any advice from any professionials, or just your personal experience, any insight would be great. we get married next week, so i am switching from single and 1 dependent, to married and zero, my wife is doing the same, switching to married but changing to zero exemptions, in an effort to avoid paying out at next year's end. i notice that doing this will raise each of our take home a little bit each pay period. the quick worksheet on our work's w4 says we'd owe $6400.00, even claiming zero to avoid oweing at the end of the year. combined we are over 100K but less than 125K, no children.
can this be right, also, what income levels combined would you have to be when you start paying at the end of the year, even claiming 0 exemptions/allowances? we do NOT own a house yet, so itemizing isn't an option for us for 2005.
any personal experiences, or professional advice opinions are greatly appreciated.
you need to go to the irs site and get the regs on underpaying your taxes during the year. there's a law about not paying enough during the year and they slap you with a penalty and could force you to make quarterly payments in subsequent years.
I always do my own taxes and I have investment properties so they're quite complicated. This is just a quick guess but your financial picture sounds close to what mine was just a few years ago before the properties. If both of you adjust your withholdings to reflect the following....
You, married but withhold at single rate
Her, married/zero
...and both of you have an extra 200 per month withheld. You should come fairly close to breaking even. My advice is to get Turbo Tax and play with it. It allows you to run different scenerios and experiment. We both have the same problem...we're both DINKS (dual income no kids). We get raped on taxes. I finally put a stop to that buy investing in property.
In all honesty, getting married benefits no one except the government. I would advise you to make some money disappear (legally of course), either through pre-tax 401k contributions or investing in real estate. While the Bush admin. gave some marriage penalty relief, they did not eliminate it.
you need to go to the irs site and get the regs on underpaying your taxes during the year. there's a law about not paying enough during the year and they slap you with a penalty and could force you to make quarterly payments in subsequent years.
This happened to me in 2002. I underpaid by $4600. There was a $60 penalty and they sent me the forms for quarterly payments but you're not forced to do it. I changed my withholdings for 2003 to give them an extra $400 per month and they were fine with that.
Just from a purely tax point of view, I would tell you not to get married. The marriage tax penalty has been temporarily reduced but not eliminated. Quite frankly, the federal government would lose too much tax revenues to permanently eliminate the marriage tax penalty. This is an area that I am very familiar with. I wrote several papers on this issue when I was first married.
There is a problem with the withholding tables for married couples. The withholding tables base your withholdings on your income alone. They do not consider the income of your spouse. The income of your spouse is simply added to yours, and does not benefit from the lower rates in the lower tax brackets. This is the reason why the withholding tables do not really worked very well for married couples where both spouses work.
Invariably, husbands and wives doing what you do (married with zero exemptions) generally find that this is insufficient withholding, and they'll owe additional tax at the end of the year. I wouldn't worry too much about the underpayment penalty as others have mentioned. This penalty is applied at the current market interest rate plus 6% and has many exceptions.
I would take the advice of the one gentleman who said to buy a program like TurboTax, or TaxAct and experiment with it.
thx smfcpacfp! yeah i don't think we're anywhere near that point where you have to worry about the penalty, just might owe a little. so, a good estimate would be: just figure what we'll make together this year, take the standard dedution off, i think it's ~9800 or so, then look up a tax table for that new adjusted amount, and see what the taxes would be? then project the fica withholding from our checks out to see how close we'll be at the end of year? again, can't itemize so standard ded is it. thanks again guys
My wife and I were similar last year (we made a little less combined). We looked it up on the irs site and they suggested having the primary wage earner mark down the minimum amount of taxes and the secondary earner mark down the max. I was amazed at the helpful tips they had (well, my wife was amazed because I didn't read them, but they sounded good when she told me about them).
I believe I claimed a 2 and she claimed 0. This past year we only owed $200 in taxes (probably $300 before business losses). However, I don't remember if this only works if you make disproportionate amounts. I bring home about 65-70% of our total comp.
chris
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chris j, i'm a little confused by your post, please clear it up for me. you say the primary wage earner put down the minimum taxes and secondary earner the max. then you say you're primary and you claimed 2 exemptions then the secondary earner put 0 exemptions? so are you saying by "minimum taxes" you mean take the min out of your check every pay period so you did 2 exemptions and your wife did zero? i am the secondary earner but not by a large percentage, approx 58% to 42%
Sorry that was unclear.
A the primary i paid fewer taxes (set my exemptions at 2 and as secondary my wife paid more taxes (we set her exemptions at 0).
Your description of estimating your taxes sounds far better than my seat of the pants approach, but I wanted to share what I did since I am close to you in wages, etc.
However, I just reread above and see that you don't have a house (no itemized). So I'm really not sure if it is as comparable as I thought.
well chrisj, yes we don't own a house yet, so itemizing really is out of the question. if you were ok doing 2 exemptions for you and none for the wife, then maybe we'll be okay both claiming zero, thusly evening out the fact we can't itemize as you did. any other experiences or advice?
texas...no state income tax. can write off state sales tax, but you 'd have to beat the standard deduction. i don't think we'll pay nearly 10 grand in state sales tax this year.
This year was a "test" for us - we were hoping that we could get it so that we only got a small refund or paid only a little in taxes so we could enjoy our money more during the year (no interest free loans for the government, and no pentalties for owing too much in taxes). We got lucky since I didn't run any numbers.
chrisj, the irs link was very helpful. that, along with a lot of help from SMFCPACFP, i've figured we're gonna be right where we need to be with married claiming zero, then help from 401k and student loan int deductions.
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The IRS site that chrisj recommended looks great. I would go there. It is cheaper than commercial software.
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