I'm currently a W-2 employee making over $150k a year and I already pay plenty of income tax even though I live in a state that doesn't have an income tax. I have a profit share with my company. The company is being sold and part of the sale agreement is a buyout of my profit share. The buyout is worth $500k and will be paid out over a 2 year period in addition to my salary. I will continue to work in my current capacity and the buyout is guaranteed even if they decide to let me go after the sale.

Is there any way I can avoid giving half of the buyout to the IRS? Should I be looking into forming a corporation and having the buyout paid towards it?

I'm quite clueless when it comes to these things. Any advice is appreciated.

  • 1
    Is the buyout being paid to you as W2 income? – quid Mar 14 '17 at 0:05
  • I believe I still have a chance to negotiate the buyout portion. My continued salary will definitely be W2. – user1843094 Mar 14 '17 at 0:12
  • What do you mean by a profit share? Do you actually own a share of the company, or options, or any other kind of paper, or were you simply promised a share of the sale at some time in the past? – DJClayworth Mar 14 '17 at 0:29
  • Think of it as phantom stock. I get paid a percentage of the net profits but no, I don't actually own a share of the company. It was promised. – user1843094 Mar 14 '17 at 0:32
  • 2
    An actual promise might be considered an option, which is a legal entity worth something. The point is that if you were given a promise that promise might be worth something. The something should have been taxed, but taxing it in an earlier year might reduce your total tax. In any case, I think a tax accountant would be a good idea. – DJClayworth Mar 14 '17 at 1:56

Seek the advice of a professional. The taxes on $500,000 are going to be enough that an accountant is going to be worth it and any shelters you think up, when discovered and determined to be illegal, are going to cost you a lot in penalties.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.