Hi...should I adjust my tax witholding?

[rbracch]

Hi everyone,

How are ya. I’m new to the board and I appreciate you checkin’ out my post. I was wondering if I could ask a question regarding my personal tax withholdings. Here goes: A friend recently heard of the amount that I received from Uncle Sam as a tax refund, and said that I should adjust my tax withholdings in order to pocket more money now, invest of put it in a savings account, rather than give the government an “interest free loan” until refund time My tax situation is what I would call “very straightforward” - I’m single, work in the public sector and make around $75,000 per year of gross annual income, I rent an apartment, and my only significant investments are Roth IRA and 403b. Here are my key questions:
1.) Considering my tax bracket and other factors, is it worth it for me to adjust my tax withholdings?
2.) Should I hire a professional to determine the correct withholdings? Or, due to my relatively simple, straightforward tax situation, is there a way that I could crunch the numbers and figure it out myself? (perhaps using a “tax withholding” calculator or a website?) I definitely want to be careful, and don’t want to owe any money at tax time? Perhaps a CPA? Tax advisor? Online pro? CFA?

Thanks much in advance,
Reno

[Bob B.]

Check out this link. Fairly simple process. You.probably won't be able to change your 2012 refund much this late in the year, but go through it again next February, and then again each year.

IRS Withholding Calculator

[disneysteve]

If you get more than a few hundred dollars back as a refund, yes, you should change your withholding using the calculator Bob linked to.

[chrisburke21]

Tax Witholding

I agree with both posts in this link. The reason you want to adjust your witholding so you dont get much of a return at the end of the year is that when you get a large return you are basically giving Uncle Sam an interest free loan over the course of the year. Wouldnt you rather be earning some return on your money over the year by having this money sitting in one of your accounts even if it a minimal interest like a savings account.

[siggy_freud]

The exception, at least in my mind, is when people aren't good at saving the extra money. You will benefit from the extra 200 a month, and can make interest on that, but you have to be dedicated to doing so. If not, you're better off getting that lump sum, and thanking Uncle Sam for protecting that money from yourself for 12 months.

[creditcardfree]

The exception, at least in my mind, is when people aren't good at saving the extra money. You will benefit from the extra 200 a month, and can make interest on that, but you have to be dedicated to doing so. If not, you're better off getting that lump sum, and thanking Uncle Sam for protecting that money from yourself for 12 months.

Not sure I agree with you. Are you assuming that the person will actually save that lump sum when it arrives? Many that think this way, use it to pay off debt they have accumulated over the course of the year. This is debt they may not have accumulated if they had the cash in their pocket every month during the year. Others go out and splurge on something big that they probably don't need. Yes, I'm making some generalizations, but what percentage of the population actually saves this lump sum tax refund?

[siggy_freud]

That's true, and it completely depends on the person. I suppose I just know of too many ways to spend the extra 200-300 a month, that doesn't include, say, throwing it at student loans. However when I get a check for 2k from the government that I wasn't 'expecting', it isn't difficult for me to throw that at those long-term debts.

[amarowsky]

I don't necessarily agree. I think when people have a little extra check to check, it can be spent poorly by being a relatively unnoticeable increase that can be not utilized with monthly finance or lack there of.
But when you can expect and receive a sizeable chunk of money, it can be spent/invested/saved/ more wisely.

[amarowsky]

For most average people I know when it comes to budget. Myself included. I struggled to save until I started forcing myself to by automatically having a quarter outof my net check deposited into my separate online bank for my ef/investing

[Ramose]

I agree that depending on your discipline, it can be too easy to spend that extra $20 per week on frivolous things. For some people, the $1000 at the end of the year is less likely to be wasted.

Depending on the size of your return and your previous discipline, it might be better for you to keep your withholding the same as it has been in the past.

[Diavel_guy]

So I just used the IRS withholding calculator someone posted in this thread. It has me worried...

Anyway, new to the forum and this is my first post. Great topic. I'm a single guy, 0 withholding, no dependents, no home (rent), contribute 17k max to my 401k (also 5k to a traditional IRA which doesn't matter for this exercise I believe) and make $140,000 gross a year. Yet the calculator says I will still owe $400+ dollars at years end even while claiming 0. How is that possible? Shouldn't I at least break even at tax time if I have the maximum taxes taken out each check? What could I be doing wrong here?

[Diavel_guy]

So I just used the IRS withholding calculator someone posted in this thread. It has me worried...

Anyway, new to the forum and this is my first post. Great topic. I'm a single guy, 0 withholding, no dependents, no home (rent), contribute 17k max to my 401k (also 5k to a traditional IRA which doesn't matter for this exercise I believe) and make $140,000 gross a year. Yet the calculator says I will still owe $400+ dollars at years end even while claiming 0. How is that possible? Shouldn't I at least break even at tax time if I have the maximum taxes taken out each check? What could I be doing wrong here?

Does anybody have any thoughts on my question? Thanks!

[Sian]

So I just used the IRS withholding calculator someone posted in this thread. It has me worried...

Anyway, new to the forum and this is my first post. Great topic. I'm a single guy, 0 withholding, no dependents, no home (rent), contribute 17k max to my 401k (also 5k to a traditional IRA which doesn't matter for this exercise I believe) and make $140,000 gross a year. Yet the calculator says I will still owe $400+ dollars at years end even while claiming 0. How is that possible? Shouldn't I at least break even at tax time if I have the maximum taxes taken out each check? What could I be doing wrong here?

Hiya!

when using the calculator it asks you how much tax has been withheld to date. it also asks you what was withheld on your last check.

make sure that you correctly tell it how often you get paid monthly.

[Sian]

forgot to say:

don't worry if it's a bit off.

for me it says I owe $2k but i know i don't. currently my pay is tax exempt because i'm deployed so it doesn't know what to do with me lol.

but i did use it last year and it stated that i owed. but when it came to tax time i received a refund. (abt $1200)

i believe that if you have it at 0 withholding that you'll actually get a refund. another way to check is to start filling out your tax info.

go to something free like FreeTaxUSA® FREE Tax Filing, Online Return Preparation, E-file Income Taxes and start entering your information (you might need to guess on some things but more than likely you won't). that should give you a better idea of the situation.

let us know how it turns out for you.

[snafu]

rbraach: Does your refund result primarily from retirement contributions? If making changes results in about $100. a month, you could set up an automatic DCA [Dollar Cost Averaging] account with a low cost, highly respected Mutual Fund like Vanguard and let it accumulate for a year. You could re evaluate December 2013 and continue or not. The withholding can be adjusted back if you prefer the lump sum theory.

Have you checked with HR? Straightforward income is electronic DIY don't you think?