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).


Jan 22 2009

Lose your job? Return your car (??)


I saw a commercial from the folks at Hyundai advertising a deal where you can return your car if you’re facing financial hardship. According to their website, if you buy or lease a new Hyundai and lose your income or license, become physically disabled, die, or a few other things,you can give your car back to the dealership and they’ll pay up to $7,500 in negative equity (you’ll pay the difference). It only counts for the first year of having your car.


They’re acknowledging that with your purchase of a new car, you’ll likely have negative equity in it right away. If you were to try to privately sell your car in that first year, you probably wouldn’t get enough money for it to repay your loan. If your car has depreciated more than $7,500, you’d be responsible for the difference.

And, they’re acknowledging that if you lose your income, having a car payment is going to make your life a lot more difficult. It’s easier to not have a car payment during those times.

But, if you lost your job and had to return your car, then you’ll be jobless and without personal transportation. That might make getting a new job that much harder.

Instead of buying a brand-new car and not being certain you’d be able to pay for it, why not buy a cheaper car? Not everyone can pay cash for a car — even a $1,000 model. But, taking out a loan for just a few thousand dollars is going to be much easier to quickly repay than borrowing $20k for a car.

P.S., I really intended to blog more this week! I’ve just been so wiped out with my baby lately, that all we do is eat and sleep. Thanks for subscribing to my blog to see when I do update, and thanks for your patience!

Hey! I'm Kacie, wife and mother of 3. 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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