Tax question

[PennPA4]

I find myself is a little new situation. For the first time in my life even though I do "0" exemptions I still owe significant taxes to Uncle Sam due to significant increase in salaries of myself and my spouse. My question does anyone knows of ways besides stash all of the money into IRAs ( I still want to use money now and not in 30 years from now) to reduce gross taxable income.

[jmj11]

Of course you can put it in an IRA, but a limited amount. Here are the rules for next year.  You can also take out more than what you deductions would indicate on your W 2. Or you can increase you deductions like giving 90% of your income to charity, like save the Norwegian Rats fund. 

[CAAdmission]

You are always better off owing at least a little money to Uncle Sam at the end of the year. If you get big refunds back, you are basically giving Uncle Sam a free loan. If you do so, you can rest assured he will be doing stupid stuff with your money.

[delco714]

You are always better off owing at least a little money to Uncle Sam at the end of the year. If you get big refunds back, you are basically giving Uncle Sam a free loan. If you do so, you can rest assured he will be doing stupid stuff with your money.

This made me chuckle. Mostly correct even with the flair of satire

[Reality Check 2]

Check your W4 against what is actually being taken out of your check.

 

My ortho practice took the wrong amount out of my paycheck for FOUR YEARS.

 

I didn't notice as I never went to my paystub and calculated the percentage of withholding and it took my CPA a bit to figure it out as well.

 

One would hope that the person doing payroll would actually verify what is being done when entered into the computer system.

 

After the 3rd year of owing 2000-5000 dollars, he was perplexed. Turns out I was not having enough withheld. However, no recourse for our dingbat payroll person - she took out taxes - just not what I told her or signed off on. 

 

I fixed the W4 and triple checked paychecks for a while. Next year after that, voila - $1000 refund.

 

You can add extra amounts of withholding to each paycheck as a buffer. I added as little as $150 per paycheck and it came out in my favor.

 

Of course, I am a PA and not an accountant….. might want to ask a CPA instead of PA-C about the fine print.

[GetMeOuttaThisMess]

One of the things that I've done for years is to establish a spreadsheet with my salary/anticipated income for each year and enter fields for each credit/debit so I can anticipate the amount down to within a penny or so.  Once you have it established correctly you can make simple withholding modifications annually as the tax rates change (you can find the tables in IRS Pub. 15 around the beginning of each year).  The nice thing about such a spreadsheet is that you can see how much of an impact pre-tax/post-tax deductions make (401K versus Roth IRA through work for example).  The other nice feature is that you can have tabs at the bottom of each spreadsheet (I have one for myself and one for my wife) for each year for quick reference as well as being able to copy/paste the prior year spreadsheet into the new one without having to re-enter each new field and formula.

 

While I don't disagree with the idea of a large refund being a tax-free loan to the fed during the year, for those who have trouble saving it can be a tool for forced saving which can then be deposited annually at the time of the refund receipt.  One would argue that if one isn't able to save during the year why would they deposit the refund into a savings account but to each his/her own.  You can receive the refund and immediately deposit it into a qualified retirement account so as not to be tempted to spend it.  Easiest way to increase likelihood of a refund is to withhold at single/0 rate regardless of marital status or number of kids, assuming your income allows for same.