Credit portal




How much is basic rate tax

how much is basic rate tax

1. Overwithholding is bad

The IRS says that most taxpayers get refunds. That's not necessarily bad. But it is bad money management if you repeatedly get a large refund.

"A lot of people are comfortable with large refunds," says Donna LeValley-Cocovinis, attorney and contributing editor of "J.K. Lasser's Your Income Tax 2008." "Few are comfortable with paying. But they're giving [the IRS] an interest-free loan."

Most of these refunds occur because individuals have too much in payroll taxes taken out of their checks.

While some people intentionally overwithhold, LeValley-Cocovinis says many do it because they don't properly evaluate their personal tax circumstances before filling out their W-4 forms.

"They say, 'I'll do zero so I don't get in trouble.' What most people should know is that each [W-4 allowance] shelters an amount equal to the personal exemption amount," says LeValley-Cocovinis.

In addition to claiming an allowance for yourself, you can take

one for each dependent. If you're married and you both work, the IRS recommends that the spouse making the most money claim all the allowances and the other partner take none. That, according to the agency, should make your total withholding more accurately reflect the tax bill you'll calculate on your jointly filed return.

Once you've accounted for your personal exemptions, then it's time to consider other things that will affect your tax bill and your W-4.

"If you know you're going to put $3,000 into an IRA, or money into a dependent care account or flexible spending account, add that up," LeValley-Cocovinis says. "Every time you reach that exemption amount, add another allowance on your W-4."


Tips and tools

By filing a new W-4 that accounts for the proper amount of exemptions, you'll get your cash throughout the year instead of sending it to the IRS' bank account.

Category: Taxes

Similar articles: