Does this sound right?

I got approximately $370,000 bonus for a lease. I am in Pennsylvania. My tax guy says I will have to pay about $112,000 in taxes. Is this right or am I missing something? Any ways to reduce this tax burdon? I bought ten acres this year with mineral rights for $100,000 and he said I could not take that off. If it were for a rental property, then would that make a difference? Any insight is appreciated, and thanks in advance. Mike

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Permalink Reply by Hunter on March 19, 2013 at 12:07pm
Congrats of the lease and bonus money. The 47% appreciates it!
Permalink Reply by Trapper on March 19, 2013 at 12:48pm

Sad but true Mike , it is considered income , and taxed accordingly. Property tax is deductible , as is sales tax on a new vehicle and quad. Be sure to make the quarterly or lump sum payments to the IRS and Harrisburg. Tax rates increased as of Jan.1st. If you got paid before that you will fair a little better than if paid in 2013 I think. Your tax guy should have the coupons you will need to send with your estimated tax payments. I just bit the bullet and mailed lump sum payments rather than the quarterly ones. Thank God mortgage interest and property taxes are deductible is all I can say for me! At least the township doesn't dip into it as it is not classified as wages or you would be paying them 1% too!

Honestly , though , it really didn't bother me all that much to pay it as it was a blessing to receive.

Glenn

P.S.

I am REALLY looking forward to paying income tax on some fat , juicy royalty checks some day! :-) Early retirement would sure be nice. Lot's of deer & turkey to hunt and critters to trap in my future , I hope!

Permalink Reply by Bob Moran on March 19, 2013 at 1:06pm

Glenn - Thanks for the tip about not owing township tax. I'm gathering from your post that we have the option of spreading the estimated tax out over all four quarters instead of paying lump sum in the quarter that it was received? Have you or anyone else reading this heard of the IRS Safe Harbor Rule? Thanks.

Permalink Reply by Trapper on March 19, 2013 at 1:25pm

Bob,

My tax lady gave me printouts of quarterly estimated tax coupons for both Federal and State Income tax. Like I said though I made lump sum payments using the 1st quarter coupons. She did say there is a penalty if you underpay by more than a certain percentage, so I sent a little extra to be safe. Funny there would be a penalty if you underpay , but not one cent in interest if you overpay! lol. Can't say I ever heard of the IRS Safe Harbor Rule. The local wage tax not applying is the way it is here in New Beaver Borough , PA. I assume it is statewide.

Glenn

Permalink Reply by Bob Moran on March 19, 2013 at 1:35pm

Thanks again. I'm sure we've had worse problems. Let's all hope they continue.

Permalink Reply by Tom R on March 20, 2013 at 2:41am

I'm not a tax pro or lawyer, but as far as I know the Safe Harbor rules only apply to whether or not you may be liable for an Underpayment of Estimated Tax Penalty. Basically, if you made on time quarterly estimated tax payments based on your previous year's income you can avoid the penalty. Does not effect how much tax you'll owe. Your tax guy should be able to provide a better explanation, but you can check out the instructions for Form 2210 (Underpayment of Estimated Tax) and 1040ES (Estimated Tax)  on the IRS website.

Permalink Reply by Ireland on March 19, 2013 at 1:57pm

I'd say that is in the ballpark. You have to pay PA state quartely taxes. Federal you can wait until April 15th to pay since they don't penalize you for not paying them quarterly and local doesn't get a dime of the money. I'd put the $ for federal in a CD or something until time to pay and make some $ off of it before you hand it over.

Congrats.

Permalink Reply by patrick on March 19, 2013 at 2:22pm

I received my bonus check in the forth quarter od 2011. The IRS claimed that I needed to pay as if I had gotten the check in the first quarter. The matter was resolved when I sent a copy of the check showing that  it was in the last quarter of the year that I received it. The short of it is that you need to pay the taxes in the quarter that it is received I think

Permalink Reply by Jack Straw on March 19, 2013 at 4:41pm

Mike, If you voted for Barak last November, $112,000 in taxes seems a bit low.

If you voted for the other guy, you have my sympathy ... $112,000 seems too high.

 

JS

Permalink Reply by Mark schweikert on March 19, 2013 at 5:29pm
Then thanks for your sympathy :(
Permalink Reply by Trapper on March 20, 2013 at 1:57am
This would be added to income earned as well.
Permalink Reply by Linda Masters on March 19, 2013 at 5:53pm

I believe the $370,000.00 would be fully taxable.

The $100,000.00 if you have a house that you've rented could be depreciated as well as any $ spent on updates, etc.  however if all you have is vacant land, then it can't be used as a write off.  Just like me buying another house, I don't receive any tax deduction because I own 3 properties in PA.  You'll pay taxes on them all!

Allot of people getting these big bonus checks never thought about paying Uncle Sam....it isn't free money!

Good Luck, will you be getting any royalities from either property?  If so - I suggest you get a good tax man, forming an LLC would be the only way to "shelter" some of the tax burden that I am aware of. 

Also, you may give a "gift" of $13,000.00 per person per year if you'd like to give some away to your kids, grandkids.  But you still have to pay the taxes on the sum received.

Those that are getting POW's - the money is also taxable, however only the damages are not!

Don't ever forget Uncle Sam.

 

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