How to plan your taxes for maximum benefit.

OldWiseGuy said:

The best scenario is to 'break even' at tax time. That way you have had the use of all your money throughout the year. This is great for paying down those high interest rate credit cards (the government pays you nothing for using your withholdings during the year, meanwhile you're paying interest to others unnecessarily).

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I have heard this before, but I much prefer having the maximum taken out each paycheck and getting a lump sum at the end of the year. So I have always claimed 0 on my W4 and always have a nice refund at the end of the year. My refund actually went up over $300 this year.

Now, if only my status would update from processing to refund will be sent...

OldWiseGuy said:

Lots of angst because of the new tax law. Mainly people owing big when they usually receive a refund. This is because employers have withheld much less under the new rules in many cases, leading to a large amount owed even though many tax rates have been reduced.

The best scenario is to 'break even' at tax time. That way you have had the use of all your money throughout the year. This is great for paying down those high interest rate credit cards (the government pays you nothing for using your withholdings during the year, meanwhile you're paying interest to others unnecessarily).

If your earnings don't change much, and you are able to sit down with your boss in this regard you can easily fix this problem.

Simply take last year's "tax due" as a guide for this year's State and Federal withholding as this is the approximate amount of withholding needed to break even or close to it. Divide that number by the number of pay periods (weekly, bi-weekly, monthly, etc.) and voila, you have the correct amount to be withheld from each paycheck to break even. Raises can be easily figured in as well.

You're welcome.

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I agree in principle.
I disagree as it applies to the specifics in the tax law changes this go around.

Breaking even should be the goal, on that we certainly agree.

If I may indulge:
My salary did not change from 2017 to 2018. The 'hourly rate' for which I am paid for 40 hours work each week was unchanged.
In February, even with the claim of a 'tax cut' my tax withholding went UP $7.72 per week. Even that additional withholding coming out each week it was not enough to offset the loss of SALT, home mortgage etc deductions etc. The SALT was huge and basically made the difference between last year's deductions and only qualifying for the standard deduction this year.

Also a change; my spouse is disabled and receives SS Disability. She did get an increase (about 2% iirc) last year. However, the BIG change in regards to her is that last year, those disability payments were 44% taxable income. They are now over 60% taxable as of this filing year.
The two items combined, loss of deductions and the increase in taxable income resulted in a $500+ tax bill this year, where last year I received a modest return.
Going forward, that is this year for next year's taxes - as you say, I can be much more prepared to give my income toward the relief of the financially oppressed billionaires the GOP caters to.

Boidae said:

I have heard this before, but I much prefer having the maximum taken out each paycheck and getting a lump sum at the end of the year. So I have always claimed 0 on my W4 and always have a nice refund at the end of the year. My refund actually went up over $300 this year.

Now, if only my status would update from processing to refund will be sent...

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Why would you loan your money to the gov. at 0% interest? It would be wiser to get your hard earned money throughout the year and invest it in something that at least pays you a dividend on your money. Then you can take that interest and pay what you owe to them at the end of the year. win/win for you...

Ancient of Days said:

Why would you loan your money to the gov. at 0% interest? It would be wiser to get your hard earned money throughout the year and invest it in something that at least pays you a dividend on your money. Then you can take that interest and pay what you owe to them at the end of the year. win/win for you...

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Because I like lump sums of money? I don't like investing in things to be honest.

That is all to complicated for me to try to understand. Paying into the government throughout the year gets me a large refund come tax season. That I do understand. Besides, what I would save in my paycheck, by not doing what I do, isn't going to net me near what I get in my refund each year.

To me, what I do is a win/win for me.

OldWiseGuy said:

Getting a large refund is like a forced savings account that pays no interest. Personally, because I like earning interest on all unneeded cash, I don't mind paying the gov't a few bucks each April. I have earned interest on their money throughout the year. It's only 'beer money' but it's still 'black ink'.

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As I said, other than a normal savings account which doesn't yield anywhere close to what I get in a refund come tax season, everything else is to complicated for me. I don't make much during the year and get all that I paid in and then much more on top of that back in my refund.

Oh, I get more back than I am guessing the two of you think I do. So, I get back what I paid in plus much more on top of that. So, in reality it is more than interest that I get back.

haven't done our taxes yet but prefer a refund

we've been saving tax refunds for our child's college education since we became parents

it's a painless way to save for her college so hoping we get the refund again this yr

OldWiseGuy said:

You aren't getting any 'free' money, only the return of excess withholding. You are loaning your money to the government but receiving no interest for it. And, if you are carrying credit card balances you are paying high interest that those withheld monies could be helping to pay for if you didn't have them withheld from your pay.

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What I am trying to tell you is that the amount that I would get each paycheck if I did it your way is miniscule to the refund that I get each year. The amount of interest on my cards doesn't add up to what I get each year either. I still come out way ahead. So, in essence, the government is giving me interest on it and a whole lot more on top of it.

I get back what I paid in, plus the child tax credit and the earned income credit. So, it's not just excess withholding.

For some people, getting it back at the end of the year works out better for them. I am one of those people. The little bit I would get in my paychecks would go to something else and not towards the credit card payments. When I get my large refund I am much better at putting large sums towards my payments.

OldWiseGuy said:

Lots of angst because of the new tax law. Mainly people owing big when they usually receive a refund.

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may be bad for the economy
average refund down almost $2,000 so far
so the economists watching may be feeling angst

Tax refunds are $11.5 billion behind our forecast: UBS