Here’s a popular money hack for those of us who have their income withheld by our employers. When you started working, you might remember filling out a W-4. The W-4, titled “Employee’s Withholding Allowance Certificate,” is where you indicate how many exemptions are eligible for and your employer uses that to determine the proper amount of withholding. Even if you were to use the IRS’ handy calculator (or use their rules listed on the form), you might find that you get a hefty rebate check each year. So, rather than give the government an interest free loan, adjust your withholdings so that you get as little of a rebate back as possible.
If you ever owe money, I would adjust your withholdings such that you don’t owe again next year. The Safe Harbor rules with respect to the pay-as-you-go aspect of income taxes is fairly easy. If you pay within 90% of your current year’s tax liability or pay over 100% of last year’s tax liability, then you’re safe. So if you received a rebate last year, you can adjust aggressively as long as you pay more taxes than you did last year or are within 90% of your target this year.
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