What to do w/30k inheritance

[jIM_Ohio]

1) Gross Income 60,245 (this is from our w-2's right wages salary tips?)
2) Adjusted Gross Income 74,349 (had to claim 10k ira we cashed out won't happen again)
3) Taxable income 45,654
Total deductions 11,695
total refund/total owedrefund 2280
Thanks so much Jim I appreciate the help!!!

All of the lines requested are from the tax return you filed. You gave some good info already, but I would check the tax return, not the w-2's, for the best, most accurate advice.

AGI of 74349 with taxable income of 45654 with 11695 of deductions does not add up (if taxable income was 45654 and deductions were 11695, I would expect AGI to be 57349 so the numbers all add up.

I had 100k of AGI, 40k of deductions and taxable income of 60k for example.

If the taxable income is accurate (45654) you confirmed to me that you claim in the 15% tax bracket and the mortgage deduction really does not save you much.

What is in the 11695 of deductions?

Mortgage interest- how much?
Property taxes- how much?
What else?

Based on comments from other posters, consider they hinted at same advice I am giving you:

you do realize that the standard deduction for married couples in 2008 is 10,900. the mortgage interest is less than 7% of 60k or 4200. do you have another 6700 in itemized deductions?

This means the government "gives you" 10900 in deductions. You claim 11695 of deductions because you itemized.

11695-10900=$795
You get 15% of that deduction back (15% of $795 is $119.25).

Your $2280 refund will be reduced by only $120 without mortgage interest deduction.

This is normal for people in 15% tax bracket- getting rid of mortgage makes more sense than keeping it for a tax deduction in this case.

I would also suggest increasing take home pay by $100 each month by adjusting the withholdings on the W-2. Why give the government a free loan? Take the $1200 and apply it towards paying down the mortgage or building up the emergency fund.

You have a 5k emergency fund and a mortgage which is about $800/month at 6.8%. I would suggest that the EF is high enough and that paying down a 6.8% debt makes sense.

[Thrif-t]

I'm getting these numbers from my turbo tax cover sheet except gross income I got that from line 7 which is wages salary & tips 60245...or there is line 22 total income which is 74349 same as AGI...I don't know???? Can you tell me a certain line number to quote? Oh maybe it had something to do w/the taxes I had taken out of the IRA before I got the distribution? I didn't want to end up owing? I don't know why it's off??

Deductions from return say:

Income taxes 3635
Real Estate 1942
Mortgage interest 4448
Charity 1670

Yes and I did change our withholdings...what I plan to do w/that is make sure I withhold enough to cover what it says my total tax was last year 2683, is that the right logic?

[noppenbd]

I'm getting these numbers from my turbo tax cover sheet except gross income I got that from line 7 which is wages salary & tips 60245...or there is line 22 total income which is 74349 same as AGI...I don't know???? Can you tell me a certain line number to quote? Oh maybe it had something to do w/the taxes I had taken out of the IRA before I got the distribution? I didn't want to end up owing? I don't know why it's off??

Deductions from return say:

Income taxes 3635
Real Estate 1942
Mortgage interest 4448
Charity 1670

Yes and I did change our withholdings...what I plan to do w/that is make sure I withhold enough to cover what it says my total tax was last year 2683, is that the right logic?

Thrift-T, I think your taxable income is right, should be line 43 on your 1040. But if AGI is 74349, and you have 11695 in deductions, plus 5 exemptions (3 kids) at $3400 a pop, that gives you $17000 in exemptions. That would make your taxable income $45654. So Jim's advice about the mortgage interest barely helping you is accurate. It is really giving you hardly any tax break at all.

Even if you pay no mortgage interest this year your tax bill is not going to change much, so if you set up your W4 to withhold the same total for this year as you paid last year you should be fine.

[Thrif-t]

Thrift-T, I think your taxable income is right, should be line 43 on your 1040. But if AGI is 74349, and you have 11695 in deductions, plus 5 exemptions (3 kids) at $3400 a pop, that gives you $17000 in exemptions. That would make your taxable income $45654. So Jim's advice about the mortgage interest barely helping you is accurate. It is really giving you hardly any tax break at all.

Even if you pay no mortgage interest this year your tax bill is not going to change much, so if you set up your W4 to withhold the same total for this year as you paid last year you should be fine.

Wow you guys are so good. Thank you so much for all your help...its exactly what I needed to see it all in black & white with the figures. thanks again you guys rock

[jIM_Ohio]

My bad, I was mixing up AGI and MAGI I think, and did not realize the deductions for kids were added in somewhere else (haven't had kids for a tax season yet, but I will in April!).