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Financial Planning / Tax Strategies


Subject:  Re: Oprah and tax trouble? Date:  4/24/2005  2:37 PM
Author:  torobravo2003 Number:  78931 of 127611

From my vantage point, the only way that the bonuses can be tax free is if Oprah pays the tax on behalf of the recipient. And even then, the tax she paid on behalf of them would be income to the recipient. There is a complicated formula that would determine how much extra funds Oprah would have to give them so that the bonus + tax given to the recipient would result in zero tax to the recipient. It goes something like this:

Bonus $5,000 X 20% tax = 1,000
Tax on $1,000 X 20% = 200.00
Tax on $200 X 20% = 40.00
Tax on $40 X 20% = 8
Tax on $8 X 20% = 1.60
And on and on until you get to zero.

So Opera would have to pay to the recipient $6,249.60 in order for the $5,000 to be tax free to the recipient.

I used a 20% tax rate just as an example. The recipient would have to tell Oprah their tax bracket and this would vary by indivuals, with some receiving more than others but still $5,000 after taxes.


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