Adjusting Withholdings

[CPAjeff]

Taxes are not my forte, so hopefully someone can shed some light on this for me...

How many of you adjust your withholdings to get as close to zero as possible come tax time? My wife and I have always received a pretty good refund, but I'm open to the idea of changing things up. Honestly, it won't make a difference either way, but I'd rather think about money now, instead of watching the ball drop in NYC...

Facts:

Married Filing Jointly - wife is a stay-at-home-mom
Three kids (ages nine, seven, and four)
Generally use the standard deduction
Annual income of 175k

 

[seeth07]

Taxes are not my forte, so hopefully someone can shed some light on this for me...

How many of you adjust your withholdings to get as close to zero as possible come tax time? My wife and I have always received a pretty good refund, but I'm open to the idea of changing things up. Honestly, it won't make a difference either way, but I'd rather think about money now, instead of watching the ball drop in NYC...

Facts:

Married Filing Jointly - wife is a stay-at-home-mom
Three kids (ages nine, seven, and four)
Generally use the standard deduction
Annual income of 175k

Always adjust to try and get as low of a refund as possible. Otherwise you are just giving the government a free money loan, no interest return to you for doing so.

 

[Pucky Freak]

I adjust the federal and state withholding year-to-year to aim for 0-$500 taxes owed on each. If you have a fairly predictable projected income next year you can calculate expected refund for for every possible withholding amount.

 

[jryoung]

If you use one of the major payroll providers like ADP or Paychex they have pretty decent withholding and "take home pay" calculators in their portals. Otherwise, simply look at line 24 from your previous years, identify consistencies (income/deductions) and start changing your withholding to add up to slightly more than you expect line 24 to be.

 

[AlaskaHunter]

Now retired, I cannot because by IRS code, 401-k withdrawals must have 20% withholding.
I get a substantial refund but it takes many months even though I E-file as soon as possible the same basic return each year.

 

[Farmerj]

Why guess? Your tax dollars at work…

Tax Withholding Estimator | Internal Revenue Service

Check your W-4 tax withholding with the IRS Tax Withholding Estimator. See how your withholding affects your refund, paycheck or tax due.

www.irs.gov

 

[westbranch]

Current IRS withholding calculator is pretty good and will print out a W4 you can give to payroll. My goal is to owe <1k. I had our office manager adjust mine about a year ago due to some changes.

 

[westbranch]

Now retired, I cannot because by IRS code, 401-k withdrawals must have 20% withholding.
I get a substantial refund but it takes many months even though I E-file as soon as possible the same basic return each year.

There a reason you don't want to rollover to an IRA? Then you can pick your withholding.

 

[NEWHunter]

I check mine every year and try to have it be $0 or owe a little. Although this year I might get caught out. Wife went back to work and I got lazy in terms of checking on what our tax liability might be. We might owe a penalty because I don’t think she had much if any withheld from her check.

That said, I usually adjust in April after I get my bonus. The size of the bonus can vary from not much to a good portion of our income. The withholding on the bonus is always disproportionately large. In years where the bonus is good, I usually need to move my withholding as low as I can to get near $0 liability.

 

[np307]

Why is a CPA asking us?

 

[westbranch]

Why is a CPA asking us?

CPA can mean a lot of different things, I know a lot of cpas that haven't prepared a tax return other than their own. My sister is a CPA that does consulting work for big companies for IPO readiness. I do her (simple) taxes. Her long term boyfriend is a CPA that does international tax. Ask him about tax consequences of selling your house and he knows nothing. But he could setup a DISC or transfer pricing agreements.

 

[np307]

CPA can mean a lot of different things, I know a lot of cpas that haven't prepared a tax return other than their own. My sister is a CPA that does consulting work for big companies for IPO readiness. I do her (simple) taxes. Her long term boyfriend is a CPA that does international tax. Ask him about tax consequences of selling your house and he knows nothing. But he could setup a DISC or transfer pricing agreements.

Yeah it was supposed to be a joke. Just thought it was funny.

 

[westbranch]

Yeah it was supposed to be a joke. Just thought it was funny.

Always hard to tell on the interwebs.

 

[AlaskaHunter]

There a reason you don't want to rollover to an IRA? Then you can pick your withholding.

Good point. I can not open an IRA because I am retired with no "taxable compensation".
"must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. For tax years beginning after 2019, there is no age limit to contribute to a traditional IRA. Compensation for purposes of contributing to an IRA doesn't include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation. "
https://www.irs.gov/taxtopics/tc451

 

[westbranch]

Good point. I can not open an IRA because I am retired with no "taxable compensation".
"must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. For tax years beginning after 2019, there is no age limit to contribute to a traditional IRA. Compensation for purposes of contributing to an IRA doesn't include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation. "
https://www.irs.gov/taxtopics/tc451

You can still open a rollover IRA.

 

[AlaskaHunter]

You can still open a rollover IRA.

According to the IRS, in order to create an IRA that one could rollover into, the applicant must have
taxable compensation such as wages, salaries, or net income from self-employment.
Since I am happily retired, I have do not meet these criteria.

 

[ashersdad]

According to the IRS, in order to create an IRA that one could rollover into, the applicant must have
taxable compensation such as wages, salaries, or net income from self-employment.
Since I am happily retired, I have do not meet these criteria.

Taxable compensation to make an IRA contribution, not a rollover. You can most definitely rollover funds into an IRA without taxable compensation. That should give you more control over your withholding election.

 

[AlaskaHunter]

Taxable compensation to make an IRA contribution, not a rollover. You can most definitely rollover funds into an IRA without taxable compensation. That should give you more control over your withholding election.

My TIAA retirement portfolio does not have IRAs. So in order to rollover I would have to first have the ability to create an IRA account.

 

[The_Jim]

My facts are nearly identical to you except I have 4 kiddos but my stay-at-home-mom wife was previously a tax CPA so I do have some extra help getting my withholdings correct. We try to adjust ours to 0. I work a lot of overtime so my income fluctuates - which means its never perfect but if your responsible with your money it works great, I would much rather save that money and invest it throughout the year than give the federal government an interest free loan.

 

[AlaskaHunter]

My facts are nearly identical to you except I have 4 kiddos but my stay-at-home-mom wife was previously a tax CPA so I do have some extra help getting my withholdings correct. We try to adjust ours to 0. I work a lot of overtime so my income fluctuates - which means its never perfect but if your responsible with your money it works great, I would much rather save that money and invest it throughout the year than give the federal government an interest free loan.

Everything I read on the IRS and the web indicates opening an IRA account requires earned income:

Generally, if you're not earning any income, you can't contribute to either a traditional or a Roth IRA. However, in some cases, married couples filing jointly may be able to make IRA contributions based on the taxable compensation reported on their joint return.Oct 15, 2021

While you typically need to have income to open an individual retirement account, there is an exception for married spouses who file their taxes jointly. It’s known as a spousal IRA, but it is simply a traditional or Roth IRA in the non-working spouse’s name

Four Ways to Contribute to an IRA Without a Job:

1. If your income is solely from exercising non-qualified stock options. When you exercise a non-qualified stock option, the taxable component of the option exercise is considered taxable income, and therefore is eligible for contribution to an IRA.
2. If you receive alimony, it is taxable as ordinary income, which is eligible for an IRA contribution.
3. Scholarships and Fellowships - if these are taxable, that is, reported in box 1 of a W2 form, they're eligible for contribution to an IRA.
4. Spousal contribution. If your spouse has earned income (and you have none or not enough to make a maximum contribution), you are eligible to make an IRA contribution based on your spouse's income. The limit is that the total of all IRA contributions (yours and your spouse's) cannot exceed the earned income of the working spouse.