tax question bonus vs reg salary
02-03-2008, 05:58 AM
#11
I know, many angles to look at it. As a contractor, you should have higher income and higher deductible expenses. You should also have a higher net tax rate on a given level of income, since you're paying both the employee's and employer's share of payroll taxes.
02-03-2008, 12:00 PM
#12
Originally Posted by Chris S,Feb 3 2008, 06:58 AM
I know, many angles to look at it. As a contractor, you should have higher income and higher deductible expenses. You should also have a higher net tax rate on a given level of income, since you're paying both the employee's and employer's share of payroll taxes.
That was what I meant with the payroll taxes. You're paying both sides as a 1099 person. Now, if you slam a bunch of expenses against your income then you can bring your taxable income down, but you're still incurring those expenses and you will get caught at some point if you are expensing non-business items.
02-07-2008, 07:15 AM
#15
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When all is said and done it will be the same. Since you won't be earning a steady amount though your marginal tax might vary pretty widely. It can be quite entertaining how much tax you pay if you make all (or most) of your yearly income in a single month. Once the refund comes back you'll get it back though.
02-08-2008, 01:09 PM
#16
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Originally Posted by magician,Feb 1 2008, 08:08 PM
The withholding on the $30,000 bonus check will likely be a higher percentage than if you got $30,000 spread out throughout the year: most payroll services cannot seem to figure out that that's not a regular, biweekly paycheck.
There could also be a difference if you're considered an employee (W-2) as an accountant, but would be treated as an independent contractor (1099) as a salesman: self-employment tax. If you're an employee either way, there should be no difference ultimately: you'll get back that extra withholding as a tax refund.
There could also be a difference if you're considered an employee (W-2) as an accountant, but would be treated as an independent contractor (1099) as a salesman: self-employment tax. If you're an employee either way, there should be no difference ultimately: you'll get back that extra withholding as a tax refund.
02-18-2008, 12:31 PM
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Originally Posted by bat711,Feb 8 2008, 05:09 PM
I agree, a lot of places will withhold the max. tax rate on bonuses so that if you earn "too much" and end up up in a higher bracket you won't end up owing a bunch of money at tax time.
I work in the tax practice at a public accounting firm. Regardless of how much money is withheld from your bonus check you still have the same amount of income but federal tax payments reduce your tax liability dollar for dollar. Its a matter of tax me now or tax me later. You will pay the same amount in the end. I would personally prefer more tax be withheld so there are no big surprises in April but many people like cash in their pocket. If this bonus compensation is stock options, then I have no clue what the rules are but I would assume you recognize the fair value as income (and nothing would be withheld). The FV (income recognozed) would be your basis to determine capital gain/loss upon sale.
Back to the original question..with the state of the economy wouldnt you rather have the fixed income? I know a girl that never went to college and made $100k + in 2006 at a sales firm. I was really questioning my career choice until I found out she was unemployed along with half of the firm in 2007. It is clear to me that most people dont have excess cash to spend so dont rely on sales bonuses.
02-18-2008, 01:38 PM
#18
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Options carry no tax liability until they are exercised. They have no value and it would therefore be grossly unfair to tax someone for nothing. There is no telling what they might be worth at any point in time.
Think of it this way. If you were to get 10000 options at an exercise price of say $100/share vesting in say Feb 2010 with a current share price of $200 then how much are they worth? Exactly, nothing.
When you exercise those options in Feb 2010 for a then current price of $300/share then you will earn $2M in short term capital gains (you only owned the stock for an instant).
If on the other hand you exercised the options by buying the stock for $1M then again you owe nothing. You haven't made any money, you invested $1M of your own money in the stock. If you were to sell those stocks for $300 6 months later you would be taxed 15% on $2M in profit. If you were to sell those stocks for $100 some time after exercising then (say the company had some really nasty thing happen right after you made your $1M investment in stock and the stock price was cut by 2/3's) then again, you make nothing and owe nothing in tax.
The tax value of the options comes from the difference between the exercise price and the current stock price at the time you execute the options. That is only known if/when you exercise.
Think of it this way. If you were to get 10000 options at an exercise price of say $100/share vesting in say Feb 2010 with a current share price of $200 then how much are they worth? Exactly, nothing.
When you exercise those options in Feb 2010 for a then current price of $300/share then you will earn $2M in short term capital gains (you only owned the stock for an instant).
If on the other hand you exercised the options by buying the stock for $1M then again you owe nothing. You haven't made any money, you invested $1M of your own money in the stock. If you were to sell those stocks for $300 6 months later you would be taxed 15% on $2M in profit. If you were to sell those stocks for $100 some time after exercising then (say the company had some really nasty thing happen right after you made your $1M investment in stock and the stock price was cut by 2/3's) then again, you make nothing and owe nothing in tax.
The tax value of the options comes from the difference between the exercise price and the current stock price at the time you execute the options. That is only known if/when you exercise.
02-18-2008, 03:18 PM
#19
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i got some options with exercise price at 39.xx, our company's stock is now at 34.xx....so i dont think i ll have to worry about my options being taxed 
damn recession
damn recession