A Blog About My Life’s Lessons

 Some people prefer getting a nice tax return from the IRS, but I prefer  not to give the IRS an interest free loan.  Hence, over the last few years I’ve tried to calculate my monthly IRS withholdings so that I get <$100 back come April 14th.  For example, I currently claim 8 allowances, which is a lot considering I’m only married and have one child.

There are three reasons for my high number of allowances:

1. I have a large number of deductions(>$20k)
2. Annual bonuses get taxed at the standard tax bracket(25%) and at the time of issue.
3. Restricted Shares (RSU)  are taxed heavily and at time of issue.

#2 and #3 really impact my tax withholding the most because they are mandated by the IRS and I can’t adjust how much is taken out. Hence, a large portion of my tax payments are made up from these two items (~42%).  So, the remaining 58% comes from my monthly IRS withholdings. 

Using a tax calculator, I determined I will owe ~$6,000 in federal IRS taxes for 2008.  To be safe I added $200 to that number.  Hence, my estimated 2008 taxes due will be $6200.  If I don’t’ adjust my allowances, I will get a $741 return.  However, I due plan to adjust my allowances (probably claim 10), so I can spread the $741 over a 9 month period. This adjustment will provide me with an additional monthly income of ~$80.  Not to shabby.

Are there any lessons that you’ve learned with Tax withholdings? Do you prefer to get  a large check back?