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This is bad advice. Why give the IRS use of your money only to receive a "bigger refund?" You could have invested that money over the course of the tax year and earned interest/dividends. Does the IRS refund your money with additional interest?
All tax payers should try as close as possible to break even at tax time, or perhaps owe a few dollars. The notion of a "big refund" as a savings strategy is misguided.
I wasn't advising that, I was saying what I did. OP already said she wants to keep more each month. I did it because it was much easier for me to save it when I got it in a lump sum that I would have little by little each month. If I got an extra $18 a pay, I most likely wouldn't have saved it, but the lump I always did. Human motivation is not always based on logic, and for whatever reasons this method worked for me.
Allowances are what's on a W-4 and these are basically just estimates so you have an appropriate amount withheld. You can vary these depending on where you think you'll end up.
Exemptions are what you claim on your 1040 that account for people who are dependent on you and the like. You can't fudge this number. These reduce your taxable income.
Deductions are chunks of money you also take off of your taxable income on your 1040 for things like property taxes, state/local income taxes, charitable givings, mortgage interest, etc.
# Allowances do not have to exactly match what you ultimately put as your # of Exemptions at the end of the year.
It doesn't tell you how how many exemptions or deductions you should have, but it tells you how much your federal income taxes will be. Then you can adjust your deductions based on that.
Even a couple accountant friends have given me conflicting answers on this question. I've tried all the tax calculator tools out there but again there are questions on it I can't answer. Just shows how confusing our tax structure is.
I make 33k. I get tax credit for student loan interest ($60 a month interest) and education credits for graduate school. I've decided not to defer loans and pay them now.
Does 3 allowances sound right? Or 2? It won't matter if I owe a little come tax time but I'd like to keep as much as I can of my take home pay to pay rent, student loans etc. I don't see any point in just giving the government the extra money interest fee when i could be paying off more debt with it.
This is bad advice. Why give the IRS use of your money only to receive a "bigger refund?" You could have invested that money over the course of the tax year and earned interest/dividends. Does the IRS refund your money with additional interest?
All tax payers should try as close as possible to break even at tax time, or perhaps owe a few dollars. The notion of a "big refund" as a savings strategy is misguided.
I disagree. If saving accounts were paying a decent interest rate, than yes I could agree with you that setting your deductions too low will cost you interest you could have earned. The current savings account interest rate is less than ¼ of a percent, so even if you have $5,000 in the bank, that will be only $12.50 and that’s assuming you have 5k in the bank for the entire year, but your accumulating that amount over the year. Your earned interest is more like $7. If saving account rates were at 5% like they used to be, that be more like $150, that would actually be worth the bother. Your better off getting the “Big” check at the end of the year, it’s a forced saving plan, then trying to balance your deductions with your income just isn’t worth the bother for the few dollars you would save. Not only that, often your “savings” just get pissed away on the extra cup of Starbucks every week, it sounds great in theory, but the reality is almost no one saves that extra few bucks by balancing out your tax withholdings.
I always claim Zero deductions.
Quote:
Originally Posted by pit2atl
Put 3 and call it a day. At 33k you should break even may even still get 1 or 200$ back
I disagree, put Zero, this way you know you will not owe any money at the end of the year.
I disagree. If saving accounts were paying a decent interest rate, than yes I could agree with you that setting your deductions too low will cost you interest you could have earned. The current savings account interest rate is less than ¼ of a percent, so even if you have $5,000 in the bank, that will be only $12.50 and that’s assuming you have 5k in the bank for the entire year, but your accumulating that amount over the year. Your earned interest is more like $7. If saving account rates were at 5% like they used to be, that be more like $150, that would actually be worth the bother. Your better off getting the “Big” check at the end of the year, it’s a forced saving plan, then trying to balance your deductions with your income just isn’t worth the bother for the few dollars you would save. Not only that, often your “savings” just get pissed away on the extra cup of Starbucks every week, it sounds great in theory, but the reality is almost no one saves that extra few bucks by balancing out your tax withholdings.
I always claim Zero deductions.
I disagree, put Zero, this way you know you will not owe any money at the end of the year.
I put 3.
If I put 0 I'd have less money each month to pay off student loans. Why give the government my money for a year interest free when I could keep more, pay a higher monthly student loan bill, and thus pay less interest on the loans?
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