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Author: Boozer Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Tax Bubble Date: 5/31/1997 11:10 AM
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Before I ask my question, I would like to first describe my position: I am a 26 year-old married, college graduate finishing my second year in a commision sales position. Our commissions are paid out once a year in a lump sum the March following the year commissions are earned. The rest of the year from that time on, we earn a 90% draw of the previous years sales. (i.e. If last year my commission was $50,000, then from April on forward to the next March my draw would be $45,000, if in the previous year, my draw had been only $25,000 then on that last day of March I would receive a lump sum of $25,000 (the difference between $50K-what I earned and $25k - what I was paid) I think it is rather apparent the surge in income one can have in one year if they started relatively low the first year but sold exceptionaly well receiving both a large lump sum commission and also a sizable increase in monthly income. In short, this tax year I am looking at a 'bubble' of income of about $125,00 total combined for the year, about $40k higher than our income would have been if I had been paid the commssion the year it was earned.

Having said that, I am trying to determine how to best position myself to avoid (or defer) paying taxes on all of my income this year. The only two vehicles of which I am aware that can reduce or defer tax is contribution to the company 401k to the maximum allowable ammount, and claiming the interest agains a mortgage (which means I would have to buy a home, because as of now, I'm a renter).

What I would like to know is if there are other methods to defer taxes than the two I mentioned abover? And, if it is really worth my while to purchase a home (do these savings really exist and would it necesarily be better than investing the lump sum). Any advice is appreciated.

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