Jan 25 2009

Maximize your money — review your tax exemptions now!

The Money Life Network is launching a series on jump starting your own economy. This is the first post. By the way, I’m just a tax payer — not a tax professional. Do your own research and consult with someone who really knows what they’re talking about, mmk?

Do you look forward to a large federal tax refund every year after you file taxes online? I don’t. Instead of getting a big refund, I’d rather get a small (less than $200) refund, or owe a small amount.

Our take-home pay is a little bit more this way. It also means that we’ll avoid giving the government an interest-free loan while they wait around to give us our money back!

I’m sure you’ve heard about how the folks in California might get I.O.U.s instead of their refunds right away, since the state is so broke. I don’t know if that would happen on the federal level, but why risk it?

Some people prefer to have a large tax refund each year instead, so that they can apply the check toward debt reduction, savings or a large purchase. Otherwise, they argue, the money in each paycheck would just be absorbed into their daily spending and could be frittered away.

No matter how you view your federal income taxes, now is an excellent time to review your withholding to make sure everything is as it should be.

If you’ve gotten married, divorced, or had a baby in 2008 you might want to change your exemptions. Also, if your child became a legal adult, you’ll no longer be able to claim him or her. You might want to “unclaim” him or her now, otherwise you could end up owing quite a bit of money to the government.

Use this calculator to estimate your federal tax obligation for the upcoming year and to see what an appropriate number of exemptions would be. If you like, you can look at the form W-4 to determine your exemptions. I think using the calculator is a bit easier to understand, though.

For 2008, we claimed one exemption. For 2009, we’re claiming four, although we could possibly do five and still be ok. Thanks to the birth of our son (yay, Johnny!!), our tax obligation for 2008 went way down, and we’ll get to keep an extra $150 or $200 each month now. I’m making it a point to be disciplined with this little surplus, and we’ll apply the amount to our car loan.

I earn a little bit of money from my blog and freelancing, and I’m going to set aside about 25 percent of each check I receive to cover my taxes. If I expect to earn over a certain amount during the year (I think it’s $8k, but don’t quote me on it), I’d need to pay taxes quarterly.

If you earn money from your blog, it’s a good idea to keep track of it as you go, rather than try to figure it all out at tax time. Visit MrsMicah to get some free spreadsheet templates to keep track of that money.

For upcoming posts in this series, you won’t want to miss:

  • Monday January 26th: BibleMoneyMatters.com will be delving into the topic of setting up your first budget.
  • Tuesday January 27th: FreeFromBroke.com explains why we need a high-yield savings account.
  • Wednesday January 28th: PTMoney.com helps us make some extra money (to put in that savings account).
  • Thursday January 29th: MilkYourMoney.com dives into a mystery topic.
  • Friday January 30th: MyInvestingBlog.com gives us tips to finding a fit financial helper!
  • Saturday¬† January 31st:¬† Remodelingthislife.com explores how to prepare for a year of holidays.


13 Responses to “Maximize your money — review your tax exemptions now!”

  1. Great job, and great reminder about keeping track of that blog income throughout the year. I need to do a better job of that in the coming year now that I’m actually making something from this!

    Peter’s last blog post..Money Matters

  2. Great job, Kacie. You did a great job articulating the correct way to treat your tax with-holdings. So many people mistakenly treat it as a forced e-fund.

    PT Money’s last blog post..Camping and the Primetime QuickHits

  3. Great post. I know this is something I’ve had to learn- the year I graduated & got married, we got an expected refund, but didn’t adjust our withholdings, so the next year ended up owing a significant amount of taxes. This year, we had our taxes covered by withholdings and are getting a small refund because we used some of these calculators. Although it’d be nice to have the withholdings “perfect”- I’d prefer getting a refund to having an unexpected tax bill!

  4. Great post! It’s a good idea to review this information periodically — not just at tax time. I pay my taxes quarterly, from my home business as a freelance writer. It is important to do this, because if you don’t, and you make more than a certain amount, the IRS will charge you interest when you go to pay.

    Miranda’s last blog post..Can You REALLY Live a Cash Only Lifestyle?

  5. I have heard that anything over 10 deductions and that flags the IRS. So we claim 9 just to be safe, we have 4 kids and we get back a huge refund every year. I certainly don’t want to draw attention to ourselves by upping the deductions anymore. Makes me nervous.

  6. I thought I’d already said this, but thanks for mentioning my spreadsheet! :) I’ve found it quite helpful since there are a lot of little things I don’t think of.

    Mrs. Micah’s last blog post..Lessons This Generation Can Learn

  7. Have a tax question? Now through the end of the month, you can ask the experts at TurboTax one question. Since the promotion is expired, You can still goto TurboTax Live Community to get you tax questions answered

    TurboTax Live Community

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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