|
View Dr. Briles on Video
Affiliates |
|
Taxes and You Dr. Judith Briles |
|
|
Most people pay more taxes than they owe . . . and they pay them before they are due! This doesn’t sound like fun, yet it is repeated in millions of households annually. In the old days (the 80’s), if you received a refund after you filed your annual federal tax return, the IRS would send you a notice. It suggested that you change your withholding status to declare more withholding allowances. Why?—because you would reduce or possibly eliminate a refund the following year. What a novel idea. Get your money back within each paycheck so that you can save, invest, earn interest, pay off bills or spend it! Today, the IRS no longer notifies you that it would be a good idea to not receive a refund. After all, it is getting an interest-free loan from the taxpayer—you. Getting Smart About Refunds Enough—it’s time to halt the practice. You need to get over refunditis, a chronic condition that afflicts millions daily. Do not think of refunds as a savings account—savings accounts pay interest. Refunds don’t. If you do get refunds, your homework will be to increase your withholding declarations (allowances) when you go into work tomorrow. If you basically have withheld what you owe at year end, do a spot check to make sure you are on target for the current year and claiming all your deductions. Just like an annual checkup—instead of a physical, you’ll do a fiscal one. The magic form that calculates what you should declare is Form W-4—every payroll department has them. If you are self-employed, you can even download from the Internet at irs.gov. The information you need to complete one includes: • The number of dependents you will claim (self, spouse, kids, anyone you contribute over 50% of living costs to—pets don’t count). If you are married and your both work for pay, then decide how you want to divvy up dependents. • The gross amount you will contribute to retirement accounts (401(k)s, 403(b)s, IRAs, SEP-IRAs, KEOGHs, tax sheltered annuities—403(b) plans). • Your total deductions that will be listed on your taxes will include: ü health care costs—include insurance premiums that are not reimbursed by employers that are in excess of 7.5% of your adjusted gross income (that’s the number that includes all your taxable income sources minus retirement contributions, allowable moving expenses, alimony paid, and any penalties on early withdrawal of savings), ü mortgage interest, ü points deductible for new mortgage loans, ü real estate and state taxes, ü educational costs that enhance your present job, ü investment and accounting expenses, ü investment losses (limited to a net $3,000 per year), ü losses due to theft and disasters, ü donations to charities, ü moving costs ( your move must be at least 50 miles’ distance from your old job and house), ü non-reimbursed job related expenses, and ü mandatory uniforms. Last year’s tax return will help as a guide. You must ask this question—Is anything going to change this year?—such as, are we going to buy a new home (mortgage interest is now deductible versus rent not being), have a bigger mortgage or contribute more money to a 401(k) or 403(b)? This is the time you get to roll up your sleeves and guesstimate. Identify: • Any alimony or spousal support (not child support) paid • Any interest, dividend, capital gains in excess of losses • Any taxable pension or retirement distributions received • Any child care expenses Using a calculator is a must. If you have a computer, you can purchase a tax program—Turbo Tax is a common tax software program that is fairly easy to use. Tax software is programmed to ask you the questions posed above. With all these numbers, you are ready to tackle the Form W-4. It is only two pages, and believe-it-or-not, understandable! Or, complete the new one at your payroll department—don’t forget to make a copy for your records. With Form W-4 and your totals in hand, you will arrive at the number of allowances you should be declaring within ten minutes. Withholding is more than just you, your spouse and your kids. Every time you have $3000 in excess deductions, increase your withholding allowance declarations. But, if you claim over 10, you may hear from the IRS, as in, why are you doing this? Return a letter with their query (if it comes) and explain that you are eliminating the refund you would get the next year because of your allowable deductions, and then identify them, such as the purchase of home that now has deductible interest and the approximate amount.. Include a copy of your Form W-4. It’s rare that you will have a challenge from the IRS. Your Final Money Smarts Tip With the extra monthly money, do one of three things. Pay down any credit card debt first (pay down the ones with the highest interest rate first), then save or invest your new-found money. # # # © 2001-2005 The Briles Group, Inc. All
Rights Reserved. |
|
