I've been in a similar situation and here's what I learned: the "opt out of withholding" option can be really tempting, but it's basically just kicking the tax can down the road. You'll still owe the same amount in taxes - you're just choosing when to pay them. One strategy that worked well for me was to take the cash WITH normal withholding (that 22% federal rate), then immediately put a portion of what I received into a high-yield savings account earmarked for any additional taxes I might owe at filing time. This way I had access to most of the money for my immediate needs, but still had a safety net for tax season. The math gets really interesting when you factor in that 401k contributions also save you the 7.65% FICA taxes (as mentioned above). On your $20k bonus, that's over $1,500 in immediate savings, plus the income tax deferral. But if you truly need the cash flow now, sometimes the peace of mind is worth more than the tax optimization. Have you calculated what your actual tax rate would be on the bonus income? Depending on your current income level, it might be lower than that 22% withholding rate, which could mean a refund if you take it as cash with withholding.

One thing that might help your decision is to think about your overall financial picture this year. If you're already maxing out your 401k contributions through regular payroll deductions, then putting the bonus there might push you over the annual limit ($23,000 for 2024). But if you haven't been contributing much to your 401k, this bonus could be a great opportunity to catch up on retirement savings. Also consider your state's tax situation. Some states don't tax retirement account contributions at all, which could make the 401k option even more attractive. Others have high supplemental wage withholding rates that might make the cash option more expensive than you expect. I'd suggest running the numbers both ways before deciding. Calculate what you'd net after all taxes if you take it as cash (including setting aside money for any additional taxes owed), then compare that to what the 401k contribution would be worth to you in tax savings this year. The "right" choice really depends on your current financial priorities and tax situation.

I wish the tax code wasn't so unnecessarily complicated!! Why can't points just be points and deductions just be deductions? My freind got audited over this exact issue and the IRS agent didn't even understand it. He kept changing his answer!!!!

This is exactly the kind of situation where documentation is everything. I went through something similar last year with an $820k mortgage and $8,200 in points. The key thing I learned is to keep meticulous records of exactly how much of your loan went toward the home purchase vs. any improvements. Since you mentioned $50k went to renovations, that could actually work in your favor. The IRS treats home improvement debt differently - it's not subject to the same $750k cap as acquisition debt. So you'd potentially have $780k subject to the limit (not the full $830k), which would increase your deductible percentage. My advice: get your closing statement, contractor receipts, and any other documentation organized now. When your tax person gets back, they'll be able to properly allocate the points between acquisition debt and improvement debt. This could save you several hundred dollars in additional deductions. Don't just assume you're limited to the simple ratio calculation - the improvement portion changes everything.

One thing I haven't seen mentioned yet is quarterly estimated tax payments. Since you're making "decent money" after 8 months, you'll likely need to make quarterly payments to avoid underpayment penalties. The IRS expects you to pay as you earn, not just at year-end. For 2025, if you expect to owe $1,000 or more in taxes on your golf business income, you should be making quarterly payments. The deadlines are January 15, April 15, June 16, and September 15. You can use Form 1040ES to calculate what you owe. Also consider opening a separate business checking account if you haven't already. It makes tracking so much easier and looks more professional if you ever get audited. You can deduct the monthly fees as a business expense too. Keep up the great work with the side business - sounds like you're really building something solid!

Great thread everyone! As someone who's been through the home business learning curve, I wanted to add a few practical tips that helped me stay organized: 1. **Monthly reconciliation** - Set aside time each month to categorize expenses and reconcile your business account. Don't wait until tax time! I use a simple spreadsheet with columns for date, vendor, amount, category, and business purpose. 2. **Photo documentation** - Take pictures of receipts immediately and store them in a cloud folder organized by month. I've saved myself multiple times when paper receipts faded or got lost. 3. **Business purpose notes** - For any expense that could be questioned (like those golf rounds for testing clubs), write the business purpose directly on the receipt or in your expense tracking. "Tested driver repair for Client X" is much better than trying to remember 6 months later. 4. **Mileage log app** - Use an app like MileIQ or even just the notes app on your phone to track business mileage in real-time. I tried keeping a paper log and failed miserably. The key is building these habits now while your business is growing. It's so much easier to maintain good records from the start than to reconstruct everything later. Sounds like you're already thinking about this stuff the right way - that puts you ahead of most new business owners!

@Zoe Dimitriou - glad you figured out the letter mix-up! Just wanted to add that the 4883C process is actually pretty straightforward once you know what to do. You'll typically need to call the number on your letter with your Social Security card, driver's license, and a copy of your tax return. They'll walk you through the verification steps over the phone. It's actually faster than the online portal in most cases since you don't have to wait for additional notices. The phone reps are usually pretty helpful with 4883C cases too.

Just wanted to chime in as someone who went through this exact same confusion last year! The letter mix-up between 5071C and 4883C is super common - I did the same thing and spent forever looking for a control number that didn't exist. One thing to add to what others have mentioned: when you call the number on your 4883C letter, make sure you have your prior year tax return handy too (not just the current year). They sometimes ask questions about previous filings to verify your identity. Also, if you're calling during peak season (Jan-April), expect longer wait times but don't give up - the phone verification really is much faster than going through the mail process. The good news is once you complete the 4883C verification, your account gets flagged as resolved and you're less likely to get these notices in the future. Hope this helps!

This thread has been really helpful! I'm dealing with something similar - my small business received a 1099-NEC for selling some old office furniture to another company. It was just a one-time clearance of equipment we no longer needed, not part of our regular business operations. From what I'm reading here, it sounds like the purchasing company may have misclassified this as a service payment rather than a purchase of goods. The furniture sale was completely separate from any services we provide to clients. Has anyone else had experience getting companies to correct 1099s for equipment sales? I'm wondering if I should reach out to their accounting department directly or if there's a specific form they need to file to void the incorrect 1099-NEC.

I've been following this discussion and wanted to share my experience as someone who handles tax documents regularly. The confusion around 1099-NECs for equipment sales is incredibly common, especially since the rules can seem counterintuitive. For your friend's situation, the key factor is that this was a one-time sale of personal property, not a business transaction. The manufacturing company likely has a policy of issuing 1099-NECs for any payment over $600 to non-employees, which is overly broad but helps them avoid penalties for missing required forms. Your friend should definitely contact the company's accounting department with a brief explanation: "This was a one-time sale of personal equipment I owned, not compensation for services or a business transaction. Per IRS guidelines, this should not have been reported on a 1099-NEC." Most companies will issue a corrected form when the situation is explained clearly. If they refuse to correct it, your friend won't necessarily owe taxes on the full $3,400 - only on any gain above what he originally paid for the equipment (if he even sold it for more than his cost basis). But getting the form corrected is definitely the cleanest solution.