How to Change Your W-4 and Increase Your Take-Home Pay

February 15, 2022

Are you looking for a quick way to increase your savings or find some extra money to pay down debt? If you are like millions of other taxpayers currently overpaying your income taxes to the IRS each year, you still have time make adjustments to how much you are sending Uncle Sam. The average refund was $2,827 in 2020 with over 125 million refunds issued. This is a substantial amount of money to be loaning out to the IRS at zero percent interest. Continue reading “How to Change Your W-4 and Increase Your Take-Home Pay”

What to Do If You Missed the Tax Deadline

May 04, 2017

April what? I’ve written before about why not to procrastinate filing your taxes, but sometimes life just gets in the way. We recently received a question about what to do if you missed the tax filing deadline. Here are some steps to take:

Don’t panic. Assuming you’re not found guilty of egregious tax fraud, you’re not going to jail. In fact, if you don’t owe anything, you won’t even have a penalty. I once filed late one year and my only punishment was having my refund delayed.

Decide whether to do your taxes yourself or use a professional tax preparer. Here are some things to consider. Keep in mind that if your income is below $64k, you may now qualify to use name-brand tax software for free. (If your income is above $64k, you can still use the IRS’s fillable forms for free, but they don’t offer any real guidance so I wouldn’t recommend this unless your taxes are really simple and/or you really know a lot about tax preparation, in which case you probably wouldn’t be reading this.) The good news is that if you decide to hire a tax preparer, you may have an easier time finding one now that the busy tax season is over.

Get your taxes done ASAP. If you do owe taxes, you’ll want to get the payment made as soon as possible to minimize interest and penalties. (Here are some things you can do if you can’t afford the payment.) If you’re owed a refund, my guess is that you can think of better uses of the money than continuing to loan it to federal government tax-free (although they could really use the money right now). Either way, you’ll be relieved to get it off your mind.

Prepare for next time. Check out these tips to prepare for the next tax season. If you think you’ll need extra time, you can file for an automatic extension until October. However, you’ll still owe interest and penalties for any payments made past the filing deadline. To be on the safe side, you may want to adjust your W-4 to have more money withheld from your paychecks so that you don’t owe next year.

Don’t worry. You’re not the first person in America to miss the filing deadline. That being said, next time the consequences could be worse so try not to make the same mistake again.

How Should You Calculate Your Tax Withholding?

September 01, 2016

Do you end up owing too much to the IRS during tax season or get back a big refund? The former can be a nasty surprise and even lead to penalties if you owe too much while the latter means that you made a large interest-free loan to Uncle Sam. In any case, if you’re unhappy with the result or had a significant life event like a like a change in your job or family situation, you may want to adjust your tax withholding. I usually owe a little bit but this year, I got a sizeable refund because of expenses my rental properties. Here are my experiences with some of the ways to calculate the right number of allowances to claim:

Form W-4 Personal Allowances Worksheet: This is probably what most people use since it comes with the form you give to your employer to determine withholding. It’s pretty simple to fill out if you don’t itemize, but if you do, it will require you to have your tax return and do some calculations. According to the worksheet, I should continue to take 2 allowances (assuming my math was correct for the itemized part).

The IRS Withholding Calculator: Since this is an official IRS calculator, it’s often the next stop for those who want a more sophisticated calculation or don’t want to do their own math. The downside is that it feels like an official IRS calculator. It actually took me longer to complete and in addition to my tax return, I also needed to lookup info from my last paycheck. It suggested that I increase my allowances to 3 to reduce my refund to about $75.

TurboTax Withholding Calculator: I use TurboTax to prepare and file my taxes, but I was disappointed in their withholding calculator. I actually found it to be as time consuming to fill out as the IRS one but it left some info out. As a result, it ended up telling me to stick with the original 2 allowances.

Kiplinger’s Easy-to-Use Tax Withholding Calculator: This calculator lived up to its name. I still needed my tax return, but it only asked 3 questions and directed me where to look for the answers on my return. However, its suggestion of increasing my allowances by 3 to increase my monthly take-home pay by about $280 was the most radical. Given the simplicity of the required inputs and the outlying result, I’m a bit skeptical of the accuracy of this one, at least for more complex tax situations.

My personal verdict is to simply use the form W-4 worksheet. I had to do a little math but it was still one of the least time-consuming. The IRS calculator probably gave me the most accurate estimate, but I personally don’t mind having a little extra withheld, especially since my rental property deductions may not be as high this year. It’s not like I’d be earning much interest these days on that extra money anyway.

However, if you’d like to make your withholding more precise, you may want to use one of the online calculators. I’d suggest the IRS one for accuracy and the Kiplinger’s one if your tax return is really simple. Leave TurboTax to the actual return.

Detox Your Finances

April 26, 2016

Every spring, I get the itch to clean. It drives my family crazy but I cannot stand clutter. If I see an item either not being used or not organized for a future purpose, I am probably throwing it away. The great part about my habit is that my family is scared to leave anything out so I rarely have to pick up behind anyone. My reasoning is that everything is either working towards a goal or working against a goal – in this case, clutter.

Finances can be looked at the same way. Either what you are doing is working towards your goals or working against your goals. This is a great time to detox your finances of anything that may be toxic to you reaching your financial goals. If you are not sure where to start, consider this as a starting point:

Did you get a big tax refund or owe Uncle Sam a check? The goal should be to break even – not give the IRS an interest–free loan or owe money. Use the IRS withholdings calculator for guidance on how much withholding to claim on your W4. This is extra money that could be used for financial goals like savings, getting out of debt or college.

Do you feel like your money goes into a black hole the second you get it? Consider detoxing your budget of expenses that are wrecking havoc with your finances. These are what I consider to be the most toxic:

Eating Out: This is like a vortex that sucks money from you. Consider bringing your lunch to work 2x a week. If you go out with friends, eat before and have a large appetizer or salad or soup

Cable: There are so many options today that make it easy to cut the cable cord. Consider streaming devices like Google Chromecast, Apple TV, Amazon Fire TV or Roku to stream TV and movies through services like Netflix, Hulu, and Sling TV so you won’t go into television deprivation.

Mobile Phone: Contact your cell phone provider about discounts on your cell phone package. Another consideration is to use tier 2 carriers such as Cricket, Metro PCS, Boost or Straight Talk that generally work with the same cell phone towers as the bigger carriers like AT&T, Sprint, T Mobile and Verizon but at a fraction of the cost.

Are you looking to make a major purchase like a house or car? Get an annual free credit report from all three reporting agencies from websites like annualcreditreport.com. Once you get your credit reports, review them for toxic information using websites like Nolo.com. If you find errors, you can dispute them online. As you review, pay close attention to the following:

Review your personal information to make sure all of your information is correct – your name, Social Security number, marital status, etc.
Review the your account history to make sure that it is accurate.

Don’t just do spring cleaning. Take the time to detox your finances as well. It can help rejuvenate your New Year’s resolutions and help ensure that all of your finances are working towards your goals.

Don’t Make These 3 Common Tax Mistakes

April 19, 2016

As we wrap up tax season, I find people have more questions than answers. Some are pleasantly surprised and others are shocked and even angry about owing taxes. As I was sitting with family over dinner, their grumblings about taxes kept cropping up in the conversation. As they continued to talk, I realized that many of their problems came from the following mistakes about taxes:

Mistake #1: Getting a big tax refund. Giving an interest-free loan when you need the money is almost never a good idea. Consider using the IRS Withholding Calculator to estimate how much withholding to use to break even on your taxes. This may free up the funds for other financial goals like savings, getting out of debt and college.

Mistake #2: Not taking advantage of itemized deductions. An article from Nolo.com cites a report by the Government Accountability Office stating that as many as 2.2 million taxpayers overpay taxes by an average of $610 per year due to a failure to itemize deductions. Consider itemizing deductions if you:

Paid interest and taxes on your home
Made a large charitable contribution
Had a lot of uninsured medical and dental expenses
Had large unreimbursed job-related expenses

Mistake #3: Not looking to your employer benefits for tax savings. I recently spoke to a friend who was concerned about owing taxes and was looking for ways to lower her taxable income. I told her to start looking at her workplace benefits. Pre-tax 401(k) plan contributions lower your taxable income as well as contributions to pre-tax medical savings plans like Flexible Spending Accounts or Health Savings Accounts. Since she has children under 13 years old, I mentioned the Dependent Care Flexible Spending Account so she can contribute money pre-tax for her children’s childcare expenses.

Don’t believe everything you hear, especially when it comes to taxes. Before jumping on everyone’s tax bandwagon, take some time and do research to validate if what they are saying is true. If you find this overwhelming, consider working with a tax professional that can help separate fact from fiction.

Are You Ready For Open Enrollment?

October 27, 2015

It’s open enrollment time…that time of the year when you get this huge booklet or email of benefits and have to wade through all of the papers and links to figure out what to do while planning for the holidays at the same time. Remember to take time to really think about how you used your benefits last year so you can make the best decision. Here are a few things to consider: Continue reading “Are You Ready For Open Enrollment?”

7 Things To Do Before Summer Is Over

June 29, 2015

Most of us would agree that it’s important to schedule regular medical and dental check-ups at least once per year. Whether or not we actually follow through with those wellness visits is another story. I admit to recently realizing that I am long overdue with the scheduling of my annual check-up so last week I dedicated an entire 15 minutes to the schedule so I could get those “should be” routine visits on the calendar. Continue reading “7 Things To Do Before Summer Is Over”

Stop Going Through the Motions of Filing a Tax Return

March 30, 2015

Spring is a busy time of year here at Financial Finesse. While we are always busy providing financial guidance with passion and objectivity, the tax season and the April 15^th deadline provide an extra sense of urgency for many callers reaching out to us on the Financial Helpline. Many of the income tax specific calls we receive can be characterized as information seeking and tend to be reactive discussions. When you think about the tax filing burdens created by a complicated tax code, the IRS can strike fear into hard working taxpayers to try and get things right. Continue reading “Stop Going Through the Motions of Filing a Tax Return”

4 Financial “Myths” Than Can Actually Help You

August 22, 2013

I recently read this blog post on Forbes called “4 Financial Myths Than Can Hurt You.” Sounds interesting doesn’t it? Who doesn’t want to bust some myths that could be hurting you financially? The problem is that in trying to dispel these myths, the author perpetuates some of his own. Let’s take a look at each “myth.” Continue reading “4 Financial “Myths” Than Can Actually Help You”

Tax Planning for 2013 Begins Now

April 24, 2013

Just because tax season is over doesn’t mean your tax planning is done. Whether you owed the IRS money or got money back, tax planning is something you can do all year. Consider these tax tips: Continue reading “Tax Planning for 2013 Begins Now”

The Mistake That Turned My Refund Into a Tax Bill

February 20, 2013

This past weekend I decided to prepare my 2012 tax return. I typically like to do this early in the year so that I get my tax refund sooner rather than later, but something very strange happened to me this year: I ended up owing the IRS money! This is unusual for me. I’m usually getting money back, but call it a case of bad luck or just Murphy’s Law, after writing last week’s blog post on how to estimate the right number of allowances to claim on your W-4 so that you end up close to breaking even with the IRS, I ended up NOT breaking even with the IRS. WHAT WENT WRONG? Continue reading “The Mistake That Turned My Refund Into a Tax Bill”

Don’t Wait For Next Year’s Tax Refund

February 13, 2013

For the next several months, U.S. taxpayers will begin filing their 2012 tax return, and that means many will be getting a tax refund. In his article titled A Tax Refund Isn’t Always Something To Feel Guilty About, Associated Press personal finance writer Dave Carpenter states, “About 75 percent of individual taxpayers get a refund every year and the average amount is about $3,000.” Some taxpayers like the idea of a tax refund because they see it as a simple, forced way to save, often treating it as “found” money they use to pay off debt, go on vacation, or fund some other financial goal. Others, like me, see it as an unnecessary way of giving the IRS an interest-free loan. Regardless of which camp you fall into, you may be able to control the size of your tax refund by adjusting the number of allowances you claim on your W-4. Continue reading “Don’t Wait For Next Year’s Tax Refund”

Where Real Money Can be Found

July 25, 2012

Everyone loves a good bargain, and it seems that summer is high season for great sales. Starting with Memorial Day all the way through the 4^th of July, Back to School, and Labor Day, the deals are everywhere. In fact, if advertisements and promotions are to be believed, we can save so much money at the big box stores that our retirement accounts and college savings plans should be fully funded by early October. Continue reading “Where Real Money Can be Found”

How to Solve What Seemed Insolvable

May 11, 2012

I recently had a meeting with a woman who is struggling financially and she was looking for a way to make things better for herself and her kids. She has had a rough last 12 months and is trying to put the pieces back together and find a way to move her life forward. This time last year, her husband was killed in an auto accident and that has obviously changed the course of her life. Unfortunately, he was unemployed at the time and his only life insurance was with his prior employer and he did not transfer it to himself when his company closed their doors for business. So, she is a relatively young widow who received no life insurance benefits and was the sole income earner for several months prior to that. She has maintained her sense of humor and can smile and say “Worst year ever!” She knows that she will recover and rebuild, and now she’s ready to. The only thing she didn’t know was where to start. So, she started with a conversation… Continue reading “How to Solve What Seemed Insolvable”

It’s Wedding Season – Are Your Workers Daydreaming About Their Fairy-tale Day?

May 03, 2011

Royal kiss — Photo by americanistadechiapas/flickr

Now that Kate Middleton is officially the Dutchess of Cambridge, many of your workers are probably still in the midst of planning their own royal weddings as we enter the most popular months for weddings – May and June. We Americans certainly don’t spend as much as the multi-million pound price tag of the Westminster Abbey royal ceremony, but we do spend an average of $20,000 on our own version of the wedding fairy-tale. As the magic day approaches, your female workers might spend as much as 25% of their workdays planning their weddings, and my guess is the pending grooms spend less than a minute of their days even thinking about the event until the bachelor party begins. Continue reading “It’s Wedding Season – Are Your Workers Daydreaming About Their Fairy-tale Day?”