Underwithholding Taxes

[boosami]

Does anyone else here underwithhold taxes to the minimum amount (without penalty) or have zero withholding and pay quarterly estimates? Just wondering if I'm the only one who stopped giving interest-free loans to the government years ago...

For those who don't know... Imagine no taxes were taken out of your paycheck, and instead you saved that money and were paid interest on it. At the end of the year, you use that money to pay your tax burden (which is the same as it would have been coming out of your paycheck), while making a small profit of the interest earned on it over that year. You can't really withhold nothing in most cases, but you can do this to a point. You just have to make sure you withheld (or sent in estimated payments) enough that you don't get penalized by the IRS for underwithholding.

Tax Topics - Topic 306 Penalty for Underpayment of Estimated Tax

[kilapapipa]

Not to the degree you are talking about but our income is very prdictable so I use a percentage on our W-4 and change it when needed so that we do not get a refund and usually owe only a small amount. Turns out to be around $900 this year.

[MonkeyMama]

zero withholding is mostly illegal. Unless you had no tax liability prior year and current year. (Meaning, your tax for the year was $0!) Very few are in this boat.

I've been in a situation where I could not claim $0 withholding though I had no income taxes one year. Well, I play by the rules. Not withholding anything is certainly a red flag!

[moneybags]

If you don't withhold enough, you will incur penalties. That could offset anything you earned on that money during the year.

[ksluis62]

I try to have as little as possible withheld without incurring a penalty. I feel the same way about extending a loan to the IRS. But I don't plan on making any money on the extra income, I just try and match it to what I owe so I don't overpay.

[KTP]

I had a mistake on a previous tax return and on the amended return was owed $600 by the IRS. They sent me a check with 8% interest.

Gets me thinking....where else can you get guaranteed 8% interest????

[blankcheck]

I've made the mistake of giving the gov't a free loan for the past 2 years, but that's because our household income fluctuates, and we use the witholding as an artificial barrier. When our income becomes more stable, we'll lower the buffer zone considerably.

[maat55]

I pay in quarterly, and am withing a few hundred over or under.

[noppenbd]

I did a tax estimate last November and adjusted our W4s using paycheckcity's calculator (I knew how much we needed to withhold for the remainder of the year, and divided by the number of paychecks left. Then I adjusted my allowances until the amount per paycheck was about right). We ended up with a $55 refund from the IRS, and a $85 bill from the state, which was just about perfect. I had to adjust the W4s back down again at the beginning of 09, but I'll probably do another status check in Oct/Nov this year.

[LivingAlmostLarge]

I try to pay so we don't owe a crap load at the end of the year. This year we owe $240! That's good I think. I am not quite done yet though.