.

If you want to avoid a large tax bill, you may need to change your withholding. Changes in your life, such as marriage, divorce, working a second job, running a side business or receiving any other income without withholding can affect the amount of tax you owe.

What closing the 'carried interest loophole' means for the Senate climate bill The "carried interest loophole" allows hedge fund managers to tax their income at a lower rate than an ordinary salary. The provision is unpopular — yet it has survived many attempts to eliminate it.

Social Security generally is tax-free if it's your only source of income. But if you have other income — for example, from a part-time job, a taxable pension or investment earnings — you could owe federal tax at your ordinary income tax rate on up to 85% of your federal government retirement benefits.

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Where is the safest place to put a large sum of money?

Key Takeaways. Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts. Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance.

Money market account

If you want a safe place to park extra cash that offers a higher yield than a traditional checking or savings account, consider a money market account.

In 2021, for example, the minimum for single filing status if under age 65 is $12,550. If your income is below that threshold, you generally do not need to file a federal tax return.

Bonuses are taxed heavily because of what's called "supplemental income." Although all of your earned dollars are equal at tax time, when bonuses are issued, they're considered supplemental income by the IRS and held to a higher withholding rate. It's probably that withholding you're noticing on a shrunken bonus check.

Most taxpayers won't ever pay gift tax because the IRS allows you to gift up to $12.06 million (as of 2022) over your lifetime without having to pay gift tax. This is the lifetime gift tax exemption, and it's up from $11.7 million in 2021.