3a:["$","$L3b",null,{"category":"$3c","relatedArticles":[{"id":"cG9zdDoyODE0NjQ=","databaseId":281464,"postId":281464,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/3b02fac7ed4b968df109a1571de56eef337973ae16dead35422edea7ab805eb9?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1668,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNg==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":{"pageInfo":{"offsetPagination":{"total":149,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-planning","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$3d","date":"2025-04-03T13:55:38","excerpt":"

Bonuses paid by employers get special tax treatment and could have a significant impact on an employee’s tax situation. In the United States, bonuses are typically considered supplemental wages, which means they are subject to different withholding rules than regular income. There are two ways bonuses can be taxed: the percentage method or the aggregate […]

\n","featuredImage":{"id":"cG9zdDoyODM5MTE=","databaseId":283911,"altText":"An employee researching how bonuses are taxed.","date":"2025-04-03T13:49:46","fileSize":132737,"mimeType":"image/jpeg","modified":"2025-04-03T13:53:28","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2025/04/iStock-1503241483-2.jpg","__typename":"MediaItem"},"modified":{"datetime":"2025-4-3","readable":"April 3, 2025","readableExtended":"April 3, 2025, 1:55pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/45e9da41857bacf2d253783adac5d9d20d9dbe4758f7c9712c3759bcec7a34aa?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":822,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDU=","databaseId":145,"userId":145,"avatar":{"url":"https://secure.gravatar.com/avatar/3b2b3fa6f157bff764312158d4d40fbb2be22a6c4ff0c89da29f64f387591d4a?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Michele is a practicing Certified Public Accountant with more than 20 years of experience. 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He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. 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","

A financial advisor can help you understand how bonus income will affect your overall tax liability and recommend strategies to manage it effectively.

","

What Qualifies as a Bonus?

","

Employee bonuses are additional financial rewards given to employees on top of their regular salary. These bonuses can serve as incentives to boost productivity, reward exceptional performance, celebrate company milestones and generally keep employees motivated and aligned with the company’s goals.

","

Companies may offer several types of bonuses, including:

","

Performance bonuses are awarded based on an employee’s achievements or the company’s overall success.
Signing bonuses are often used to attract top talent in competitive industries.
Retention bonuses may be offered to encourage employees to stay with a company during critical periods.
Holiday bonuses are sometimes given as a gesture of goodwill during the festive season.

","

No matter what the purpose or type of the bonus, when it is paid out, the recipient will face tax consequences. Taxes due can include federal and state income tax as well as unemployment tax and FICA withholding for Social Security and Medicare.

","

Ways a Bonus Might Be Taxed

","

Any taxes due on a bonus will typically be withheld by the employer, reducing the take-home dollar value of the bonus. Bonuses are typically considered supplemental income by the IRS, which means they are subject to different withholding rules than regular wages. The method used to calculate the withholding can significantly impact the amount of withholding.

","

There are two primary methods for taxing bonuses: the percentage method and the aggregate method. Each has its own implications, and knowing the difference can help you anticipate your net bonus amount.

","

The percentage method is used when a bonus is paid separately from the regular paycheck. It can lead to a higher initial tax withholding rate (22% up to $1 million, then 37%), which may be more than your usual income tax rate. However, the actual tax you owe on your bonus will depend on your total income for the year and your tax bracket.

","

The aggregate method involves including your bonus to your most recent regular paycheck and calculating the withholding based on the total amount. This method can also result in a higher withholding rate, especially if your bonus pushes your total earnings into a higher tax bracket temporarily.

","

Employers might use the aggregate method if they issue bonuses alongside regular paychecks. For employees, this could mean a larger chunk of your bonus is withheld, potentially leading to a smaller immediate payout. However, any excess withholding could be refunded when you file your tax return.

","

Exemptions From the Bonus Tax

","

","

One of the most common ways to avoid the bonus tax involves employer-sponsored retirement plans. Contributions to plans like a 401(k) can often be made with pre-tax dollars, effectively reducing the taxable portion of your bonus. This not only lowers your immediate tax liability but also helps you save for the future. So, if your employer offers a retirement plan, consider whether directing a portion of your bonus to it can help you to take advantage of this exemption.

","

Another way to reduce the tax burden on your bonus is through contributions to a health savings account (HSA). If you are enrolled in a high-deductible health plan, you can contribute a portion of your bonus to an HSA, which offers tax-free growth and withdrawals for qualified medical expenses. This can be a strategic way to manage healthcare costs while minimizing your tax liability.

","

You should note, however, that both 401(k) and HSA contributions are subject to annual limits. For 2025, you can contribute up to $23,500 to a 401(k) plan. If you’re age 50 or older, you may add another $7,500 as a catch-up contribution. Additionally, individuals between ages 60 and 63 may qualify for a special catch-up contribution of $11,250. And, if you contribute to an HSA, the limit is $4,300 for individuals ($8,550 for families).

","

Making charitable contributions is a third way to reduce the taxable amount of your bonus. Donations to qualified charitable organizations may be deducted from your taxable income if you itemize deductions, thereby lowering your overall tax bill. This can benefit you financially while supporting causes that you care about.

","

Tips for Reducing the Tax Impact of Your Bonus

","

If you’re looking ways to lower taxes on your bonus, here are three general tips that could help:

","$54","

Bottom Line

","

","

In 2025, most bonuses are treated as supplemental income and taxed by the IRS at a flat 22% rate. The final tax you owe may be higher or lower depending on your total income and tax bracket. Bonuses are also subject to Social Security and Medicare taxes, which reduce the amount you take home. Because tax rules can change, you should keep up with current laws to better manage your finances.

","

Tax Planning Tips

","$55","

Photo credit: ©iStock.com/shapecharge, ©iStock.com/insta_photos, ©iStock.com/demaerre

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Form 4952 helps investors who borrow money to finance their investments deduct the interest paid on those loans. This tax deduction can offset investment interest costs but comes with specific limitations and eligibility criteria. The deduction can only be applied to interest expenses related to investments in taxable income-generating assets, such as stocks and bonds. […]

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","

Working with a financial advisor can help you manage complex tax rules for investment interest expenses and optimize your tax savings.

","

What Is Form 4952?

","

Form 4952, titled Investment Interest Expense Deduction, allows individuals, estates and trusts to offset investment income by deducting the interest paid on loans used to finance investments that generate taxable income. Investment interest typically arises when an investor borrows funds — such as through margin accounts — to purchase investments that generate taxable income. However, the deduction is limited to interest, dividends and other taxable investment earnings. One key feature of Form 4952 is that any unused deduction can be carried forward to future years if the taxpayer does not have enough investment income to claim the full amount in the current year.

","

How to File Form 4952

","$6d","

What Qualifies as an Investment Interest Expense?

","

The interest must be paid on a loan directly tied to a taxable investment, such as a margin loan for stock purchases, and must generate taxable income so interest paid to purchase tax-free municipal bonds and other non-taxable investments does not qualify. The loan cannot be for passive investments or personal use, such as real estate (unless used for rental income) or personal loans.

","

The following are some examples of qualifying investment interest expenses:

","

Interest paid on margin loans used to buy stocks and bonds.
Interest on a loan secured by investment property that produces taxable income.
Interest paid on funds borrowed to invest in a taxable brokerage account.

","

Meanwhile, the following are examples of non-qualifying expenses:

","

Mortgage interest (reported separately on Schedule A).
Interest on loans used to invest in municipal bonds (since they generate tax-exempt income).
Business-related interest (which may be deductible under business expense deductions instead).

","

Frequently Asked Questions

","

What Happens to an Unused Investment Interest Expense?

","

If a taxpayer’s investment interest expense exceeds their net investment income, the unused portion can be carried forward to future years. This allows investors to apply the deduction in a later year when they have sufficient investment income to offset it.

","

What Is the Difference Between Investment Interest and Business Interest?

","

Investment interest relates to funds borrowed for personal investments in taxable securities, while business interest is incurred by a company for operational expenses. Business interest is typically deducted on a separate tax form, such as Schedule C (Profit or Loss from Business).

","

Can I Deduct Investment Interest Without Itemizing Deductions?

","

No, investment interest expense deductions require itemizing deductions on Schedule A of Form 1040. Taxpayers who take the standard deduction cannot claim this deduction.

","

Bottom Line

","

","

Form 4952 allows investors to claim a deduction for investment interest expenses to reduce taxable income. However, the deduction is limited to net investment income and any unused portion can be carried forward. Filing Form 4952 correctly requires you to be careful in tracking your interest expenses and investment income, and it must be itemized on Schedule A. Because tax laws regarding investment deductions can be complex, consulting a financial advisor or tax consultant can help you to maximize deductions and comply with IRS regulations.

","

Tax Planning Tips

","$6e","

Photo credit: ©iStock.com/Tempura, ©iStock.com/Mariia Vitkovska

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\n","featuredImage":{"id":"cG9zdDoyNzc4ODI=","databaseId":277882,"altText":"A taxpayer researching how to meet Texas residency requirements for taxes.","date":"2025-02-20T20:54:33","fileSize":209092,"mimeType":"image/jpeg","modified":"2025-02-20T20:58:50","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2025/02/iStock-1211585195_11b9d8.jpg","__typename":"MediaItem"},"modified":{"datetime":"2025-2-20","readable":"February 20, 2025","readableExtended":"February 20, 2025, 9:00pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjo3Ng==","databaseId":76,"userId":76,"avatar":{"url":"https://secure.gravatar.com/avatar/a141689e14d9f5ae0b19f62878ff38dbb4ca13064851edf1937dfd9fb1608913?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Becca Stanek is an experienced writer and editor who has worked in the personal finance space since 2017. 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To qualify for tax benefits in Texas, which includes no personal income tax, you need to meet specific residency requirements. Establishing yourself as a true resident involves more than just relocating. You must clearly show your intent to make the Lone Star State your permanent home. This includes getting a driver’s license there, registering to vote and setting up your primary residence in Texas. If you’re thinking about moving to Texas, you may want to speak with a financial advisor to create a plan for your financial goals and long-term tax filings.

","

How to Establish Residency in Texas

","

Establishing residency in Texas can be a straightforward process. But knowing the necessary steps can help make your transition smoother. Here are five steps to help you establish residency in the Lone Star State:

","$86","

Understanding Part-Year Residency in Texas

","

Part-year residency refers to the status of individuals who reside in more than one state during a single tax year. This situation often arises when someone moves from one state to another, affecting their tax obligations. If you move to or from Texas, you may still have tax responsibilities in the other state involved.

","

In some cases, individuals may find themselves with dual residency, especially if they maintain significant ties to both Texas and another state. This can complicate tax filings, as you may be subject to tax laws in both states.

","

Keep in mind that if you have joint residency or live in multiple states for any part of the year, then you may be required to file taxes in each state. A financial advisor can also help you comply with dual residency tax laws.

","

What to Consider When Choosing a State Residence for Taxes

","

When choosing a state to live in, it’s important to consider the tax implications. States differ in their tax structures, including variations in income tax, sales tax and property tax, all of which can affect your finances.

","

For example, Texas does not charge a state income tax, which might attract taxpayers who want to make the most of their earnings. However, Texas may have higher sales or property taxes to offset the lack of income tax. Therefore, you should consider how these taxes fit with your financial plans and lifestyle.

","

Estate and inheritance taxes are also important considerations, especially if you have substantial assets or are planning for retirement. Some states impose both estate and inheritance taxes, which could influence your estate planning.

","

Bottom Line

","

","

Establishing Texas residency for tax purposes becomes simpler when you understand the necessary steps. To start, secure a permanent residence in the Lone Star State by buying a home or signing a long-term lease. Then, transfer your driver’s license and vehicle registration to Texas, which confirms your residency and complies with state requirements.

","

Estate Planning Tips

","$87","

Photo credit: ©iStock.com/Anchiy, ©iStock.com/Brothers91

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Tariffs are taxes on imported goods. They can affect product costs and company profits in international trade. Knowing which goods are tariffed could help you anticipate price changes, assess investment options, or decide on industry support. Financial advisors can also work with you to identify such goods and their implications. How Tariffs Work Governments impose […]

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His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":822,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDQ=","databaseId":144,"userId":144,"avatar":{"url":"https://secure.gravatar.com/avatar/f9d67283a5124e59bce3aa419d39f0450d8c3c316c9596a42a37aa8df9e54482?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Brandon is a Certified Financial Planner™ (CFP®), Retirement Income Certified Professional (RICP) and Enrolled Agent (EA) with more than 10 years of experience as a financial professional. 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","

How Tariffs Work

","

Governments impose tariffs on imported goods as taxes or duties. These taxes are meant to protect local industries, raise revenue and address imbalances in trade.

","

Tariffs come in different forms, including ad valorem tariffs that are calculated as a percentage of the item’s value. Additionally, there are specific tariffs, which involve a fixed fee per unit of the imported goods, and compound tariffs that combine both ad valorem and specific tariffs.

","

When any of these tariffs are applied, the cost of the targeted imported goods increases. This often makes domestic alternatives more competitive.

","

For example, if a 15% tariff is applied to imported steel, businesses may choose to buy domestically produced steel to save money. However, higher tariffs can lead to increased costs for consumers, potential retaliatory measures from trading partners and disruptions in supply chains.

","

Additionally, tariffs can influence the strategic decisions of businesses, such as sourcing materials locally or shifting operations to countries with lower trade barriers.

","

Who Collects Tariffs?

","

The money collected from tariffs is typically handled by the customs authority of the importing country. In the United States, the U.S. Customs and Border Protection (CBP) collects tariff payments on imported goods. These funds go to the federal government to support general spending or specific programs, such as infrastructure development or debt reduction.

","

Let’s consider an example: A U.S.-based company imports electronic components from another country. If a 10% tariff is imposed on these components, the company must pay this fee to the CBP upon importing the goods. This cost may be absorbed by the company, which will reduce its profit margins. More likely, it will be passed along to consumers in the form of higher prices.

","

This is a simple example. In some cases, governments may offer exemptions or refunds for tariffs on goods used in manufacturing exports, further adding complexity to the system.

","

How to Know When a Good Is Tariffed

","

Determining whether a specific good is tariffed requires a little bit of research, as well as attention to detail. Here are some steps to help you identify if a product is subject to tariffs:

","

Check Harmonized Tariff Schedules

","

Most countries use a Harmonized Tariff Schedule (HTS) to categorize goods and outline applicable tariffs. In the United States, the HTS is maintained by the U.S. International Trade Commission (USITC). Here’s how to use it:

","

Identify the product: Determine the exact nature of the product you’re investigating, including its material composition and intended use.
Search the HTS: Visit the USITC website and search for the product’s classification code. You may need to consult detailed descriptions or examples to find the correct category.
Review applicable tariffs: Look for the tariff rate and any conditions that may apply. Some products may have multiple rates depending on the country of origin or trade agreements.

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Using the HTS is not necessarily straightforward. The 2024 version of the US HTS extends to more than 4,000 pages. Searching for the term “steel” yields more than 1,000 references to the metal. It can take significant study and analysis to determine whether a given product is affected.

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Monitor Trade Agreements

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Tariffs often change due to new trade agreements or disputes. Staying informed about trade developments can help you determine whether a product is likely to be tariffed.

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The country of origin can be a helpful indicator of a product’s tariff status. Products from countries with a free trade agreement may have lower or zero tariffs when compared with those from non-partner nations. Regularly reviewing government updates or news about trade policy changes can keep you up to date on developments in this area.

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Consult Government or Industry Resources

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Government agencies and industry associations frequently publish lists of products affected by tariffs. For example, during the U.S.-China trade war, the Office of the U.S. Trade Representative (USTR) released detailed lists of tariffed goods.

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These resources can be invaluable for staying updated. Industry newsletters or trade publications can also provide insights into newly imposed or revised tariffs.

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Ask Importers or Retailers

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If you’re unsure about a specific product, it may help to reach out to importers, distributors or retailers. They often have detailed knowledge of tariffs applied to their goods and can provide accurate information. Additionally, customs brokers or trade consultants may assist businesses in navigating complex tariff regulations.

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Examples of Commonly Tariffed Goods

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Agricultural products: Many imported agricultural goods face tariffs to protect domestic farmers, such as dairy products and grains.
Electronics: Items like smartphones or computer parts may have tariffs depending on their country of origin and specific components.
Automotive parts: Tariffs on car parts can impact the overall cost of vehicles, especially for imported brands.
Textiles: Clothing and fabrics often face tariffs, particularly if imported from countries without trade agreements.

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What Should Businesses Do When Goods or Products Are Tariffed?

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When goods or products are tariffed, businesses should take steps to manage costs and reduce risks. First, they should review how tariffs affect their supply chain and calculate the added costs. Understanding the financial impact helps businesses decide whether to adjust prices, absorb costs, or find alternative suppliers.

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Next, businesses can explore sourcing materials or products from domestic suppliers to avoid tariffs. This may reduce dependence on imports and create more stable pricing. Companies should also consider renegotiating contracts with suppliers to share tariff costs or secure better terms.

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Finally, businesses should monitor trade policies and tariff changes to stay informed. Working with financial advisors or trade experts can help develop strategies to manage tariffs, control expenses and protect profitability. Planning ahead allows businesses to stay competitive even when tariffs are in place.

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What Should Investors Do When Goods or Products Are Tariffed?

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When goods or products are tariffed, investors should review how tariffs impact the industries and companies in their portfolios. Higher costs from tariffs can reduce profits for businesses that rely on imports, while domestic companies may benefit from reduced foreign competition. Investors should analyze these trends to identify risks and opportunities.

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Diversifying investments is another key step. By spreading investments across different sectors and regions, investors can reduce exposure to industries heavily affected by tariffs. This approach helps protect portfolios from losses caused by trade disruptions or higher costs.

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Investors should also stay updated on trade policies and market changes to evaluate risks, adjust strategies and find growth opportunities, even during periods of trade uncertainty.

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How Tariffs Can Affect Your Portfolio

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Tariffs can impact investment portfolios by influencing company profits, stock prices and overall market stability. Businesses that rely heavily on imports may face higher costs, which can lower earnings and reduce stock values. But, domestic companies that compete with foreign imports might benefit, potentially increasing their stock prices. Investors need to monitor these shifts to understand how tariffs affect different industries.

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Tariffs can also lead to market volatility as trade tensions and policy changes create uncertainty. Sectors such as manufacturing, technology and retail are often more exposed to tariff impacts, while industries less dependent on imports may remain stable. Diversifying your portfolio across sectors and regions can help reduce risk and balance potential losses.

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Long-term tariffs can influence global supply chains, inflation and economic growth, further affecting investments. Therefore, investors should assess risks, adjust their portfolios and find opportunities in industries that could benefit from tariffs.

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Common Strategies to Prepare Your Portfolio for Tariffs

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Preparing your portfolio for tariffs involves managing risk, identifying opportunities, and staying flexible as trade policies change. Here are six common strategies investors can use:

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Bottom Line

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Understanding whether a good is tariffed can guide investment decisions. Tariffs can influence product prices, market dynamics and the profitability of businesses involved in international trade. By using tools like harmonized tariff schedules, monitoring trade agreements and consulting reliable sources, you can stay informed about tariffed goods and their potential impact, and make more strategic financial decisions.

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Tips for Investment Planning

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