OK, DH came down on orders to Korea, so he's re-enlisting now, rather than wait until November. (The orders are for October, and he would get choice of duty station by re-upping in November, but if we can't have that we want to take the bonus) He's getting a large bonus, in a lump sum, and it's being taxed upfront at 28%. (They used to pay half up front, and the remainder each year over the course of the enlistment, but this has changed) This totally changes our tax bracket, we won't be eligible for EIC, which is fine, and I plan on working and going to school while he's in Korea, so we'll be able to claim the child care tax credit. My question is should we be concerned about OWING taxes at the end of the year? We've ALWAYS received a refund, but if we're going to owe taxes I want to prepare for that now. If I start working should I have more taxes taken out, just in case? The bulk of this bonus will go to buying a house, we were planning on buying in TX, but it doesn't look like we'll be making it back there any time soon. (They don't call Ft. Riley the K-K-K tour for nothing, it's KS, Korea, Kuwait rotation, we'll probably be staying here for a while.) I'm pretty sure we don't need to worry about it, his adjusted gross income when he and his ex-wife were both employed is fairly close to what ours will be for the 2006 tax year, and he said he's never had to pay at the end of the year, but the "Type-A" in me wants to plan ahead!! Our AIG will still be under 50K, but should I set aside a certain amount for Uncle Sam? Any advice or experience with bonuses and taxes? TIA!!!

By Ginny~moderator on Monday, June 26, 2006 - 07:14 pm:

Crystal, if you are worried about it, do a calculation, using last year's tax instructions. I am by no means qualified to give advice on taxes, but I know there is some percentage involved - that is, if what you owe is less than X% of what you paid last year, there is no penalty if you pay what you owe by April 15th. But, you do have to pay it. So do the math and see where you come out.

It doesn't hurt to be prepared for possible tax bills or anything else, and this is where I go into my recommendation of ING.

My dad swore by a book he read many years ago called "The Richest Man in Babylon". The advice in that book was similar to the advice any good financial advisor will give you. And the first piece of it is "pay yourself first". By that, I mean set aside a sum or percentage of your net income every pay period into a savings account that pays reasonable interest and that you can't get at by tapping MAC/ATM. ING is presently paying 4.25%. You link it to your checking account, and do wire transfers (by phone or internet) between the two accounts. You will not be tempted to tap it for impulses, because it takes 2 working days usually for the money to be accessible in your checking account. I believe ING does not have a minimum first deposit. I know they don't have a minimum balance. ING is FDIC insured for its savings accounts and CDs. They do have investment accounts which are not FDIC Insured. http://home.ingdirect.com/

If you put away $20 a week, you'd have more than $1,000 at the end of the year. Only you know how much difference $20 a week would make in your cash flow.

What I like about ING is the interest rate, that it's FDIC insured, that I can get my money in 2 working days if I have an emergency, but it doesn't tempt me into impulse buying because it takes 2 days.

I really like looking at the monthly statement and seeing how much interest I've earned just letting the money sit there. Because my homeowners insurance and taxes are not part of my mortgage payment (by my choice), I put aside 1/12 of that amount each month and I earn the interest instead of the mortgage company.

By Ginny~moderator on Monday, June 26, 2006 - 07:16 pm:

Oh, and instead of having extra money taken out of your paycheck for possible taxes you owe, sock it away into ING. The money taken out of your paycheck doesn't earn any interest for you. If you put away the right amount every payday, at the end of the year you'll have the money to pay the taxes PLUS the interest you earned.

By Crystal915 on Monday, June 26, 2006 - 07:27 pm:

Ginny, thanks for responding. I'm not sure I'm following you on the tax mock-up, I attempted to do one using our tax return from last year, and calculating his YTD wages and taxes X 2, but it wasn't very helpful.
As for the money, we're putting the whole amount into our USAA savings account, which has a competitive interest rate, so it will be earning interest for the next 5 months or so. Of course, it's linked to our USAA checking, so basically the same situation as ING. We're also going to set up a monthly allotment to the savings account, the whole "pay yourself first" idea. DH is teasing me because I'm worried about this now when tax time is months away, but it's just my personality to try and account for all possiblities. LOL!

By Breann on Monday, June 26, 2006 - 07:33 pm:

I'm really no help here. But, I do know that we make over $50K/year and that my DH claims all of us on his tax sheets at work. I don't work. We've always received a refund of about $3000-$4500K.

By Crystal915 on Monday, June 26, 2006 - 08:17 pm:

Thanks Breann!!

By Insaneusmcwife on Tuesday, June 27, 2006 - 06:43 am:

When my dh got his bouns last year we got a rather decent return but I'm not sure if that is because he spent a few months of last year in Iraq and we had other tax issues. I know the Navy and USMC offer a free tax service to their service memebers called VITA. I'm not sure if the other branches do as well but they would be the people to ask for sure. We were told when they took out the taxes from his bonus that we would see most of it back at tax time.

By Anonymous on Tuesday, June 27, 2006 - 12:46 pm:

My DH makes around $65K/year, I make around $5K/yr, and we get around $5K back each year since our child was born. We dropped a tax bracket when I quit my professional job, so we get a ton back now at tax time.

By Anonymous on Tuesday, June 27, 2006 - 12:46 pm:

Also, we always itemized until this year, but we have our home paid down so much that we didn't get to itemize this year and still got that much back.

By Anonymous on Tuesday, June 27, 2006 - 12:56 pm:

My hubby makes $100,000 per year. A large portion of that is bonuses that are heavily taxed. Because they are taxed so much to begin with, we average $5,000-6,000 in a tax refund.

By Crystal915 on Tuesday, June 27, 2006 - 05:23 pm:

Thanks for sharing, everyone. I'm still going to be prepared to owe, but I'm not as worried about it now. I appreciate your input!!