Deferred Compensation Isn’t Just for Pro Athletes and CEOs…
Editor’s Note: Deferred compensation is a common practice with pro athletes and CEOs. Well, almost all of them. Let’s dig into the the mystery of deferred compensation plans…
Many of us have deferred compensation plans. You know them as pension plans, 401Ks, and IRAs. These plans allow you to save money for retirement and save taxes on your current return. But, many celebrities, pro athletes, CEOs and corporate executives have supercharged deferred compensation plans – and they can allow these high earners to defer millions of dollars from taxation.
An employee, side-hustler, or self-employed person – like you and I – can participate a pension plan, if offered, and defer up to $19,000 a year in income (taxes on the income too). If you do not have access to a pension plan, you can set up an IRA and defer up to $5,500 a year. Self-employed people can set up their own retirement plans and defer up to $55,000 a year (yes, one of the benefits of being self-employed).
However, high earners can get a benefit that you and I don’t get- the non-qualified deferred compensation plan or “NQDC.” Here the amount of income to be deferred is much more.
So if you are watching the super bowl this weekend – watch Tom Brady – he receives a salary in the millions each year – can participate in his pension plan and defer $18,000 a year. His wife Gisele can also participate in her pension plan, but he can structure his contract to get more income differed to the future….
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The first step in how to calculate long-term capital gains tax is generally to find the difference between what you paid for your property and how much you sold it for —adjusting for commissions or fees. Depending on your income level, your capital gain will be taxed federally at either 0%, 15% or 20%.
Find out more about the specific identification cost basis method to identify shares sold. Get tax answers at H&R Block.