Many families dread the week of April 18th (I cannot as my husband’s birthday falls within this week) because of the looming deadline that comes up every year – tax bill time.
Many families are excited at the prospect of receiving their W2s because it means refund time aka vacation money, house repairs, or maybe even stock in adult beverages to get them through the chaos until next month. No judgment. However, what I think many families do not know is that when you fill out your W-4 with your employer to withhold a higher amount of tax, you are in essence giving the government an interest-free loan.
You are paying taxes into a system that they ultimately use and are then responsible for repaying you for the “overage” that you have paid. You do not get to collect interest on the “loan” you are providing. This is not one of the lovely tips – however, it is useful information to ponder.
Not all families fall into this category of bringing in the bucks at tax time. Many families are shocked when they realize that they owe money – especially double income households. Don’t get me started on small business owners (although there are tips for them too).
I was asked the question, “Is it better to file married jointly?” Personally, I think if you use any tax software (Turbo Tax is a simple and easy solution), you should run your numbers both ways and determine that for your needs. Although I will say if you do not file jointly, you miss out on deductions that you could receive.
All situations are different because some people own land, multiple homes, or have a variety of income sources. In this case, you may want to seek out a tax professional to ensure you are not paying even more.
However, there are a number of simple things you can do to lower the amount you may owe come tax time.
Contribute to an IRA or Retirement Account
Seriously, Kelsey, I am not going to see this money. I hear you. However, you have two options – pay the government or pay yourself. Contributing to an IRA is taking that money for use in your retirement future.
Your 60-year-old self thanks you. The whole point of this practice is it will lower your taxable income and in return could lower your tax bracket. Not ideal for most (especially those that were envisioning a Caribbean cruise), but you were not going to see this money to begin with.
Now there is some preplanning here. First off, you must decide if you are going to contribute to an IRA all year long, or if you have been hit with your mega tax bill and now are going to take money from savings (hopefully) to pay it. In this case, if you can lower your tax bill by paying yourself and lowering your tax bracket – go for it. Regardless, your tax bill will have to be paid at some point – so this is ultimately the smartest option.
Update your W-4
This one won’t help for this tax season, but it could for next tax season. If you find that you are having to pay taxes, you could have claimed too many dependents. I am not a fan of withholding the highest amount of taxes because it is your money and you should get it; however, just because you have four children and a spouse does not necessarily mean you both claim them. Be sure to check out the IRS calculator to see if it is time to update your W-4. If you are married, you can continue to withhold at the higher single rate or choose married. If you find you are paying taxes come April – you may want to consider the single withholding status (you cannot file single as a married individual).
Itemize Your Deductions
Own a home – deduct the interest. Pay medical expenses not covered by Tri-Care or Champus- deduct it. Are you a teacher – deduct your school supplies. Earning a college degree or post-graduate degree – deduct the tuition (only what you paid out of pocket). Give stuff away to Goodwill or Salvation Army – get a receipt and deduct it. If your deductions are higher than the standard deduction – this is a good thing for you.
How many people have lived in Florida (raise your digital hand) and chose to keep your residency because you do not pay state taxes? Did you know you can take the Sales Tax Deduction (this is a biggie). If you do not take the standard deduction (meaning you itemize), you can deduct all the sales taxes you paid. You choose either local or state taxes. For those living in an area that has a high tax, perhaps due to tourism, this could assist you. Check out this article from Bankrate to see how all that impulse (and necessity) buying can help you.
About the Author
Kelsey Ramirez is a Real Estate Broker in western Washington. She is also a veteran elementary school teacher, military wife, and mom to two daughters. She is the founder of The Military Move, a military-based website to help families in the PCS process. Kelsey loves to travel, write, and create amazing content. She has her Masters in Technology, which she uses to learn all new things digital.
With three decades of military support, Kelsey’s mission is to help new and existing military families in their unique adventures through all military topics including PCSing, budgeting, school choice and rights, housing, and especially just being a military spouse.