First off let me say that I am an idiot when it comes to taxes, and I can't stand the idea of actually trying to understand them. I am trying though.
My objective is to fill out a W-4 correctly and get that money back throughout the year that I have been getting as a refund for so long.
For the last 5 years or so, I've made enough money to just pay in extra throughout the year and not worry about it really. Then, at the end of the year I get a refund. It usually amounts to a rediculous amount of money, and I have grown accustomed to getting that back.
In further research about what I should be doing and why, I have only come to a state of confusion. I understand that I should be adjusting my witholdings so that I pay in just enough or a little more each year. I understand why - not giving the government an interest free loan, being able to use that money throughout the year, etc.
What I don't understand is some of the terminology, why I have to do certain things, and what certain things I have to do to make this come out right where I don't get messed up and end up owing a bunch of money.
I probably have a fairly simple tax situation, but there are some special things. I have been claiming single and 0 every since I was first employed almost 7 years ago. I got married in 2008 and had a child in 2009. I bought a house in 2006 as well. Alot has changed.
When I file my taxes every year I use Turbotax. From what it tells me, I pick itemized deductions over the "standard deduction". I don't fully understand this.
In any event, those deductions are pretty simple:
Daycare costs for our child, Mortgage interest, Vehicle tag tax, and a pair of boots for my work. That's about it. There may be some other small deduction here or there but nothing that is really worth it.
I work and my wife works as well, each for a different employer. I make the most money, a considerable bit more than my wife.
I was talking to an accountant friend of mine, but I'm pretty sure I just about got on his last nerve pressuring him with questions about how this is supposed to work. I don't want to keep asking questions, especially from somebody like that giving free advice. But in a nutshell, I'm in the same place I was when I started asking questions. I still don't understand why and how this works.
I have a couple of questions right off the bat, in addition to some much appreciated answers i may get regarding the w-4.
1. What is the definition of a dependent? The only thing I understand in this situation is my daughter. I understand she is a dependent. But what about my wife? Is she a dependednt that I can "claim" as well? What constitutes a dependent?
2. Allowances. Exemptions, deductions? What are each of these things, are they the same, and how do they apply to my w-4 form and my situation?
For what it's worth, my friend who is the acountant suggested I change my form to M and 3. From what I understand this means married and 3 allowances. I understand the married part but the allowances lost me as soon as he told me that. It isn't that I don't trust his advice, it's just that I don't fully understand this and I will not submit my w-4 until I do.
Thank you for any advice.
Tue Jan 18, 2011 9:52 pm
oldguy Senior Member
Cash: $ 715.00
Joined: 21 May 2006
The standard deuction for you & your wife is $11,600 for next year. So make certain that your mortgae interest, day care, and boots exceed this - if they don't you use the standard deduction to arrive at the lowest tax bill.
With the W4 - the M & 3 sounds about right, try it and see how it works. Remember, the W4 has nothing to do with your actual tax bill, it only adjusts your tax withholding. If your tax bill for 2011 is $10,000, it will still be $10,000 whether you have $8000 withheld or $12,000 withheld.
I try to underpay by $500 or $1000 so that I owe a bit in April.
Tue Jan 18, 2011 11:12 pm
coaster Senior Advisor
Cash: $ 1626.30
Joined: 11 Oct 2005
There's a withholding calculator on the IRS web site - and other financial sites as well - for you to calculate your allowances. TTax takes whichever gives you the lowest tax bill (providing you gave it all the right numbers). And don't feel bad about not understanding taxes. There are a lot of IRS people who don't either.
Wed Jan 19, 2011 4:48 am
J S Machine Member
Cash: $ 3.25
Joined: 16 Feb 2009
The mortgage interest is at about $8k and daycare costs are at about $5k. That puts us at $13K right there, so we are into the "itemized" deduction category.