In 2013, there is a new, harsher tax landscape for high-income taxpayers. The top rates on ordinary income, capital gains, and qualified dividends are higher than in 2012. There are new phase-outs for itemized deductions and personal exemptions that limit write-offs for these taxpayers. And there are additional Medicare taxes on earned income and net investment income. All of these changes combine to make tax planning more challenging than ever. One of the ways to sidestep some or all of these changes, at least temporarily, is to defer income. Here are some ways to do it.
Deferred Compensation
Executives, top management, and other key personnel may be permitted to defer compensation (e.g., year-end bonuses) to a future year. As long as the deferral arrangement is a nonqualified deferred compensation (NQDC) plan that satisfies tax rules (Code Sec. 409A), the deferred compensation is not subject to income tax in the year in which it is earned; it is taxed when received. Usually this is not until retirement or some later event.
