As my profile says, I am the spouse (of a physician). I do all my family finances... investments, retirement accounts, taxes, etc. My wife became a partner midyear and went from salary to production. She also received dividends and has one more year of a sign on bonus. This last year, even with the addition of another child and no change in exemptions, we underpaid by about 8K. Fortunately we paid over 110% of last year's taxes and thus are safe from penalty thanks to the 110% safe harbor rule. Next year we won't have the safe harbor.
We have one more year of sign on bonus and we will get dividends with no withholding of taxes. IRS rules divides income over the 4 quarters (it doesn't matter if all the money is earned in one or two quarters, you are expected to pay at least 25% per quarter or subject to penalties, even if they owe you a refund!) so we need to make sure enough is taken out. However, my wife gets paid on a rolling quarterly average to get a percentage of the revenues. The percentage holds for 3 months (this quarter is 8.9%), but the monthly income varies due to what the clinic takes in. I am thinking of not changing the w-4 to 4 exemptions and leaving it at 3. I could pay some money into quarterly estimates, but the payroll company also take out money and makes adjustments each month.
What would you all do to make sure that enough taxes are withheld so not to be penalized by the IRS, but not overpay so that we don't get a large refund and we max out our money to be able to invest?
Thanks for your help
We have one more year of sign on bonus and we will get dividends with no withholding of taxes. IRS rules divides income over the 4 quarters (it doesn't matter if all the money is earned in one or two quarters, you are expected to pay at least 25% per quarter or subject to penalties, even if they owe you a refund!) so we need to make sure enough is taken out. However, my wife gets paid on a rolling quarterly average to get a percentage of the revenues. The percentage holds for 3 months (this quarter is 8.9%), but the monthly income varies due to what the clinic takes in. I am thinking of not changing the w-4 to 4 exemptions and leaving it at 3. I could pay some money into quarterly estimates, but the payroll company also take out money and makes adjustments each month.
What would you all do to make sure that enough taxes are withheld so not to be penalized by the IRS, but not overpay so that we don't get a large refund and we max out our money to be able to invest?
Thanks for your help
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