The Fed tax more than doubled last year, from $20 to $43. No state tax in Tx this year. Three years of paying $20, I never really looked into it that close. For years while working, I tried to break-even changing the W-4, hard to do.
Are you making over 300K? If not you need to add exemptions, and probably a lot of em on your W-4. I am married with two kids, and a full time student wife, but in order to not get a refund at the end of the year I have to claim 9 exemptions. I usually owe between 100 and 200 bucks when I file.
My quarterlies are usually dead on. I do consulting on withholdings for fluctuating income. Let me know if you need some assistance with it. I'll even give you a rate reduction. There is no magic formula, but if you pay attention to your known expenses, and have good historical data on your revenues you can build a pretty decent model. You can also build in for unexpected windfalls, seasonality, and the like.
I know there are more sophisticated ways to figure quarterlies, but I dislike doing the accounting almost as much as I dislike paying accountants. It's only important to me to get it close. My estimates are good enough to suit me in most years. But my finances have become more complex over time. I've gone from a two-page 1040EZ to a 60-page 1040 over the last 20 years. A time may come when I have to use a tax guy. I actually like doing my own taxes because it forces me to understand my finances thoroughly.
I generally do the following to figure out the number of allowances to claim to make sure I am not overwithholding my pay check: 1) Estimate current taxable income for the year 2) apply appropriate deductions/exemptions (standard deduction vs. itemized, number of exemptions that you can claim, and other such things) 3) calculate the tax on the amount in 2) 4) subtract out tax credits you can claim (child tax credit or others) to get an estimate the federal taxes you will owe for the year. 5) Use a calculator like the one below to get an idea of the number of exemptions you should claim so that you will cover your federal taxes http://www.adp.com/tools-and-resour...l-calculators/salary-paycheck-calculator.aspx I follow the steps above every year and am satisfied with how close I get. If you need more details, @LaSalleAve, I would be happy to help.
Kids, whether we have daycare costs, how much my wife works, and other factors create a scenario that one year is never like another. I'm a CPA but this is not my area of expertise so a 1-3k refund is always fine with me. Maybe not the most efficient but I can't complain if the refund is bigger in a given year.
Just for the sake of round numbers lets say your average tax refund is $2400. That's $200 a month so if you can figure it out to make it even you have an extra $200 per month. If you really need the extra money on a monthly basis to pay bills $200 will pay most peoples electricity and water or maybe the car note on a cheap car. If you don't really have to have the extra $200 a month and you put it in a savings account at today's interest rates your money wouldn't earn enough to by a candy bar by the end of the year. I would think the best thing to do with it is buy $200 worth of a good stock or put it into a mutual fund. Or you could avoid the complications of trying to figure out how to get no refund and also owe no more at the end of the year just by keeping it as it is and getting the $2400 check. If you want to invest it you can do it once a year rather than monthly
That is leaving a lot of money on the table. In my checking account it would earn $84 in a year. That's a big candy bar. Invested in a mutual fund it might make $400. That is money you are letting the government earn on YOUR dollar. Why would anybody do that?
I don't have a savings account but we never did the probate when my Dad passed away. There is about $1000 in his savings account and I get statements every month where that almost $1000 has earned a penny for the month. I would never recommend that anybody put money in a savings account
