Do you typically owe taxes as an analyst?

anon469871's picture
Rank: Chimp | 4

I just filed my taxes (using TurboTax) and it turns out i owe taxes. I'm a second year analyst so last calendar year was my first full year of work (during which I received my bonus). The standard amount of taxes is already withheld from my paycheck (I claim no dependents and don't do anything special), and obviously my bonus was taxed at a very high rate. I don't understand how I end up owing a large amount of federal taxes (several grand). I this normal for a 2nd (and 3rd) year analyst? or did I screw something up?

If this is normal, why does this occur? You'd think that given bonuses are taxed at an artificially high rate (as if I earn that much on every pay check), should i be getting refunds as opposed to owing more?

Thanks in advance for any insights.

Comments (19)

Apr 15, 2010

i'm in consulting, not banking, so perhaps that makes a difference, but every i have gotten refund of taxes, and i too claim no depends and let IRS deduct the standard amount. you must have done something wrong. might be worth using HR Block instead of filing it yourself.

Apr 15, 2010

It might depend on if you initially claimed 0 or 1 when signing. I can't remember exactly what they stand for, but you get more taken out when you claim 0 and almost invariably get money back.

Apr 15, 2010

Depends on city too. When I worked in NY there's so much withheld that I always got a refund. After moving to another city I got $1000 more each month on the same salary but had to pay come tax season.

Apr 15, 2010

Use an accountant or H&R Block at the least; something is off if you owe that much in my opinion. Either that or you somehow reduced your witholdings per paycheck.

On a related note, I hate the articles on CNN about big refunds and "How are you going to spend your refund?" where you see these stories of people getting $9000+ checks and they're all excited. How is providing free financing to the IRS of significant magnitude (on a personal level) something to be proud of? Most professional tax accountants worth their salt advise people so that they receive or owe within $500 of their required tax obligation.

Apr 16, 2010

It frustrates the hell out of me that my friends can't seem to understand this. I claim 10 deductions (but I work so little that I barely make over the standard deduction of $5280) that way I don't contribute to the dishonesty that is withholding taxes at an interest rate of zero.

Apr 15, 2010

because receiving a lump sum refund brings more joy to people than receiving the same amount over the period of one year.

also, you're more likely to spend the money on stupid shit and have less saved up at the end of the year if you receive the correct amount over the course of a year than if you receive a couple of grand at the end of the year.

BossMode

    • 1
Apr 15, 2010

FIscal responsibility > most people.

Apr 15, 2010

dude bonuses do not get taxed differently

Apr 15, 2010
goldo1:

dude bonuses do not get taxed differently

Though they do get withheld differently.

Apr 15, 2010

when you're a first year you'll get a sick refund, when you're a second year you'll ower around a grand -- at least in my city

Apr 15, 2010
jackofalltrades:

when you're a first year you'll get a sick refund, when you're a second year you'll ower around a grand -- at least in my city

thanks. but why is that? your base salary is theoretically taxed/withheld "appropriately", and your bonus is taxed/withheld higher than it should because it assumes you make that much every paycheck. so net-net, shouldn't you be getting a refund at the end of the year? the higher tax bracket only applies to the additional income, so your bonus shouldn't effectively "raise your tax rate" on your base salary. what am i miss understanding?

btw, what city are you in?

Apr 15, 2010

i think i put in 1 exemption (for myself) when i started working. i am still unclear whether IBD analysts typically owe taxes or not, although it seems like more people get refunds than owe more taxes according to the responses so far.

let's do this more directly: do you remember (roughly / ball park est.) what your effective tax rate was after your first full year of working, for federal and/or overall taxes paid?

thanks again for everyone's advice so far.

Apr 16, 2010

Have a real accountant do your taxes, going to H&R block is like going to red lobster for sea food.

Apr 16, 2010
helphere:

Have a real accountant do your taxes, going to H&R block is like going to red lobster for sea food.

Yah... I second that. You'd be amazed at the sort of people who work at H&R block. They'll certify just about any idiot to do taxes.

Apr 16, 2010

During your first year you get a refund because you are over withheld. You only receive 6ish months of salary and will, most likely, be eligible for a number of deductions including the student loan deduction. The small amount of earnings (withheld as if you get a whole year of them) and the deductions will easily equate to a refund.

During your second year, you will receive a bonus, no longer get the same deductions, get a full year of salary etc. This will all wind up making you owe taxes. THIS IS NOT A BAD THING. As long as your earnings increase and you don't owe penalties, you get your money and get interest on it instead of giving the government an interest free loan.

Also, on the bonus issue, bonuses are withheld as if you would receive all of your salary on the same weekly basis. So, a 60k bonus is withheld at the maximum rates, even if you won't end up in them at year end.

As for accountants, with a single state and locality, if you can't use turbotax appropriately, kill yourself now. Seriously, H&R block or an accountant with someone who rents, has no tax deductions (outside of student shit), and is young is just a waist of your money. Taxes are a fucking joke, get over them, do some math, and learn yourself. You will need to know tax law if you will ever want to calculate things like the built in gain on a deal or the amt, book, cash differential.

So, depending on your exact circumstances, with the proper withholding selections, you should owe a minimum of tax between NY, NYC and Federal. And with 120kish in earnings a Gee is minimal additional taxes. Seriously you can spend that in a day between a pair of shoes, dinner, and a few drinks.

Apr 16, 2010
PowerMonkey:

As for accountants, with a single state and locality, if you can't use turbotax appropriately, kill yourself now. Seriously, H&R block or an accountant with someone who rents, has no tax deductions (outside of student shit), and is young is just a waist of your money. Taxes are a fucking joke, get over them, do some math, and learn yourself. You will need to know tax law if you will ever want to calculate things like the built in gain on a deal or the amt, book, cash differential.

Very true. I actually got certified by the IRS to do taxes for low income families through one of my classes at school. It was seriously one of the most helpful class I've ever taken, because now I know just about everything I need to know about taxes. Just about anyone can get certified through the IRS. It's called the Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA/TCE) certification. Here's the link:

http://www.irs.gov/app/vita/
And you can put the certification on your resume, too.

    • 1
Apr 16, 2010

You generally should be getting a refund, unless you screwed something up- generally it comes down to this.
Your company will take out the proper amount of taxes on each check. If you made no bonus, and were otherwise plain-jane and just filed a 1040ez with no other deductions, you would come out even (or maybe get a small refund- I am not sure if they factor in the standard deduction when doing withholding).

You are over-withheld on your bonus, as they tax that like you are making that every check- and unless your bonus is so big that it puts you in the highest tax bracket, or your salary is so big that it puts you there, then you are overpaying and now have a small amount coming back to you at the end of the year. If you are smart, you adjust your withholding after you get your bonus so that at the end of the year you aren't getting a significant refund or bill. Most people don't bother though, its a hassle, and its really all the same in the end anyway, if its less than $5k, its unlikely you were going to invest that and double it. In the next few years, a "few grand" hopefully isn't going to seem like such a big deal.

Over the next few years, your taxes are probably going to get a lot more complicated though and proper withholding is going to be a lot more difficult. If all goes well, you will have money to invest, and then you have to factor in capital gains or losses, if you own a house you will have to factor in your mortgage interest deduction, if you buy investment real estate that will factor in as well.

Those that criticize others for not knowing what their refund or bill is until they actually do their taxes, or get on you for having zero net debt/refund to the gov't at the end of the year probably have very simple financial pictures, which there is nothing wrong with, but don't assume that holds for everyone. You would also drive your payroll department absolutely nuts if you changed your withholding every time you sold a stock or an unexpected winfall or tax deductible expense came in.

Apr 16, 2010

It sounds like different companies have different procedures. Bonuses are taxed as ordinary income. However, your firm can, and usually will, have a different withholding rate for your bonus than for your salary. My company withholds taxes for bonuses at the highest rate (as if each bonus were $1M+, which is 35%) for everyone. I know this is true at other places, but don't know if its the case across the board (doesn't sound like it from other posts). In other words, anyone who's total comp is <$1M should get a refund (assuming their withholding rate is correct for their base salary). Obviosuly I'm not taking anything else into account (e.g., capital gains, rental income, etc.). If you owe money as a 2nd year analyst, you either messed something up, or your company is not withholding the proper amount on your bonus. If you work at a big place, you should be able to modify the withholding rate on your bonus through your intranet site (although its too late for last year but it should at least tell you what it was withheld at). At smaller places, you might just have to talk to your HR or payroll person. You need to find out what rate your bonus was withheld at, and then figure out if something outside of your income (e.g., capital gains) affected the bigger picture.

Not trying to be a jerk, but this is something you should be able to figure out. The IRS has everything on their website and they make it pretty dummy proof assuming you can add and subtract.

Apr 16, 2010
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