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by I've heard it said the goal at tax return time is to owe the government a small amount of money. While this advice stung at first, seeing as I was receiving large refunds each year, I eventually came around. Why should I pay the government extra money throughout the year and then get excited when it's given back later without interest?
In order to try and obtain this ideal, I altered my tax forms on file at my employer to claim 6 dependents - even though I only had two (my wife and me). I began to worry I may have gone too far, however, when a job change put some extra income in my pocket - a signing bonus and a 401k rolled into a Roth IRA. I was worried I'd end up owing the government a couple thousand, not a couple hundred.
After filling out my 2007 taxes online, however, I found myself still in the black (i.e., I'm going to get a small refund). If 6 wasn't enough even with the extra income, how many would it have taken normally? 10? 25? Actually, I wonder what would have happened if I had claimed 100 dependents. Could I effectively shut off all tax withholdings?
And if I could, wouldn't that be the most financially advisable thing to do? Why not keep and earn interest on all of my money? Sure, I'd have to cut a large check eventually, but the interest earned on the funds would be mine to keep (well, not including the taxes I'd have to pay on them - particularly if there's a Democrat in office in 2009 - but you see what I mean).
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Not entirely sure if claiming 100 dependants will wipe out your tax witholding all together but you will have to pay quarterly taxes if your withholding is going to be less than 90% of what you expect to pay in taxes for the year.
http://www.irs.gov/publications/p505/ch02.html#d0e5013
Unless you're really crafty or downright dishonest, the government knows how to get "its" money....
*shakes fist at the institution*
Yeah, the Anonymous poster is right, and not only that..
According to the IRS, if they determine that an employee is not having enough withholding from their paycheck, they will put a stop to it as follows: (from the link)
Q3: If the IRS determines that an employee does not have enough federal income tax withheld, what will an employer be asked to do?
A3: If the IRS determines that an employee does not have enough withholding, we will notify you to increase the amount of withholding tax by issuing a “lock-in” letter that specifies the maximum number of withholding allowances permitted for the employee.
In other words they frown heavily on what you are proposing. This issue comes up with self employed people a lot when they do not have an employer to withhold taxes. If they determine that you will owe too much money at the end of the year they will make you pay these "estimated" taxes. I've seen where they can also fine you and charge you interest for owing too much at the end of the year. It looks like the dogs mouths start watering when you begin to owe around $1000.00.
Aside from the urge to do a great deal more fist shaking, I wonder if this is yet another benefit of the Fair Tax. You pay taxes exactly when you buy something, so there is no issue of either the government or the citizen holding on to the other's money too long.
FairTax. I don't know. Here is a FairTax Calculator which when I put in some of my own numbers in, seems to add up to a lower tax rate. I'm all for it in that case, as long as the country can survive. I'm a little confused on the used goods exemption. If I buy a car that someone owned for 3 months, do I have to pay any taxes at the point of sale? I can see a lot of slightly used cars, boats and RV's on the market if that's the case.
Dang. Inserting my info in the calculator came out with a tax rate of just over 8% ... that's crazy low.
For comparison purposes, my effective tax rate for 2007 under the current system was just over 11%.
FWIW, I've got a wife, 3 kids, and I claim 9 or 10 deductions (I forget). It comes out pretty close.
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not sure what i did by jandaman :: NR5 :: on 07 February 2008
other than falling into a new tax bracket, i didn't change anything...but now i am receiving a very small percentage of the return i got last year...
so i guess, "take that feds...u barely got any of my money to play with...FACE!!!"