Thursday, August 18, 2011

Are you faced with a big tax bill next April?

Now that we are not paying as much in mortgage interest we will not be able to deduct as much interest on our taxes. I'm also making some extra income that I'm not currently withholding tax on, so I'm getting concerned about just how bad our tax bill will be.  I decided to spread some of that pain out and change my tax allowances on my income from my full time job.  I admit, I don't know a lot of about taxes, so when I filled out my W4 when I first started my job, I didn't know if a higher the number meant more or less taxes are taken out.  After some research I found out that the higher the number, the less tax they will take out of your paycheck.  Mine was set at "1", which was fine for last year, but this year they are not taking enough out. So, I just had it changed to "0" so more taxes will be taken out of my paychecks, but we won't have to pay as much when we file next year.  I just got my first paycheck since this change and it was $12.99 less than normal.  So with about 19 weeks left of the year, our tax burden should be $246.81 less.

So, if you think you're going to be paying in next spring, talk to your employer about changing your W4 and change your allowances to a lower number.  If you get a huge refund every year, and want some extra cash before the holidays, then a way to get more money now is to change your allowances to a higher number.

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