Reality Check: Learn To Hang On To More Of Tax Money
We’re all trying to hang on to as much of our money as possible right now, and hoping for refunds from the government as we finish up our taxes.
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But is getting a big check after the first of the year the best way to manage your money right now? If you’d rather hang on to it during the year, here’s how to do it.
If you’re one of the folks who loves getting a big tax refund check at the first of the year, all you’re really doing is letting the government hang on to your money interest-free all year.
“Now, people are facing a bit of a crunch here in the recession and they may want to ask themselves, ?Is it better for me to get my money now??” said Jeri Miglietta, a tax professional with H&R Block.
Tax professionals like Miglietta said there are some easy ways to fix this. First, check out the W-4 form that you give to your Human Resources department at work and see how many “allowances” you’ve told them to withhold from your paycheck. If it’s zero, they’re taking out the maximum amount.
“You can get more money in your paycheck by reducing your W-4 allowances or you can do a whole analysis of what happened on this tax return, and what’s going to change in the future,” said Miglietta.
If you do that, you should look at your taxes this year and find out how much you owe, and estimate whether it will be the same next year. This step involves looking at plenty of new tax credits.
For example, if you have a baby in 2009, you could subtract $1,000 from what you owe. If you go back to school, subtract up to $2,500. If you are a new home buyer this year, you can get an $8,000 credit. The more you subtract, the less you might need to pay this year, and the more you can keep coming in your paycheck. On the flip side, if you make more money or get married and have two incomes, you might enter a new tax bracket and owe more.
Another new factor this year is the “Making Work Pay” tax credit passed in the stimulus bill. It will give you $400 more total in your paychecks throughout the year, or $800 per married couple.
You can claim the credit on next year’s taxes, meaning it won’t reduce your refund. That’s only if you make less than $75,000 or $150,000 per couple, though. If you’re in those tax brackets, you will still get more money in your paycheck, but won’t be able to claim the credit on your taxes. That means that if there’s not enough taken through withholding, you could owe money.
“The point is to plan for it, don’t be surprised at the end of the year,” said Miglietta. “Try and do some planning and say to yourself, yes, I do want my money now, so if I break even at the end of the year, good.”
How do you re-evaluate this? You might want to talk to a tax professional, or check out www.irs.gov for tax credit and withholding information. It might just help you make ends meet right now.