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I know the old income averaging I remember from decades ago is gone. Is there any tax relief for the lump sum payment of her seperation pay?

Assuming that your friend is in a good financial position and would not need all of the money in the short term, two thoughts popped into my head.

The first would be to increase contributions her 401k. Even if she isn't going to be at the job for the whole year she should be able to front load contributions in the months that she does.

The second would apply if she consistently supports a charity. If that is the case, she could make an extra gift at the end of 2013 in place of a 2014 gift that she would have otherwise made. Or taking the idea further, she could look into setting up a charitable gift fund. She could contribute money to the fund this year and then ask the fund to make gifts to charities that she suggests in future years.

I would double check the tax consequences of either of these ideas before using them. They are just what struck me at the moment and I don't have the detailed tax knowledge of others on these boards (I mostly follow this board to learn things myself).
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