OT: Bonus Checks

Yes you will have to pay the same amount in taxes either way. It's just a choice of if you want to pay them now or later.

Unless you are going to invest the money and have it grow over the next year I would suggest paying the taxes now. You never know what could happen between now and next tax season, having to pay at that point may put you in a financial bind. It is easier to give the government their share before you get the check than having to write them a check later.

You say it's the only paper check you receive, so if you were married with a joint account, your spouse wouldn't see it, (like she would see your regular paycheck deposits). So maybe your co-worker wants to keep the bonus check for himself and use it for, oh, let's say, strip club visits. In that case he would want to maximize the size of the check.

Just spit-balling here, not like I have any personal experience or anything.

S275 - Your co-workers are the type my partner sees daily - he does nothing but bankruptcy. Back in the day of 5% per annum passbook savings accounts if you did it this way you had the money to pay taxes on your return and made a few extra dollars passively. at .05% interest its stupid. In any event what people usually do is piss it away and take cash advance on the credit cards and pay that back at 19% interest.

I estimate my annual tax bill and adjust my withholding so I come out even. If you have too much withheld from your bonus , you should reduce your withholding. Why let the government keep your money all year?

Q. What is the difference between your dick and your bonus? A. After 5 years of marriage your wife will still blow your bonus.

Everyone's right. Your co-workers are investing the tax portion of bonus money on themselves alone. Personal joy = good health = savings on doctors, shrinks, pharmacy.

At tax time in April 2019 - that bonus tax will be paid from money out of regular paychecks.

The only reason a person would allow immediate with-holding of tax money that is not due until more than a year is - lack of discipline in having that money available when it is due. yes - this lack of discipline afflicts 40% of us (thereabouts).

s275ironman, in general you shouldn't listen to random creepy weirdos on a strip club discussion board about money management. Or any life decisions for that matter. But I'll tell you my strategy.

I have a separate C-type mutual fund for fun money. This isn't a boring bank account for recurring expenses nor is it long term investments (obviously it is not retirement). Those are separate. That check would go in fun money. It is only moderate risk and that's what I dip into for unnecessary things that just make me smile.

Don't even try to pull funny business with taxes. Not worth it. If you were actually in the 0.1% maybe, but for the 99.9% it is more trouble than it is worth.

Regarding skibum609's comment about cash advances on credit cards my philosophy is that if cash advances on credit cards are a strategy you consider you should also consider not spending money. Then go with the not spending money.

I'm interested in reading some of the responses you get. I was thinking that guys with means don't give the govt money interest free for a year. And those of us who did (like me) it was our dunce cap. Skibum's response makes me pause.

FWIW, I always do the maximum holding.

On the other hand, rogertex has a point. My total "don't sweat it" strategy regarding taxes on extra money is definitely wasteful.

But my lack of discipline isn't overspending. It is finding the extra energy up front to do things that might make sense. I do what works for me even if it wastes a bit.

^ I'm like you ... but many of my friends don't give government a dime until it is due. Liked your fun-money account idea.

Claim your ATF as a dependent on your taxes lol

^^ Ha Ha

Just don't pay taxes. Trump will use it for improvements to his golf clubs. (:

taxi driver’s response is reasonable.

Being self employed I don’t have those kinds of questions normally I pay me required estimated taxes quarterly and if I am due a refund I take my accountant to task. As in most matters I pay my bills when they are due. If you have the opportunity to defer payment of taxes on your bonus to me it’s a no brainer just be sure that you have the funds to pay the bill when it is due.

If you are short term cash strapped I can see the logic but you always have to pay the taxes regardless later with a potential penalty if you underwithold. If you are disciplined with your finances its always better to pay 1$ later as long as there are no interest charges or penalies. Thats money you can put to work investing now to the time taxes are due. But I suspect most folks are just blowing it on stupid shit.

If you change to tax exempt for the bonus check, will your employer then not need to match your FICA taxes (Social Security and Medicare) as if you were a 1099 contractor? That could be up to 15%.

I think I understand what you are missing and hopefully can explain it. Your coworkers are not going tax exempt they are just changing the number of exemptions on their w-4. Here is why. The tax calculation for your paycheck or bonus assumes you make the same amount each pay period. So, the withholding should cover your tax liability at the end of the year. The problem arises when you get a bonus. The tax calculation treats the bonus like a raise instead of a one time event. What happens now is the withholding increases because the calculator put you into a higher tax bracket.
The only difference is getting more money now and possibly paying some in April (if you change your exemptions to adjust withholding calculation) or getting less cash now and a bigger refund when you file taxes (if you leave your exemptions the same).

One word of caution - if you move your exemptions around to avoid paying taxes on a bonus. The bonus may be large enough that you push yourself into a higher tax situation with a requirement to pay interest on the taxes you bypassed when moving your witholdings around.

Before I quit to become self-employed in 2017, I would get an annual bonus. We always got to choose how the bonus would be taxed independent of our normal salaries. Since I like to keep as much of my money during the year rather than giving the government a loan, I would have it taxed at a rate lower than my normal tax rate.

I used this strategy for 7 years and never owed more than $400 at the end of the year but never got back more than $160. I was always happy and considered my tax strategy to be pretty dialed in.

2016 was my last year working for somebody else and I got a decent bonus in April of that year. It wasn't until I had made my October mortgage payment that my mortgage payments for the year surpassed the Federal Income tax withheld just from my bonus check (not including SS and Medicare withholdings). That thought alone upset me for a good portion of that year...thinking how much of my labor was being stolen for me to support lowlifes who refuse to contribute to society and rely on the government.

About 5 years ago I was having dinner with a few friends and acquaintances when one of the wives started bragging about how she just bought a $5,000 camera because she and her husband got a $12,000 tax refund. Apparently he made less than $30,000 per year and with their kids' tax credits, etc. they got way more back than they'd ever pay in...which is wrong IMO.

I wanted to ask the couple to thank me for buying their camera with my tax payments but thought better of it since we were all drinking and I was a guest!