Here's the next item I wanted to cover from Kiplinger's "The Best List" (November issue.) Today, we're highlighting the best way to boost your take home pay:
The Best Way to Boost Your Take Home Pay: Don't overpay your taxes.
If you regularly get a [tax] refund, you're paying too much. Give yourself a pay raise by using our tax-withholding calculator. Then revise your Form W-4.
Ok, so it's a bit of self-promotion for Kiplinger's, but it's still a good tip. I'm not sure if it's the best way to boost your pay (see Free Money Finance Guide to Making More Money for other suggestions), but it's certainly an easy one that can add some extra money to your check rather quickly.
I've written on this topic a few times myself. See Get Next Year's Tax Refund Now and Getting a Tax Refund is Costing Americans Billions for details.
An aside to this tip: Don't use that "extra" money on crap. Use it for something that will help you, like an IRA, emergency fund, or mortgage payments.
Posted by: Binary Dollar | October 25, 2006 at 09:26 AM
I hate calculators like this. They are completely irrelevant to me. I have my taxes figured out for my past situation, where I wind up owing about $100 every year come tax time.
This year, with a house, new side income, a marriage, and my wife quitting her job to go to law school, everything is different so I have no idea if I am withholding too much or not enough.
These tools ask how things were last year, but give me no way to input what my actual situation is. Obviously, if I got a big refund last year, then I do not need as much withheld. I'd rather be able to give it hypothetical info and have it tell me how much I should be having withheld.
Posted by: Blaine Moore (First Time Homeowner) | October 25, 2006 at 01:34 PM
Am I naive? I've always filled out my W-4 'by the book' following its instructions, as I figure that's the law and doing otherwise (i.e., adding another exemption/deduction even though I am unmarried and have no dependents) would be illegal.
Posted by: Cleophus | October 25, 2006 at 02:27 PM
I have used that calculator before and it told me to report the same number of withholdings that I already do...so it was pointless to me. And I like getting a refund, and use it to pay off bills or get that extra something (like new glasses). This year it will go towards grad school!!
Posted by: Jo | October 25, 2006 at 03:49 PM
Cleophus,
You can complete your W-4 any way you would like - it is how you file your taxes (as single, married, etc.) that has to be truthful.
The W-4 is basically a form that employers use to determine how much you take out of your check for taxes...
Blaine,
I totally see your point & that is why I do a projection at least every three months that tells me how much I am on track to earn and withhold for the year along with an ESTIMATE of end of year deduction, exemption, credits, etc to get me to a final tax payable/receivable figure.
Maybe Mr FMF could post a formula for people in your situation...
Posted by: ChrisCPA | October 25, 2006 at 06:15 PM