I've suggested more than a few times that you shouldn't give the government an interest-free loan but instead should set your W-4 deductions to a level where you get back very little of the federal income tax you've paid in each year. Wondering how to do that? Yahoo has some suggestions for calculating deductions on form W-4:
An allowance on Form W-4 is the equivalent of approximately $3,500 in tax deductions or around $1,000 in tax credits. If you came up with nine allowances, you should be expecting to have around $31,000 in deductions or an equivalent amount in credits (such as credit for a child under age 17). Your deductions and credits may actually be lower if you had excess withholding in the year.
The article also links to a calculator, so if you want a little more help, it's there.
Now is a great time of the year to consider changing your W-4 so you have the correct deductions and only pay the government what you owe them -- no more.
This year I took no federal income tax in December to give myself a little bonus and paid more on the rest of the months to make up for that. I itemize because I am a homeowner so I can afford it.
Posted by: Josh | December 21, 2007 at 11:56 AM