Income tax witholding and life changes

Roger Roger

Roger Roger

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Ok guys here's my question. We've got a lot going on in our family this year, namely having a baby and my wife stopping work for that. I want to optimize my tax witholding so we have maximum cash flow available on a monthly basis but don't get hit by a big tax bill next year. Any good practical advice other than see an accountant (which we will gladly do if that's the recommended course of action)? I ran the W4 worksheet but it seems like that results in an almost absurdly low witholding.
 
ATN_Pilot said:
What he said. The calculator on the IRS.gov site is a very good tool.
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I have to go use that myself.

I never switched withholding when we went to a single income and it's been, well, an extended period of time so loaning the IRS money interest-free has to come to an end.
 
ATN_Pilot said:
I'm all about paying what I owe. But I don't give anyone an interest free loan, let alone the gubmint.
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Well it wasn't necessarily intentional as it was crafted to bring my income tax return to as close to $0 owed on either side as possible.

Vis a vis, the people that glowingly brag about how much money they "got back" from their income tax return. That simply means you've overpaid for no good reason.

Next time you borrow a dollar from the captain to pay the van driver, you are going to give him $1.02 the next day, yes? :) (kidding)
 
Roger Roger said:
Thanks. Done and will be changing a few things based on that.
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I don't know where you're at in terms of cfi/regional/major or something else.

When you ran the w-4 you mentioned that the withholding was absurdly low:

When I was just a new hire regional FO with a newborn and wife taking time off from her job for the new kid, I was pretty shocked that because I made so little, My tax liability was zero. I got back all the federal withholding for the first two years. It was only a couple hundred dollars. I could have had nothing withheld out of my paycheck for those two years.

Then on top of that, with EIC and child tax credits I ended up getting back about $3500 worth of tax credits back on top of the taxes that was withheld.

When the wife went back to work, though that situation changed a lot. Going from getting tax credits paid to you to owing 5 figures in taxes from one year to the next, all because the wife went back to work.
 
woodreau said:
I don't know where you're at in terms of cfi/regional/major or something else.

When you ran the w-4 you mentioned that the withholding was absurdly low:

When I was just a new hire regional FO with a newborn and wife taking time off from her job for the new kid, I was pretty shocked that because I made so little, My tax liability was zero. I got back all the federal withholding for the first two years. It was only a couple hundred dollars. I could have had nothing withheld out of my paycheck for those two years.

Then on top of that, with EIC and child tax credits I ended up getting back about $3500 worth of tax credits back on top of the taxes that was withheld.

When the wife went back to work, though that situation changed a lot. Going from getting tax credits paid to you to owing 5 figures in taxes from one year to the next, all because the wife went back to work.
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135 air taxi, make a touch over median family income.
 
If a tax bill of ~$500 will be upsetting to you at the end of the year, you could have them take out a custom amount of money per pay period, just in case. I used the IRS calculator before, but my withholding was lower than it should have been for some reason and I owed money. I had a pretty complicated tax situation that year, but something to consider.

You can use this tool, which will factor in 401k and insurance deductions:

http://www.adp.com/tools-and-resour...l-calculators/salary-paycheck-calculator.aspx
 
If I ended up owing the IRS $500 at the end of the year, I would be overjoyed. That means the government gave me an interest free loan for 12 months. Awesome!

It's always better to owe a little bit at the end of the year. If you get a refund, you screwed up.
 
ATN_Pilot said:
If I ended up owing the IRS $500 at the end of the year, I would be overjoyed. That means the government gave me an interest free loan for 12 months. Awesome!

It's always better to owe a little bit at the end of the year. If you get a refund, you screwed up.
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I usually try to do it the other way. If I give them a $200-400 loan it should be ok. Even if I did amazing in the market where that money would have headed anyway I would've only missed out on $60-$120 if it was another stellar 2013 30% increase.

I once royally screwed up and owed $3k when I was on only first year regional pay. No bueno. On the positive side I lost about 10 lbs from not being able to eat!
 
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