Regarding their taxes and bonuses, I have a query

I receive a large profit-sharing bonus from my company each year, which has increased annually but could fluctuate. Last year, my bonus was $20,000, and my wife and I ended up owing about $7,400 in taxes. We both have W2 jobs and file jointly, using the standard deduction. Since only $500 is withheld from the bonus, we owe more at tax time. While others suggest withholding more throughout the year, I prefer investing that money. My question is: would I save more by withholding more, or will I owe the same regardless? Are there ways to reduce my tax liability without increasing deductions?

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Although I’m not positive how much our combined income climbed in 2022 and 2023, I believe 20k is a reasonable estimate. When I go home, I’ll review my files.

If I pay right away after filing, would I still be penalized for late payments on the bonus?

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Yes, if your total withholding fell short of what was required by the safe harbor, you would still be assessed late payment penalties. For this, the bonus is not considered differently from the wages. It’s as simple as You owe this much in taxes, your safe harbor minimum prepayment was X, 1/4 of X was due each quarter of the year, you underpaid this much each quarter, you owe this much penalty. You might be able to reduce the penalty a little because you made more money in the final quarter of the year.

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Interesting, I believe I should discuss this with a tax professional when we meet.

I just looked at my income and found that I made an extra roughly $10,000 between 2022 and 2023, but I don’t think my wife’s pay increased enough to get us up to a $20k gain overall. Would that mean more labor for us to pay penalties, or against us?

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The increase itself isn’t all that significant; my purpose in asking was to learn more about the circumstances and whether you were staying out of trouble because of the increase.

For a more precise overview of the situation, see.

What is the amount on line 24 of your 2023 tax return? On line 11, was the AGI greater than or equal to 150k?

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When I come home, I’ll check and get back to you. I appreciate your assistance.

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Even without the incentive, it seems like you aren’t being withheld enough. If you are in the highest tax bracket, a $20k bonus should only result in an additional $7400 in federal income tax.

Given that you consider $20k to be a sizable bonus, you likely make less than $700k, thus the additional tax you will pay as a result of the bonus will be even smaller. More likely in the $4–$5k area.