Taxes

• sportchampps

  BTW on the example above when you collect unemployment 99% of the time taxes are not withheld another example of an unexpected result that can happen to people.
• LJ

  

  sportchampps;1390978 wrote:BTW on the example above when you collect unemployment 99% of the time taxes are not withheld another example of an unexpected result that can happen to people.

  
  That's also the person's own stupid fault because it defaults to collect the tax and you can uncheck it for them to not take it. (Just helped my uncle file unemployment as his job contract ended). I dunno about other states, but that is how the system is in Ohio.
• fan_from_texas

  We did a preliminary run-through of our taxes today (still waiting on final numbers from accountant). It looks like we'll be paying about $10k this year. Oh well.
• sportchampps

  I would say most people who try to do what you are doing will be burned over time. Especially when someone is running their own business. Just last weekva new client who ran a very sussessful restaurent in New Albany get burned for these same reasons. He wanted as much cash flow to put back into the business as soon as possible and got some bad advice. He screwed up his calculations and now the IRS has shut him down. The IRS doesn't give you a second chance they give you penalties that will doom a small business. It's a situation where is playing with fire worth the potential losses. When it happens they which they had hired me earlier. The safest and most sound practice to find that perfect middle of the road area. I get a ton of clients each year who come into my offices panicked because they screwed up their estimated taxes per quarter and now need to find cash fast or their gonna go under. These companies are successful and well built but sometimes when a company has their money tied up in inventory there's no cash flow to bail them out and the penalties suffocate them. It's one of the sad truths of owning a small business that I see all the time. ( and sadly people wanna tax them even more and write more complicated tax codes for people to try and understand)
• WebFire

  I agree with the middle road. For about 3 years in a row we got a big return ($4k +), so a couple years ago I sat down and calculated what I really needed help out. Now we only get $800-1k back. I think that is good for me, because I do not want to owe anything at all. That leaves a nice cushion for that. And I'm not really missing out on anything with it being only 1k.
  
  And the 0% interest to the government is probably the weakest reason. Most people don't care and is has 0 affect on you. The ones I laugh at are the ones that get large returns and then spend it on things they wouldn't otherwise, because it is "free money". Idiots.
• LJ

  

  WebFire;1390996 wrote:The ones I laugh at are the ones that get large returns and then spend it on things they wouldn't otherwise, because it is "free money". Idiots.

  
  Those are mainly the people I am referring to. Usually every year on a forum or 2 you see a thread "what are you buying with your tax return?".
  
  Because I do estimated taxes mine is usually spot on. The wife gets around $150 fed and $100 state.
• gport_tennis

  We owed the federal 10 dollars this year. The tax preparer at H&R Block told us that we need to change our tax status that way more money is taken out of each paycheck so we can get a big refund. I look at her like she is a stupid idiot but I didn't feel like arguing with her
• LJ

  

  gport_tennis;1391001 wrote:We owed the federal 10 dollars this year. The tax preparer at H&R Block told us that we need to change our tax status that way more money is taken out of each paycheck so we can get a big refund. I look at her like she is a stupid idiot but I didn't feel like arguing with her

  
  They want you to do that so that you get them to front you your return and they can take a cut of it.
• hoops23

  

  I got a pretty big fed return thanks to my daughter, school, and a couple of other credits.
  
  I owe the state 3 bucks.
• Tiger2003

  

  Crimson and Gray Hair;1390560 wrote:Alrighty then! Sounds like your ducks are all in a row.

  
  Yes all of our ducks are in a row.
• gut

  hoops23;1391005 wrote:I got a pretty big fed return thanks to my daughter, school, and a couple of other credits.
  
  I owe the state 3 bucks.

  Yeah there is only so much one an do, legally, to reduce their withholding to offset credits/deductions. You would do this on your W-2 with your employer and up the number of exemptions. Some people take more exemptions then they are entitled to, though it's not technically legal.
  
  So most people with a lot of deductions (mortgage, higher state taxes, etc..) can do little to keep more of their money upfront. Investment income would usually offset that, but most people don't have much in the way of investment income.
• Pick6

  

  sportchampps;1390992 wrote:I would say most people who try to do what you are doing will be burned over time. Especially when someone is running their own business. Just last weekva new client who ran a very sussessful restaurent in New Albany get burned for these same reasons. He wanted as much cash flow to put back into the business as soon as possible and got some bad advice. He screwed up his calculations and now the IRS has shut him down. The IRS doesn't give you a second chance they give you penalties that will doom a small business. It's a situation where is playing with fire worth the potential losses. When it happens they which they had hired me earlier. The safest and most sound practice to find that perfect middle of the road area. I get a ton of clients each year who come into my offices panicked because they screwed up their estimated taxes per quarter and now need to find cash fast or their gonna go under. These companies are successful and well built but sometimes when a company has their money tied up in inventory there's no cash flow to bail them out and the penalties suffocate them. It's one of the sad truths of owning a small business that I see all the time. ( and sadly people wanna tax them even more and write more complicated tax codes for people to try and understand)

  Cant you cover your ass by quarterly payments together totaling 100% of last years taxes or 90% of your estimated current year taxes? Go the 100% every time and you dont have that problem.
• LJ

  

  gut;1391045 wrote:Yeah there is only so much one an do, legally, to reduce their withholding to offset credits/deductions. You would do this on your W-2 with your employer and up the number of exemptions. Some people take more exemptions then they are entitled to, though it's not technically legal.
  
  So most people with a lot of deductions (mortgage, higher state taxes, etc..) can do little to keep more of their money upfront. Investment income would usually offset that, but most people don't have much in the way of investment income.

  Wait what? None of this is correct.
  1. You can get the credits up front by upping your allowances
  2. You can claim as many exemptions as you want legally. The IRS will determine a max with a "lock-in". They only do this when you are getting penalized for way knowingly underpaying

  These penalties will apply if you deliberately and knowingly falsify your Form W-4 in an attempt to reduce or eliminate the proper withholding of taxes. A simple error or an honest mistake will not result in one of these penalties. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged a Form W-4 penalty.

  
  Gross underpayment is

  You do not owe a penalty if the total tax shown on your return minus the amount you paid through withholding (including excess social security and tier 1 railroad retirement (RRTA) tax withholding) is less than $1,000.

  
  
  So if you know that with your W2, itemized deductions, child credits etc, that your tax liability will be $5,000, you are not required to claim no more than a certain amount then get the rest as a refund, you can claim as many allowances that get you within -$1000 of that $5,000.
• gut

  Well, lesson learned. Didn't know you could jack up the exemptions like that. In retrospect, makes perfect sense rather than issue huge rebate checks.
• LJ

  

  gut;1391073 wrote:Well, lesson learned. Didn't know you could jack up the exemptions like that. In retrospect, makes perfect sense rather than issue huge rebate checks.

  In the days of paper only, some employers used to cap them to make payroll easier.
• gut

  LJ;1391075 wrote:In the days of paper only, some employers used to cap them to make payroll easier.

  I haven't read the instructions closely in some time, but they make it sound like you can only take exemptions for dependents. Probably why people think you aren't allowed to do it. That, and most people wouldn't do the math and probably end-up with a penalty for underpayment.
• LJ

  

  gut;1391082 wrote:I haven't read the instructions closely in some time, but they make it sound like you can only take exemptions for dependents. Probably why people think you aren't allowed to do it. That, and most people wouldn't do the math and probably end-up with a penalty for underpayment.

  They include the child tax credit on the worksheet now, and they have itemized deductions worksheet on page 2. I bet anything it is either the employer never gives the employee page 2, or most people just always remember that first job of theirs as teens where someone told them to claim either 0 or 1, so till this day they don't read the W4 and just claim 0 or 1
• Ironman92

  

  You guys really care about this.
  
  Enjoy.
• mcburg93

  

  LJ;1390984 wrote:That's also the person's own stupid fault because it defaults to collect the tax and you can uncheck it for them to not take it. (Just helped my uncle file unemployment as his job contract ended). I dunno about other states, but that is how the system is in Ohio.

  Your uncle must be stupid then. If he knew his contract was ending he should have figured that into his planning. That way he could have claimed zero on his unemployment and got more money.
• LJ

  

  mcburg93;1391128 wrote:Your uncle must be stupid then. If he knew his contract was ending he should have figured that into his planning. That way he could have claimed zero on his unemployment and got more money.

  Who said he knew he wasn't going to be renewed?
• mcburg93

  

  LJ;1391141 wrote:Who said he knew he wasn't going to be renewed?

  Just going off your statement is all.
• LJ

  

  mcburg93;1391146 wrote:Just going off your statement is all.

  Is this your attempt to be witty? You notice that the thread has been pretty well on topic for quite some time, then you come in and make a statement that makes no sense to try to bait me into arguing with you off topic. Then I suspect when that happens, you will go into the basement and make a thread about how bad this place sucks, how bad the mods suck, and probably report a ton of stupid posts.
  
  Nah, I'm not getting sucked into that. Have a good evening.
• mcburg93

  

  LJ;1391149 wrote:Is this your attempt to be witty? You notice that the thread has been pretty well on topic for quite some time, then you come in and make a statement that makes no sense to try to bait me into arguing with you off topic. Then I suspect when that happens, you will go into the basement and make a thread about how bad this place sucks, how bad the mods suck, and probably report a ton of stupid posts.
  
  Nah, I'm not getting sucked into that. Have a good evening.

  I have stayed on topic just as you. You said people are not good with money if they did not follow your/or certain guidelines. I was stating your uncle would fall in such a category. Sorry if that was off topic.
• LJ

  

  mcburg93;1391155 wrote:I have stayed on topic just as you. You said people are not good with money if they did not follow your/or certain guidelines. I was stating your uncle would fall in such a category. Sorry if that was off topic.

  Not even close.
  He is an idiot, but his 10% unemployment withholding will be well short of his marginal rate.
• jmog

  sportchampps;1390787 wrote:As a tax preparer I'll give you a few reasons why it's good to get a return.
  1. Protects against Tax surprises ie. let's say you sell some stocks at the advice of your advisor and you get hit with a tax penalty
  2. If you happen to lose your job and your calculations are off you will end up paying outta pocket at a bad time in your life and if you can't make the payment the penalties are way more then the interest.
  3. The opportunity cost is very low. Let's say it amounts to $100 a paycheck using current bank rates you would earn 6$ a year in interest.

  Except most of us are putting that $100 per paycheck into an IRA or 401k. Since both of those are tax deductions (tax free) it is already like ~$125/paycheck. Then, with the little bit of interest (6-8%) in the market you will end up with $660 more than just the $2600. Remember, it is not just the interest if you are putting it into an IRA/401k, it is the tax deductions as well.