Figuring Out Taxes?

[geojen]

How do you go about figuring out how much you will owe in taxes in any given year? DH and I just bought a home in Feb, and I am trying to figure out how to adjust our withholding to have more take-home pay and less of a refund. But, I'm scared that I'm going to screw it up and owe a ton of money in April.

[noppenbd]

The IRS has a withholding calculator but you have to pretty familiar with tax terminology.

Turbotax has an estimator that uses plain english. Go to the link below and Click on "Tax Estimator". You can change the tax year to 2008. You will need an estimate of the mortgage interest you will pay this year (don't forget to include any points you paid at closing), plus real estate taxes.

TurboTax® Free Tax Tools - Free Income Tax Calculators, Tax Forms, Tax Tips, Tax Help

[sweeps]

People seem to like Paycheck City's calculator.

[geojen]

Are these calculators what you use? I guess my total ignorance of the tax code makes me nervous.

[sweeps]

If you have a simple situation (1040EZ), they're probably fine, but I'm skeptical of them for more complicated situations. I just use trial and error. If I overwithheld the previous year, I'll bump up my exemptions by 1 (2 if I'm way off). Then in 6 months, I'll do a dry run of my taxes and see where I am again. I might tweak it again.

At the same time I'll see if I need to tweak my 401k contribution. I might raise it or drop it a percentage or two to make sure I hit the max at the end of the year.

I know some people prefer to owe a little bit on their taxes at the end of the year. I'm not fanatical about that. I like to err on the side of about a $500-$1000 refund.

[MonkeyMama]

I am a tax accountant and I would recommend all of the above.

The IRS withholding calculator is very good (& a tad conservative. Gee, who'd guess the IRS would want you to withhold more than you need to? ). But I also understand people don't like to owe - so conservative is good.

It's a good calculator, even for the complex situation, if you can understand it.

Then, once it tells you how many exemptions, you can plug in your info at paycheck city and see what your paycheck will look like. You can then adjust accordingly, if you want to be more aggressive or conservative, and play around with what different withholding amounts do to your check.

But I just wanted to chime in that both are great resources.

If you use Turbo Tax, or any software, that may be even better. (Easier to understand anyway, in place of the IRS calculator).

[lehresman]

The IRS has a helpful calculator that figures out your withholdings for your W-4 and tells you how much you can expect to pay in taxes for a given year. It's pretty good, I used it just this morning to adjust my W-4.

IRS Withholding Calculator

[MiikeB]

How accurate is that turbo tax calculator?

I just ran through it and it said my estimated refund was around 9,000!

I make 35,500 a year, this is my first year of my mortgage, so roughly 8000 in interest paid, I paid 5500 for school and donated about 1k to charity. I am on track to pay about 10k in federal taxes this year.

Should I really be getting a refund this large?

[jIM_Ohio]

Originally Posted by geojen

How do you go about figuring out how much you will owe in taxes in any given year? DH and I just bought a home in Feb, and I am trying to figure out how to adjust our withholding to have more take-home pay and less of a refund. But, I'm scared that I'm going to screw it up and owe a ton of money in April.

Crudest estimate without redoing prior years taxes:

look at ammortization table. Sum up the interest payments on mortgage for a given year. (Jan-December).
look up taxable income on prior years tax return. Find the tax bracket of the taxable income (15%-25%-28%). 75% of country files in 15% bracket.
Then take the percentage and multiply by the interest paid per year.

Examples:

$10,000 interest paid.
15% tax bracket is $1500 back. ($125/month??)
25% tax bracket is $2500 back (more than $200/month)
28% tax bracket is $2800 back ($200+/month)

If you know (can estimate) property taxes, add that into interest paid. This does not account for state taxes. This also assumes the mortgage interest is higher than the standard deduction.

[noppenbd]

Originally Posted by MiikeB

How accurate is that turbo tax calculator?

I just ran through it and it said my estimated refund was around 9,000!

I make 35,500 a year, this is my first year of my mortgage, so roughly 8000 in interest paid, I paid 5500 for school and donated about 1k to charity. I am on track to pay about 10k in federal taxes this year.

Should I really be getting a refund this large?

Doubtful... what are your withholdings to date?

[MiikeB]

Originally Posted by noppenbd

Doubtful... what are your withholdings to date?

I think I may have done it wrong actually, when it asks for federal taxes paid do I put in just the withholding or the social security stuff too?

[noppenbd]

Originally Posted by MiikeB

I think I may have done it wrong actually, when it asks for federal taxes paid do I put in just the withholding or the social security stuff too?

That would be federal only.

[MiikeB]

Originally Posted by noppenbd

That would be federal only.

Good to know, I redid it and its estimated to be 4,000 now which is still a lot. If my current Withholdings is 2, what should I modify it too if I wanted to get an extra $250 a month?

[noppenbd]

Originally Posted by MiikeB

Good to know, I redid it and its estimated to be 4,000 now which is still a lot. If my current Withholdings is 2, what should I modify it too if I wanted to get an extra $250 a month?

Send me a private message and we can go through it in detail (don't want to hijack this thread any more than we've done already).

[jIM_Ohio]

Originally Posted by MiikeB

Good to know, I redid it and its estimated to be 4,000 now which is still a lot. If my current Withholdings is 2, what should I modify it too if I wanted to get an extra $250 a month?

I use online paycheck calculators.

I have ~40k in itemized deductions and I claim 9 and wife claims 7 to get around an extra 10k in take home per year.