Want to lower tax refund amount but how?

[Kris10Leigh]

We called the place that helps us with our taxes to help us figure out how many dependants to claim. They want every pay stub we've had for the enitre year to date. I only keep the last four and DH has since switched jobs.

We got back $2500 last year. One year we got back $4000 and played with the numbers and ended up oweing $2000. We certainly can't afford to owe anything! What is the magic formula for figuring this out?

[neguy11]

Re: Want to lower tax refund amount but how?

http://www.irs.gov/individuals/article/0,,id=96196,00.html

Try that, it's the IRS calculator.

[vsjhoc]

Re: Want to lower tax refund amount but how?

Go to the IRS website at www.irs.gov, click on "individuals" at the top left, and then down to "IRS Withholding Calculator." The idea is to end up with a small refund -- maybe $100.

[sweeps]

Re: Want to lower tax refund amount but how?

Best bet is to do a mock run of your taxes in August or September. If you're way in the refund territory, you can increase the number of exemptions on your W4. If you're way in the owing territory, you can decrease the number of exemptions on your W4 (or up the line that says "Additional Amount Withheld").

The estimates you'll find on the web (including the IRS site) are great starting points, but things rarely go the way you predict at the beginning of the year.

[Hypersion]

Re: Want to lower tax refund amount but how?

This is the best calculator I have found and it also does state taxes.

http://www.paycheckcity.com/

[JBinKC]

Re: Want to lower tax refund amount but how?

I can calculate it easily by asking two questions: Do you get an earned income credit and what was your tax bracket? If you get an earned income credit you can get an advanced earned income credit. If you do not get earned income credit an exemption is roughly worth a reduction of $2500 in income. If you increase your number of exemptions make sure you don't surpass 9 if you do so watch out for an audit.

[getforfree]

Re: Want to lower tax refund amount but how?

Is there any limit how much you can write off? I will need to write off my mortgage interest, some work expemces, donations,and other stuff.

I was thinking. If there is no limit, maybe I can prepay my mortgage ahead in december this year, to claim more for this year; and then take standard deduction (which is like 10k ) for next year, while next years write-off would be worth only like 6K. Does anybody knows anything about that?

[Hypersion]

Re: Want to lower tax refund amount but how?

Is there any limit how much you can write off? I will need to write off my mortgage interest, some work expemces, donations,and other stuff.

I was thinking. If there is no limit, maybe I can prepay my mortgage ahead in december this year, to claim more for this year; and then take standard deduction (which is like 10k ) for next year, while next years write-off would be worth only like 6K. Does anybody knows anything about that?

You can only write off the INTEREST on your taxes.

[getforfree]

Re: Want to lower tax refund amount but how?

No, you can clame ITEMIZED DEDUCTIONS, such as interest, medical expences if more than 7.55, work expenses if more than 2%, donations. But the interest has to be on mortgage or home equity loan only, I think.

[autoxer]

Re: Want to lower tax refund amount but how?

Is there any limit how much you can write off? I will need to write off my mortgage interest, some work expemces, donations,and other stuff.

I was thinking. If there is no limit, maybe I can prepay my mortgage ahead in december this year, to claim more for this year; and then take standard deduction (which is like 10k ) for next year, while next years write-off would be worth only like 6K. Does anybody knows anything about that?

I haven't tried that, but I know that is a good strategy if you itemize one year, but not the next. Make sure you double check the lenders 1098 & that it includes the pre-paid interest. Since the interest you pay in January is for December, you can include it in the previous years tax return. But it needs to be paid by Dec. 31. I also read something about pre-paying property taxes.

Kris10Leigh,
I used the irs witholding calculator a couple months ago, then took the number of exemptions to my employers accountant and they just changed it for my next paycheck. It was very easy to do. I'm going to check it whenever something major in my finances changes or at least once a year to keep the refund minimal.

[JBinKC]

Re: Want to lower tax refund amount but how?

Mortgage interest unlimited unless it is from a home equity loan which has a limitation of $100,000 principal. Expenses from work is deductible on form 2106 and is subject to to 2% of your AGI but money spent there can be totally deductible if put under under a Sec 125 cafeteria plan. In general cash donations are fully deductible and it should be accompanied a verification note from the donee There are some limitations for donating on things like art and stock that has appreciated which has a percentage limitation and the theoretical gain must be included in your alternative minimum tax calculation. Noncash donations on large items like cars must receive an auction value from the donee and any donation over $500 must be accompanied by form 8283.

Note if your itemized deductions are 44% of your AGI its a red flag for audit.

As for prepaying a mortgage it won't increase your interest expense one cent as you are paying off principal and not interest.

[autoxer]

Re: Want to lower tax refund amount but how?

As for prepaying a mortgage it won't increase your interest expense one cent as you are paying off principal and not interest.

Instead of prepaying the principal, you can pre-pay one months interest to increase your deduction for the year. It is the most beneficial if you only have enough deductions to itemize every other year. It doesn't change how much you pay, just the timing. But you need to make sure that your mortgage company applies the extra money in the way that you intended.

[JBinKC]

Re: Want to lower tax refund amount but how?

Thanks for the correction. Yes you can do that as long as you have a mortgage company on the ball so your Form 1098 is correct.

[cptacek]

Re: Want to lower tax refund amount but how?

I have heard from lots of people that do something like the following:
2007 TAXES:
1. pay real estate taxes (for 2007) in Januay 2007 and write off
1. pre-pay interest (for January 2008) in Dec 2007 and write off
2. pay real estate taxes (for 2008) in Dec 2007 and write off

2008 TAXES:
3. take the standard deduction

2009 TAXES:
4. pay real estate taxes (for 2009) in January 2009 and write off
5. pre-pay interest (for January 2010) in December 2009 and write off
6. pay real estate taxes (for 2010) in December 2009 and write off

2010 TAXES:
7. take the standard deduction

etc...

This works if the amount of your real estate taxes (plus anything else you deduct) is more than half of the standard deduction. No matter how much I think about it, I can't decide when this stops working, though .

Oh, and there is no "interest on your taxes"...unless you are behind on paying them. I think what Hypersion meant was "interest on your mortgage"

Also, if you live in a state that does not have income taxes, you can write off the sales tax if you itemize. You can either keep track of it purchase by purchase, or you can use a table the IRS provides. (You CAN do this in a state that has income taxes as well, but you usually write off the income taxes, which would be higher than the sales taxes.) On top of the amount in the table, you can also deduct things like taxes on automobile purchases, taxes on home improvement projects and other major purchases (look it up). So, in the above scenario, if you are planning on doing major home improvements in 2008, or planning on getting a vehicle, you could buy it Dec 2007 (even if the work wouldn't be done until summer 2008) and then any other major purchases could be done January 2009.

[cptacek]

Re: Want to lower tax refund amount but how?

Assume you are thinking of what I suggested above for 2007-2010 tax years, here's where it isn't worth it anymore...
If your interest on your mortgage for Feb 2008-Dec 2008 plus any other deductions (charity, etc) for all of 2008 is greater than the standard deduction for 2008, then this is not worth the hassle.