Your tax withholding strategy
 

Just a poll for random discussion now that tax season is rolling around again...

I typically owe $2500-$3000 every year. Why let the Government earn interest on your money?

I know logically it doesn't make sense, but I tend to fall into category 1. I like getting a nice "bonus" each year that I can then use for big purchases all at once. It's like a forced savings account. Granted, a savings account that pays no interest, but it's not like interest rates are any good with others right now anyway.

The reason the question is on my mind is that, with the recent changes to our taxes, I'd like to not take a "pay cut" on a monthly basis due to the new laws, so I'm considering reducing my withholding a bit to make up for it. We'll see.

I pound the hell out of the 401k so I don't make as much for them to take taxes from (now)

**** the Gubment, I ain't letting them hold my money for free, I would rather pay on the last day.

This

Same or similar

I voted #1. I can claim two on my tax returns but during the year I withhold for 1 so hope for the best return tax $$ I can get.

I just hope the hospital doesn't take what I owe them for not paying them this year.

Under. No way I am giving the government an interest free loan.

Every year I alternate between owing about $150 to getting $150 back. I adjust yearly to make sure I pay just about the right amount.

Because that $.42 in interest from your 1 YR certificate of deposit is going to make a huge difference in your standard of living?

Bob Dole gave up saving 2 years ago and started buying shit that should appreciate. Had the withholdings down to +/- $250 for a decade, but just had a significant change in salary, and have avoided trying to figure out the impact. Not looking forward to the tax form this year...

Move to Belize

I try to get as close to $0 at the end of the year as possible. No refund, no bill.

Actually, Bob Dole is having a discussion with some friends who are already there and a small group contemplating the idea of joining them.

Bob Dole's taxes are a mess... Stupid Bob Dole bought a house that doesn't even generate enough taxes and interest for Bob Dole to itemize.

Claim Married and 3 all year even though I'm divorced and have 1 dependent child and I'm still getting back around 3600(so far).

I claim exempt and then cheat.

It's not a bad gig and I plan on it when I retire. If it looks like you are going to do it, shoot me a PM.

Withhold as much as possible then lie your ass off come tax time.

Never was brave enough to cheat on my taxes

FYP

Tax time makes me cry.

By far the most depressing thing about being self employed. Drought, Risk Exposure, Stress, uncertainty all suck, but paying that tax bill is awful. Terrible. Hate it.

Oh. And Gaz. I run an estimate in November and see what I need to do from a tax strategy standpoint. The IRS does allow cash based accounting so that is a huge plus to my industry.

I get 1099's... Sucks to pay taxes on those

Yessir. My guess is you have a better shot of getting back your SS and Medicare taxes than I do.

BOHICA?

I make several large donations to charity each month. My taxes go to them

The interest lost by giving the govt a "free loan" is miniscule. All in all, the pain in writing $1000 check or whatever all at once in April is more than the pain in knowing I gave up a tiny bit of interest over the year.

I try not to give them any more than I need to, my issue is that I'm a moving target at tax time. Some years I'm writing a check, some I'm getting some back.

Either way...it always feels like I'm working too many days and too many hours to pay "my fair share" while so many get a "refund" without paying in.

I have no choice but to over-withhold. My income is relatively volatile and the risk of paying a penalty for underpayment is greater than the interest cost of overwithholding.

I let them earn interest on my money...I like getting a return every February or March.

Well I got $900 back today ($570 Federal / $330 State)

I had 1 witholding for my Federal and 0 for state, and I've only been working since March 1st.

Also, my Federal was going to be $850 on its own just based on my W-2 from work, but in Jan 2012, I had nearly $1200 paid to me in unemployment compensation with no federal tax withheld on it so it brought me down to $570.

Anyhow, what is the best strategy for me to take the $37.50 a paycheck (every two weeks) extra that I was paying (possibly more, not sure based on the unemployment skewing things, might be more like $50 or more) as taxes and put it into some account where it will grow?

Not sure if my best option is to just put it in a savings account or what.

This is what I did, and your second paragraph is exactly why I changed my withholding. I still over-withhold, I just don't do as much.

Do you have any sort of retirement account?

Because anything I could put it into for such a short period wouldn't yield me anything worthwhile. I don't want to hassle putting it into a CD for 1% and a penalty for early removal. I have two accounts which would net me a whopping less than 1%, so I am not going to mess with it. I like getting a "bonus" so to speak every year. Just my opinion.

Could you PM me a great retirement account to start up? My wife has a 403b through her work, but I need to set something up as well.

Hmmm how are you getting anything back today when the IRS isn't accepting returns until the 30th of January?
Did the government go ahead and start taking them now?

Pay my cpa to figure it out for me.
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I recently (August '12) had a significant bump up in pay;
I don't have any itemized deductions; so I need to remove my standard deduction from our gross income, and determine wha the taxable piece is - then compare to our current witholdings.

We're gonig to need to really adjust our 401k contributions to lower the taxable income (which is a good thing!). I want to be as close to 0 as possible in terms of a return

This is my question. I was of the understanding that you couldn't e-file until 1/31/13.

TaxAct. California already accepted my return. Federal is pending.

Precisely this.

My Taxes are mega-complicated, as I pay State Tax in 6-8 different states via my Partnerships. We set a strategy in January and follow the course throughout the year. If we need to adjust, we can do it, but generally, we stay the course.

holy shit.

yeah....CPA route lol. That's insane

Still waiting on some 1098 & 1099 forms, but I thought I was going to owe ~$50 this year but now it looks like I'll be getting a nice refund. PBJ

Didn't expect to get a tuition & fees deduction and I guess the IRS withholding calculator didn't properly adjust my taxable income due to pre-tax contributions to retirement & health accounts.

Every January I reset back to the typical default withholding and don't think about it till October. In October I take a close look at what I've withheld and what I'll likely owe, then I adjust for the rest of the year.

I get the best of both worlds. The government does not get an interest-free loan, and I basically get a 3-month "bonus" during the holiday season when people sometimes need more money anyway.

Stop getting those huge refunds, give yourself a 3-month pay-raise at the end of every year instead.

I usually make pretty sound, logical financial decisions. This is the exception. I know it makes zero sense, but I like getting a big return.

Just be careful. If you are too underwithheld you'll have to pay interest & penalty to them.

when in doubt, just withhold what you owed the prior year, that is a safe harbor even if you end up massively under-withheld.

110% if your taxable income is over $150K & you aren't a farmer, but yes. Not a bad idea.

We generally don't go out of our way to overpay, but we always do and get a decent return each year. I like getting the return because we almost always use the money on something that we've needed but didn't have the money for, or a trip, etc.

This.

It helps after buying a house because we can take that money and put it back into the house.

My strategy

Yup.

Let's see.....this year any return goes to finishing the basement or a damn fence for our backyard. Or a new bed.....**** we need a new bed.

I think we're going to get hardwood floors in the kitchen and living rooms.

Nice!

I'd like to do that and add an overhang in our backyard. We'll see though.

Last year we got close to $9000 back and that was before the whole buying a house thing.

Wow. That's a ton back. When we still had daycare, we were getting back $4,000-$6,000.

Damn.. that's way overpaying.

We get a shit ton of credits.

3 kids
Day care credit
School Credit for my wife
School loan interest for myself.

Well and my wife doesn't pay state taxes....so I get to claim all of that for my state taxes.

That's a bit morethan we get back. Last year we were aroind $7K.

I'm not trying to be an ass, but why don't you do it yourself. I recognize the thrill of getting a big check. I also recognize that it is tough to save the money.

But I can't get on board with this type of saving. If you are a monthly paycheck guy, you can do the same thing. If you got $6000 return, just adjust your withholdings to get that money coming your way and then just set up a direct deposit to a savings. $6000 is serious money. $100 may not be worth jacking with but $6000? Wow.

If you NEED the money, you could have access to it. Kid gets sick, water heater blows up, car wreck, that type of thing, you can have access to the money. Even if it happened November-December, waiting till march-April would suck. You could theortetically borrow against it but then you have application fees and interest. I know the thought of .25% interest is not exciting at all. But NOT having access to $6000 is nowhere near worth seeing a big deposit come through.

Oh, I understand. But take into acct like Pest that we had huge deductions for child care, etc. I'm the type of person that I balance my spending around what I have - regardless of the amount.

Yeah, having an extra $200/paycheck would be nice, but I find that I get more done with a return than I would with a little bit of extra money per paycheck. Ideally I'd like to be in the $1,000 range - I'll never try to get even or even owe anything.

This year should be a good indicator of where we are - it will be the first year without any daycare, etc.

I recognize the inclination to spend it if you hae it, but sock it away in a savings account and don't look at it.

Exactly, I claim exempt.