With the calendar set to turn to 2024, besides Christmas gifts and holiday parties, you may need to spend some time thinking about dreaded “t” word – TAXES. Today I will discuss the importance of tax planning and how it can save you from a financial shock in April, when you pay your taxes. This is especially important if you receive a bonus as part of your compensation or if your income is commission based.
Avoid the IRS's Wrath:
In 2024, the IRS is increasing the interest penalty for underpaying estimated taxes to a whopping 8%. That's right, folks, the IRS is not playing around. If you don't plan your taxes properly, you could end up owing a small fortune in interest alone. And trust me, you don't want to mess with the IRS. They have the power to make even the bravest taxpayer tremble.
The Bonus Bonanza:
Let's talk about bonuses. We all love them, but do you know how they're taxed? The IRS considers bonuses as "supplemental wages," which means they can be taxed at a lower rate than your regular income which can lead to a big surprise tax bill at tax time. So, if you're expecting a bonus in 2024, make sure to factor that into your tax planning.
The Cost of Underpaying Estimates:
Now, the penalty isn't set in stone; it's a flexible creature. The amount depends on various factors, like how much you underpaid, for how long, and what the current interest rates are. The penalty is calculated quarterly, so the longer you owe, the more it adds up. For 2024, the IRA has raised the interest rate they charge on any underpayments to 8%, making the cost of underpaying your taxes even higher.
In conclusion, tax planning is more important than ever in 2024, with the new IRS interest rates and the potential for costly mistakes when it comes to bonuses. Don't let the IRS catch you off guard - be proactive and plan your taxes wisely.