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The way I have my tax withholding set up, I withhold enough to cover the taxes on my income without a bonus. This gives me a good view of my income vs. expenses for the year without getting mucked up with bonus stuff.
I get a bonus at the end of Feb and the standard withholding they take out (~40%) will not cover the additional tax burden that the bonus adds. My plan was to just pay estimated taxes out of the bonus once in Mar and square everything up right there. But I got to thinking maybe there is a better approach. I could invest that delta and just up my monthly withholding to cover the shortage instead of plopping it all down in one lump sum. That would keep me from paying a penalty and the money can earn some interest vs. just free to the gov't. The amount we're talking about is $14,000. So, these are the 2 options I was looking at:
1. Pay $14,000 in estimated taxes in March and put $1,400 / month in savings (current plan)
2. Invest the $14,000 in March and up my tax withholding by $1,400 / month (10 months)
Seems like they both end up at the same place, tax wise, but I come out ahead on whatever interest I can earn on the $14,000 over 10 months.
Appreciate your thoughts.
Tom
I get a bonus at the end of Feb and the standard withholding they take out (~40%) will not cover the additional tax burden that the bonus adds. My plan was to just pay estimated taxes out of the bonus once in Mar and square everything up right there. But I got to thinking maybe there is a better approach. I could invest that delta and just up my monthly withholding to cover the shortage instead of plopping it all down in one lump sum. That would keep me from paying a penalty and the money can earn some interest vs. just free to the gov't. The amount we're talking about is $14,000. So, these are the 2 options I was looking at:
1. Pay $14,000 in estimated taxes in March and put $1,400 / month in savings (current plan)
2. Invest the $14,000 in March and up my tax withholding by $1,400 / month (10 months)
Seems like they both end up at the same place, tax wise, but I come out ahead on whatever interest I can earn on the $14,000 over 10 months.
Appreciate your thoughts.
Tom
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