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2006 estimated tax question

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    2006 estimated tax question

    I have a question regarding a client's 2006 estimated taxes. Client called today and said that he just found out what his yearly bonus is going to be that he'll receive in 2 weeks. Last year was only $10,000, but this year, is $100,000. They did receive a small refund for 2005, based on a taxable income of $97,312 (25% tax bracket). Client expects his other income to be fairly comparable for 2006 to his 2005, as well as deductions and exemptions.

    I am going to take a peek at things for him to see whereabouts his estimated tax payments will be based on the above information.

    My question is: Is there anything I should take into consideration or watch out for?

    Secondly: Client asked me on a personal level, did I have any thoughts as to what he should do with the money investment-wise. He'd like to take at least $50,000 and put it back into the company, and he'll earn a 10% monthly rate of return (of course, there will also be his income from the monthly 10% investment). He is a silent partner in the company he works for and is on salary. Do you have any thoughts or advice as to what would be the best direction to go? For some additional backround, he is 52 years old, married, one dependent ('06 will be the last year to claim her), and has a mortgage of $200,000, and 2 brand new cars with loans on them.

    Any input will be appreciated!

    Bonus Pay

    How is the bonus being paid out. If on a W-2, then the employer should deduct the appropriate withholdings such as 28% fed withholding and 6% state withholding. If on a 1099, then your t/p, should file in the estimated payment at least based on the above, plus the SE/mcare.



      First question: Make sure you also consider AMT. A $100,000 bonus will probably make AMT kick in which could throw off your estimates.

      Second question: Unless you are trained or licensed as a financial planner, be careful about offering your opinion on investment advise. If you are just a tax accountant, your advise is no more justified than him asking his barber what to invest in.

      Investment advise can be dangerous. Does your liability coverage include investment counseling? What if you agree with him that taking 50% of his bonus and putting it back into the company is a good thing. Then one year later his company goes belly up and you get sued because you did not warn him about some risk he thinks you should have known about?