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One thing nobody mentioned - your bonus will also have Social Security (6.2%) and Medicare (1.45%) taxes withheld, plus any state income tax. So the total withholding will be higher than just the 22% federal. Just so you're not surprised when you see the actual amount!
Omg thank you for mentioning this! I totally forgot about those other taxes. Do you know if there's a way to calculate exactly what I'll take home after ALL the withholding? I'm trying to plan what I can spend from this bonus.
You can use an online paycheck calculator like the one on ADP or Paycheckcity. Just enter your bonus as a separate supplemental payment, add your state, and it will calculate all the withholdings including federal, state, Social Security, and Medicare. Most employers will withhold around 30-35% total when you factor in everything, but it varies by state. If you're in a state with no income tax like Texas or Florida, it will be less than if you're in a high-tax state like California or New York.
Friendly reminder that you might want to consider putting some of that bonus directly into your 401k if your plan allows it! It can reduce your taxable income for the year. I did this with my bonus last year and saved a bunch on taxes!
This is the way! If your 401k is already set up as a percentage of your pay, the contribution should happen automatically with your bonus too. Just check with HR to confirm.
Have you tried QuickBooks with the ProAdvisor add-on? It's not specifically designed for oil and gas, but I've customized it to track depletion for the 5 wells I have interests in. The learning curve was steep, but now it works pretty well for both cost and percentage calculations.
I looked into QuickBooks but was concerned about whether it could properly handle the nuances between cost and percentage depletion simultaneously. Did you have to create a lot of custom fields? And does it maintain the adjusted basis automatically year after year?
Yes, I did need to create several custom fields and reports. It's not an out-of-the-box solution by any means. To handle the adjusted basis tracking year-over-year, I built a custom spreadsheet that interfaces with QuickBooks data. The real advantage is that it keeps all my business financials in one system, so I don't have to maintain separate software just for depletion. That said, if you have more than 10 properties, this custom approach gets unwieldy fast.
Anyone using PetroDesk for this? My CPA recommended it but the price seems really high for what it does.
I used PetroDesk for about 2 years. It's definitely comprehensive but has more features than individual investors typically need. I switched to a simpler solution because I was only using about 15% of its capabilities but paying for 100%.
9 Has anyone mentioned quarterly estimated taxes yet? If your husband is making $58k on 1099, you ABSOLUTELY need to be making quarterly payments! I learned this the hard way and ended up owing $12k + penalties my first year on 1099. The IRS wants you to pay as you earn throughout the year. You can use Form 1040-ES to calculate and pay.
20 Agreed! But what's the bare minimum percentage you should set aside from each check to cover taxes? I've heard everything from 20% to 40% and I'm confused.
18 Don't forget to look into the Earned Income Tax Credit! With two kids and if your income is under certain thresholds, you could qualify for a significant refundable credit. This means you could get money back even if you don't owe any taxes. The income limits change each year, but it's definitely worth checking if you qualify!
Let me add something important here - when the IRS confirms you have a refund but you haven't received it, there's also a time limit to claim it! You generally have 3 years from the original due date of the return to claim a refund. For a 2020 tax refund, that would mean you have until April 15, 2024 to resolve this. After that, you're generally out of luck and the money goes back to the Treasury. So don't wait too long thinking you'll be able to resolve this whenever - there's actually a deadline!
Thanks for pointing this out! I had no idea there was a time limit. Does the clock start from when they sent the letter confirming my refund, or from the original tax filing deadline?
The clock starts from the original tax filing deadline for that year, not from when they sent you the letter. For 2020 taxes, the original filing deadline was May 17, 2021 (it was extended from the usual April 15 due to COVID). So you'd have until May 17, 2024 to claim your refund. After that deadline passes, unclaimed refunds become the property of the U.S. Treasury and you can no longer get your money back. That's why it's important to address this sooner rather than later.
One thing nobody has mentioned - check if your refund was applied to any past due tax debts! This happened to me. I was expecting a refund check but never got it. After FINALLY reaching someone at the IRS, I found out they had applied my refund to an outstanding tax debt from a previous year. They should have sent you a notice if this happened, but sometimes these notices get lost in the mail too. Just something to consider before going through the whole trace process.
Nia Jackson
Another thing to consider is that if you don't amend and the IRS notices the discrepancy (which they probably will since they get copies of those forms), they might send you a CP2000 notice. That's basically them saying "hey we think you underreported income" and they'll calculate what they think you owe. Usually their calculation doesn't include all the deductions you might be entitled to, so you often end up owing more than if you had just amended yourself. Plus, depending on timing, there could be penalties and interest.
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Mateo Hernandez
β’Does the CP2000 notice count as an audit? I'm always terrified of anything that might trigger the IRS to look more deeply at my returns.
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Nia Jackson
β’No, a CP2000 notice isn't technically an audit. It's classified as an "automated adjustment" where their computer systems have detected a mismatch between income reported to them versus what's on your return. It doesn't involve the detailed examination of your entire tax situation that a true audit would include. That said, how you respond to a CP2000 could potentially lead to further review if there are significant issues or discrepancies in your explanation.
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CosmicCruiser
Another option is using Free File Fillable Forms if you're comfortable with the tax forms. It's free and you can file your 1040-X electronically now. I had to amend last year cause I forgot a 1099 from a side gig and it wasn't nearly as painful as I expected!
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Aisha Khan
β’is there a benefit to e-filing the amendment vs mailing it in? I thought amendments had to be on paper
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