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how to reduce tax refund?

post #1 of 21
Thread Starter 
we've already filed our 2008 taxes! :

despite majorly adjusting our withholding, and filing a W-5 form (advance EIC payments) we are still getting a $7K refund

what else can i do??? though the big lump sum is nice, and its all going to pay off debt i'd really rather have that throughought the year.

any suggestions?
post #2 of 21
Can you adjust your withholdings even more?

EIC is a credit, there for is not a deduction that you can adjust, so no way to spread that our across the year (to my understanding at least).
post #3 of 21
Oh, man! I want my W2!
post #4 of 21
I'm assuming you've already changed your exemptions to at least 10?
post #5 of 21
If you are truly getting every cent of federal tax back then you should mark your w-4 to not withhold any taxes from your paycheck at all. You would have to claim an absurd amount of allowances to get your taxes down to $0 and it is just easier the other way. You should do the same thing with your state withholding form if you are getting all of your state taxes back also.

I am not familiar with the w-5, but make sure that if you claim $0 withholding that you are not getting too much with the advanced EIC.
post #6 of 21
definitely adjust your withholdings. There is a calculator on the IRS site to help you figure it out. My guess would also be you should at least claim 10, probably more. For us, in order to get close to breaking even (and still getting a little bit back) DH would need to change his withholdings to 13. This past year he only had it at 5. We are going to adjust.

eta: just read what rebeccalynn said, I agree. You are getting back more than you pay all year long. Might as well change your w-4 to not take out anything.
post #7 of 21
Change your withholdings to EXEMPT. If you had no tax liability last year and expect to have to tax liability this year you can file exempt.
Keep inmind if you get any bonus pay that is taxed at some ungodly amount (40-50% around our house) no matter what your expemtions are.
post #8 of 21
Quote:
Originally Posted by rebeccalynn View Post
If you are truly getting every cent of federal tax back then you should mark your w-4 to not withhold any taxes from your paycheck at all. You would have to claim an absurd amount of allowances to get your taxes down to $0 and it is just easier the other way. You should do the same thing with your state withholding form if you are getting all of your state taxes back also.


Here is a W-4 form:
http://www.irs.gov/pub/irs-pdf/fw4.pdf

On line 7 you should write "exempt" if you meet the following qualifications:
Quote:
Last year I had a right to a refund of all federal income tax withheld bec ause I had no tax liability and
c This year I expect a refund of all federal income tax withheld because I expect to have no tax liability.
No matter what you do, though (assuming your income stays the same) you will still get a big refund next year. That's because you can get up to $4824 in EIC but you can only take up to $1750 in early payments.

If you claim exempt, though, and take the maximum you should get closer than $7. Hopefully.
post #9 of 21
Quote:
Originally Posted by 1growingsprout View Post
Keep inmind if you get any bonus pay that is taxed at some ungodly amount (40-50% around our house) no matter what your expemtions are.
If you file exempt bonus withholdings should be $0.

If you don't file exempt, you *can* ask your payroll person to adjust the withholdings to adjust the tax rate down for that check. Why bonuses are taxed so highly is because most payroll departments just treat your paycheck that time like that is how much you make every paycheck, putting you in a far higher tax bracket.
post #10 of 21
Can I ask how you manage that? I would love a refund... and extra payments thru the year like you.
post #11 of 21
I have been wondering this too. Last year we owed on state and got almost $9,000 back on federal. How the heck did we get such a huge gap between the two? Won't adjusting exemptions just make us owe more to the state at tax time?
post #12 of 21
Quote:
Originally Posted by tayndrewsmama View Post
I have been wondering this too. Last year we owed on state and got almost $9,000 back on federal. How the heck did we get such a huge gap between the two? Won't adjusting exemptions just make us owe more to the state at tax time?
I would NOT mess with your state exemptions then! In fact, you can have them withhold a flat extra amount for state, on top of zero exemptions, if you want to end up with a small refund rather than owing. (Do you have your state at zero?)

Federal is a different story. If you got a $9,000 refund then you definitely have room to claim MORE exemptions.

There is a link at the bottom of this page, to a calculator which will help you estimate this:
http://www.irs.gov/individuals/artic...=96196,00.html
post #13 of 21
Quote:
Originally Posted by Jenelle View Post
I would NOT mess with your state exemptions then! In fact, you can have them withhold a flat extra amount for state, on top of zero exemptions, if you want to end up with a small refund rather than owing. (Do you have your state at zero?)

Federal is a different story. If you got a $9,000 refund then you definitely have room to claim MORE exemptions.
Hmmmm, I am confused. I thought the exemptions we chose were for both state and federal, not individually. KWIM?
post #14 of 21
Quote:
Originally Posted by tayndrewsmama View Post
Hmmmm, I am confused. I thought the exemptions we chose were for both state and federal, not individually. KWIM?
Well, I know what you mean... but I'm not sure that it has to be that way.

Dh changes his exemptions through his computer program at work, and the state and federal exemptions are most definitely separate. He can change one and not change the other. On his pay stub, it quite clearly says that his state is at zero, county is at zero, and federal is at TEN.

Anyone want to help me with employers where you have to fill out actual paper forms, though?
post #15 of 21
Quote:
Originally Posted by Jenelle View Post
Dh changes his exemptions through his computer program at work, and the state and federal exemptions are most definitely separate.
Yeah they are seperate.

And I would indeed be making sure that I was not getting a refund from the state - especially if you live in California or something.

We usually send a check to the Federal government and haven't yet managed to avoid getting a refund from our state, but at least our state is in very good fiscal health.

Naturally we save a portion of every paycheck specifically for taxes. So when it comes time for us to pony up, we actually give ourselves a little refund (whatever is left over from our savings bucket for taxes, and we always make sure to put enough in so there IS something left over and we never get caught with our pants down).
post #16 of 21
Question: An acquaintance who is an accountant once told me that the maximum number of exemptions you can put on your W-4 is 9, and any more sends red flags to the IRS. So we have 9 exemptions on DH's paychecks, and we're still getting a pretty big federal refund (our state has a flat rate tax, so no refund there, but we don't owe either). We have two married adults, only one job, and three kids who qualify for the child tax credit, so according to the W-4 worksheet, we could put 11 exemptions. And that's without even considering charitable contributions, mortgage interest, and real estate taxes. I'd sure love to bump up our exemptions and keep more of our paycheck! We can't be the only family in that situation -- what do the rest of you do? I am not wild about the idea of sending red flags to the IRS -- not that I think we're doing anything wrong, but it's a principle, not wanting to be on their radar any more than we need to be, y'know?
post #17 of 21
If you aren't doing anything wrong on your taxes, then you have no need to worry. At all. Their own website suggests 11 exemptions for you, and that is without all of the things you mentioned. Same here when I did it today. I would give no thought whatsoever to "red flags" because our taxes are done by a CPA and I wouldn't cheat by one single dime.

Edited to say: I think your accountant friend is wrong about the number of exemptions you can put on the form. But, as I said earlier, dh does his through the computer program at work. The maximum he can do on that is 10, but I don't know if that would be the same with an actual paper form.
post #18 of 21
Quote:
Originally Posted by Jenelle View Post
If you aren't doing anything wrong on your taxes, then you have no need to worry. At all. Their own website suggests 11 exemptions for you, and that is without all of the things you mentioned. Same here when I did it today. I would give no thought whatsoever to "red flags" because our taxes are done by a CPA and I wouldn't cheat by one single dime.

Edited to say: I think your accountant friend is wrong about the number of exemptions you can put on the form. But, as I said earlier, dh does his through the computer program at work. The maximum he can do on that is 10, but I don't know if that would be the same with an actual paper form.

Thanks -- no, we're not doing anything wrong at all. In '07 we just got a small refund, as our exemptions matched up pretty well. For '08, we're getting a bigger refund, because our exemptions didn't take into account that we had a baby in fall '08. It'd be nice to have the money in our checks for '09 instead of the big refund later. We do our own taxes (with the help of tax software), and I think DH's work uses paper forms, so we could put in 11. Many thanks!
post #19 of 21
Quote:
Originally Posted by sewingmama View Post
Question: An acquaintance who is an accountant once told me that the maximum number of exemptions you can put on your W-4 is 9, and any more sends red flags to the IRS. So we have 9 exemptions on DH's paychecks, and we're still getting a pretty big federal refund (our state has a flat rate tax, so no refund there, but we don't owe either). We have two married adults, only one job, and three kids who qualify for the child tax credit, so according to the W-4 worksheet, we could put 11 exemptions. And that's without even considering charitable contributions, mortgage interest, and real estate taxes. I'd sure love to bump up our exemptions and keep more of our paycheck! We can't be the only family in that situation -- what do the rest of you do? I am not wild about the idea of sending red flags to the IRS -- not that I think we're doing anything wrong, but it's a principle, not wanting to be on their radar any more than we need to be, y'know?
It won't send up red flags, but if you put "Exempt" or more than 10 allowances on your W-4 you are REQUIRED to fill one out every year before January 31, or your employer is supposed to bump you to "Single, 0."

If you have more than 10, they will probably check it out, and send you a letter if you aren't eligible, but it's not necessarily a red flag.
post #20 of 21
sewingmama - in 2008, we took 16 for federal and 14 for state. We have been slowly working up to that over the years and I think that this year we will finally get close to $0. We are a family of 4 with 1 income. I think that big factor for us is our charitable deductions. If the irs took a second look at our tax return in the years past, I guess everything was in order because we have never heard about it. I think that the real key is not going too overboard so that you do not end up owing more than $x that the irs allows before adding fees for underpayment. I use the irs withholding calculator to try to figure out how much taxes we will owe in a year and then I go to the below website to try to figure out how many allowances we need to actually take to equal that amount by the end of the year.

http://www.yourmoneypage.com/withhold/fedwh1.cgi

ps - there are state calculators also in the pull down menu and we have found it accurate for NC for us.
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