Most tax efficient thing to do with my 40k+ bonus??
I'm currently on a 80k salary base, but I currently don't have a 401k, retirement thing set up at my work yet because, long story short, I declined to do so because I need to take care of personal family things, etc. Anyways, I've been doing well at my work and will probably will be getting a big bonus. What's the most tax-efficient thing for me to do with the bonus? Put it in an IRA account? I literally have no idea what any of these retirement vehicles are or work, so a break down would be helpful
Well you will only get 20k after taxes which unfortunately isn't a ton so depends on your savings I would stick 10k in savings and put some in your 401k and maybe non retirement account
I heard you don't get taxed up to a certain amount if you open an IRA account?? Is that true? And what amount is that?
If you invest it all in hookers and blow, then the government can't get you on capital gains.
There is no "Most Tax Effective" way to deal with your bonus. You will end up losing about half of it to taxes. Seeing as you have zero saved for retirement, I would put as much of it as you can away into your 401k (Why you aren't doing that already is beyond me - I mean seriously, It's a straight dollar reduction on your taxable income until you hit the cap and your employer may match some of it which, which is always a plus. Say your employer matches up to $8,000, then if you put in 10k, you will end up having a pre-tax income of 70K and hit your contribution limit for the year, which isn't bad at all. You also might be able to get the benefit of tax deductions - on a pre-tax basis for a Traditional IRA - or qualify for a Roth IRA.) just to start saving for your retirement. I'd sock some of it away for an emergency fund and maybe do something nice with a little bit of it.
IF you have no idea what vehicles there are to do this with, if you're currently working for a bank, I would see if your firm has a wealth management arm and try to sit down with a broker. Some of the bigger banks (JPM, Goldman, UBS, and Credit Suisse, before they sold off their PWM/UHNW division), all have groups for tax solutions as well, so finding someone you can email and ask questions to across your firm is definitely worth looking into just to learn about these things. The majority of options are not that difficult to understand, but there are implications with each of them. Regardless, it's a no brainer though to put money in your 401K.
Can someone explain how the tax rate on bonuses are 50%? It seems like you'd be in the 25-30% tax range making 80k so I'm confused how it becomes 50%? Isn't a bonus considered "supplemented wage" and taxed at a flat 25% or at the rate of your last paycheck?
^ya, can someone answer this? This is a good question
Lose it all in the stock market and deduct your losses from your taxes.
This is best option, no?
You get taxed at a higher rate because it is a large windfall. You'll get it back at the end of the year when they look at your total income and total taxes.
http://www.businessinsider.com/why-bonus-taxed-high-2014-12
I assume through the yearly tax return check ???
Your tax rates are based upon your earnings for the year. Withholding rates are higher on bonuses due to IRS regulations. You will get (or owe) the delta between your true liability and what is withheld when you submit your taxes. 401(k) contributions will reduce your tax liability (assuming your earnings aren't high enough to phase out this tax benefit).
Hookers and blow will not change your tax liability. They will increase liabilities in other aspects of your life though.
It's appalling you would even post/ask this. Also, judging from the way described the situation I would say your contribution to this company is equivalent to pretty much stealing, or are you sure you're not just receiving a paycheck because of a glitch in the system or something? (think Milton from office space)
Forget taxes just keep riding the wave until they find out you don't really do anything and move your ass to the basement.
Claiming a bunch of tax allowances (Originally Posted: 05/29/2008)
Is it possible to do like single and 10 exemptions on your federal and state tax info? It sucks to have so much of your bonus taxed at such a high rate and let the government hold onto it interest free for a year. I'd ideally like to have as little taxes withheld as possible so that I can invest it during the year, and then pay a tax bill in april. Obviously I'd like to avoid paying interest/penalties which would negate this scheme... thoughts?
Read up on the "Safe Harbor" rule. http://www.fairmark.com/estimate/howmuch.htm
The IRS discourages this. Theoretically you are supposed to pay your taxes in installments throughout the year, so at year-end your estimated tax is close to your actual tax liability.
If you are not within this 'safe harbor' (I think they check quarterly?) I believe the IRS levies a penalty. I'm not sure how much.
Maybe a tax expert can chime in. This is only the superficial stuff I learned in an undergrad tax class back in the day.
Not sure I followed exactly (didn't read the link :/), but the IRS levies an annual interest rate (somewhere between 5-8% if I remember correctly).
You can do a single claiming 10. Another way to do it and not get so screwed in April is to claim what you're supposed to for your typical paychecks and then increase it to 10 prior to your bonus and then reset it to 1 or whatever you were claiming before. Our accounting office will allow us to do that, I assume yours probably will too.
You can also defer some of your federal taxes on your bonus check (it is considered earned in the year you are paid) - deferring those taxes to the following April (when you typically pay this year's tax bill).
If that doesn't make sense you can PM me.
Sorry about that link. It was just the first thing that popped up in a quick Google search. Turns out, it's not a very good article.
I think this link is more informative. http://jeremy.zawodny.com/blog/archives/001400.html
what is the standard that most people put? single and 0, or 1, 3 or more? I know absolutely nothing about taxes except I pay a lot of them.
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