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May 23, 2012


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#7 could be a bit more clear - it is NOT smart to claim maximum allowances on your W-4 unless you really do qualify for them. It's my understanding that the IRS does not look kindly upon those and can impose penalties for grossly misstating your allowances. Same for those who are self-employed, the IRS does not look kindly upon massive underpayments throughout the year, just to let you catch up at the end of the year. The IRS wants their money ASAP, not just in April.

Mild underpayments are OK though, in both situations, and probably the way to play it.

#7 should say as close to getting no refund or paying as little as possible. Period.

Too much money back and having outstanding debt is bad. Needing to pay and not having money to pay is even worse.

That is my goal. I sometimes hit it but some times you just have a hard time hitting the mark.

Sandy, I agree! It definitely is NOT smart to "doctor up" a W-4 with bogus allowances. But I do think that it IS smart to talk with an expert to make sure that you fully understand which allowances you do or don't qualify for. Sometimes people leave allowances on the table that they're perfectly qualified for, just because they weren't sure, and decided to "play it safe" instead of asking. What I'm suggesting in #7 is that it can be well worth it to check out your true allowance eligibility in order to make a fully informed decision.

Matt, what I do is this: I estimate my year's tax liability (using an estimate closer to 'worst case'), and subtract what I know my withholding will be. So then I have, in black and white, a pretty safe estimate of how big a check I'll have to write. Then, I keep that money in a SEPARATE bank account, and DON'T touch it for any other reason. I agree, I don't want to be in situation of owing what I don't have - so I keep it separate. While it's there, I'm earning interest on *my* money - and Uncle Sam isn't.

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