24 Mar
Tax Withholdings – Getting the Exemptions Right on Your W4
Not long ago I was becoming frustrated with our progress on Baby Step 2. I am painfully impatient to get out of debt. Just ask The Wife.
Yet it’s a long road. Most people who follow the plan we are doing need 18 – 24 months to become debt-free. I’m afraid we’re going to need more.
What does ole Ramsey say? “Children want it now, adults devise a plan and stick to it.”
>sigh<
Last year we gained real traction for the first time when we got our tax return. It was around $6,000 and suddenly we felt like we were really moving. Cards were cut up, accounts were closed; we were doing a total money makeover for real.
We buckled down and embraced our plan. I changed my W4 withholdings to increase our take-home pay by ( $6,000/12 ) $500 per month and we put that to use for our debt snowball.
Let me tell you: THAT IS SCARY. Well, it’s not scary in March when you do it, but it’s deathly frightening the year after; when you’re walking from your car to the CPA’s office to find out whether you owe or not.
How close did we get to having the right amount withheld for 2009?
What do you think our accountant said when the 1099s, W2s, statements, and deductions were all mashed into this year’s new and improved tax tables?
A seven thousand dollar refund. Seriously.
WHAT THE HECK IS GOING ON? I asked her to double check the numbers — twice. Nope. It was real and the return was right.
I headed off to HR the next day and upped our exemptions again. Maybe this time we’ll get closer to our goal of +/- $1,000. That’s most interest-free money I’m willing to loan the government and the most I’m willing to cough up on short notice.
In the mean time, this year we get to throw $9,000 at our debt! (NINE THOUSAND? Oh yeah, I got the first $2k from that freelance work I told you about). That takes us from 38% paid off up to 58%.
TALK ABOUT TRACTION!
You certainly cannot call it planned, but it sure is nice to have an unexpected boost. Don’t ask me how to get your exemptions right. The tax tables are obviously some kind of weird voodoo.
The real story is that we never thought about using the money for something else. Two years ago we would have bought stuff, taken a vacation, or frittered it away. Today we have no question about what to do with found money. We have our steps. We know which one we’re on.
Save Strong,
the Dad
Posted by Kellie on 03/24/10 at 10:34 am
Oh my! I thought you were going to say $7k OWED! So happy for you guys to get all that back!!
Posted by Jeffrey Johnson on 03/24/10 at 11:46 pm
Its due to all credits the spendcrates passed to help economy. Bet next year you will owe alot. To play it safe I would hold your snowball from say January until after find what taxes are. Than again they might do more credits to improve taxes again. I long given up planning for taxes.
Posted by Tam on 03/25/10 at 7:46 am
I want your accountant! After Jon worked his magic we are getting back $38… That’s what we had planned for, but I was hoping for a liitle unexpected snowball. Be careful…taxes will likely go up to cover the new healthcare bill too.
Posted by the Dad on 03/25/10 at 9:20 am
You’re all probably right. With diligence will be on to baby step 3 next March and able to cash flow a bill if we have one. Of course, I’ll let you all know. Loudly, probably.
Posted by jpkittie on 03/25/10 at 9:35 am
that is awesome! congrats!
Posted by Yosemite Gal on 03/26/10 at 6:48 am
I’ll pray that you aren’t in one of those states that isn’t going to send out refunds because they NEED (choke-choke) the money.
Posted by wudnit on 03/26/10 at 7:03 am
I’m confused. You said that you “upped” your exemptions. If you “up” your exemptions, they take more money out for taxes so, of course, you would get more money back. You have to decrease your exemptions for them to take less money out for taxes. Or, did I just misunderstand?
Posted by wudnit on 03/26/10 at 7:04 am
Never mind, I’m having a bad day. Your way of saying it is right. You do have to up your exemptions if you want less money taken out. UGH!! Bad week for my brain!!!
Posted by rtc on 03/29/10 at 3:28 pm
Congratulations! That was a huge snowball! Over half way there!
Posted by KelsaLynn on 03/30/10 at 8:29 pm
What an AWESOME problem to have
Right?
I know it wasn’t expected but you did everything you thought you needed to do last year. Not much you can do now except try to make it right for next year, which you’re doing.
I’m just so excited for you and your HUGE bump from 38 to 58% HOLY COW! You are more than HALF WAY THERE! How fricken amazing is that?!??!? Eeek!
Posted by Jennifer on 04/07/10 at 5:32 am
Wow, that’s awesome! I am having the same fear you had. We also upped out exemptions after getting a large refund last year. Husband is working on the taxes today and I’m keeping my fingers crossed that we won’t owe – and will maybe also get a big refund!
Posted by Mysti on 07/28/10 at 5:50 pm
I would love to know how you ended up with that much of a refund. Even before we made all sorts of adjustments, we weren’t even close to that.
We now are around $1000 refund…we got back a little more this year, but owed state tax. This year we used our refund for home improvement. Painted the fence, got some plants and mulch, fixed a few things. The last little bit will go toward painting the bathroom.
Woo woo….
Posted by Jeffrey Johnson on 08/22/10 at 10:06 am
Yet to do my taxes had stroke on April 7th. Plan to do them next week. Been super bad year my 7 year old nephew had two strokes and I had one.