Setting Exemption Level

[Mike]

Any value from 0 to 99 can be put in the exemption column when it comes to tax information / witholding.

My question isn't so much what number I should put for my situation (I already have a reasonable idea of what that should be), but rather, I'm wondering if I could put some ridiculously high number there to minimize witholding to the extreme? Is that legal as long as I pay whatever I find that I owe when I file my return in '07 in a timely fashion?

The reason I ask is that I know exactly what percentage of my gross *should* be witheld for tax purposes. If I maximized my exemption level and paid no tax (or almost no tax), I would simply dump the excess money into a high yield savings account and earn 4%+ on it all year and then pocket the difference when I pay my taxes next year. I know I am disciplined enough to be able to do this. The question is... can I/should I?

Interestingly, this would also allow me to bump my TSP witholding up to a higher level, further reducing my tax liability.

 

[TiCKed]

Don't quote me.....

But I think there may be a penalty for not paying some minimum percentage during the year. No doubt, it's intended to prevent people from doing just what you suggest.

After all, they require people who get their income from non-W2 reportable sources to submit quarterly estimated taxes....

Suggest you wander around the IRS website before you try it.

 

[pyriel]

Any value from 0 to 99 can be put in the exemption column when it comes to tax information / witholding.

My question isn't so much what number I should put for my situation (I already have a reasonable idea of what that should be), but rather, I'm wondering if I could put some ridiculously high number there to minimize witholding to the extreme? Is that legal as long as I pay whatever I find that I owe when I file my return in '07 in a timely fashion?

The reason I ask is that I know exactly what percentage of my gross *should* be witheld for tax purposes. If I maximized my exemption level and paid no tax (or almost no tax), I would simply dump the excess money into a high yield savings account and earn 4%+ on it all year and then pocket the difference when I pay my taxes next year. I know I am disciplined enough to be able to do this. The question is... can I/should I?

Interestingly, this would also allow me to bump my TSP witholding up to a higher level, further reducing my tax liability.

Thanks Mike... You are finally putting the pieces together. First when you bought your first home and now getting to know more about withholding. They are all interrelated. By buying a home, it should help you with tax deductible that comes with it, depreciation and interest pmt. However, to use them, you must exceed the individual limit (for a single guy like you) or else, it become useless for you. To help you get to that goal, you must lower down your Adjusted Gross Income (AGI). To do this, you must do the following: 1) contribute max with your TSP. Can you imagine putting in the max of 15k would do to your W2 or AGI when you do your tax? 2) Since you will now be in the lower tax bracket, it means that you have to pay less taxes. If you are one of those individuals that are receiving thousands of dollars every year for your tax return, this means that you are one of the thousands that are overpaying your taxes. To get the money now and start utilizing them, you must adjust your W4 or withholding. You can do that in MyPay. You are allowed to put in a max of 10 without having to tell the IRS why. Once you put 11 or more, you must provide social security for each one of them. My wife and I currently have Married 10 for our W4s even though we only have two kids. This means that they are taking out less taxes from us every paycheck. This is good because we started putting in 15k each with our TSP this year and we have enough deductions from our real estate to offset the less taxes being taken from us. Bottom line, more exemption means less taxes being taken out every pay period. At the end of the year, since less taxes were taken out from you, this means that you might have to pay. However, if you know how to maximize your deductions (just like what you are doing now), then you end up lowering down your AGI and end up breaking even or even getting return back. I hope I made this clear as mud...;-)
P

 

[vicky]

Tax Penalty for Underpayment of Taxes F2210

There's a penalty for underpayment of taxes. It is based on % of underpayment and what your prior year's taxes were. Not sure this is exact Form but it will put you on the right track. Instructions are on line76, F1040.
Was going to attach Form but program will not allow - too large.

 

[Wizard]

Financial planning it is all ways wise to work your taxes so you get a little back after you file. The other way around can be very painful financially.

This year I will be getting $21.49 back.

 

[Mike]

I went through the pain-staking process of filling out the W-4 worksheet to see how it shakes out under various scenarios.

At 20% TSP witholding combined with all the other lovely stuff, I'm legitimately allowed 7-8 exemptions (pretty much smack dab in the middle of those numbers). So, I took 8.

 

[grandma]

Pyriel: I would suppose doing quarterly estimate pay-ins help figuring of taxes for the year?