Avoid Overpaying the IRS by Adjusting Your Withholdings
Every year, millions of Americans receive a tax refund check from the Internal Revenue Service, and they thing it's great.
In essence, however, much of this refund represent that your income taxes have been overpaid.
The Internal Revenue Service is paying back what they should not have collected in the first place.
Let's look at how this happens and what you can do about it.
When you receive your tax refund you should take a look at it and realize just how much interest free money you loaned to the Internal revenue Service that year.
Instead of helping Uncle Sam, you could have been helping yourself by using that money to pay down credit card and mortgage debt, or just buying groceries.
To help reduce your overpayment to the federal government, you can adjust the withholding on your W-4 form.
Your employer must allow you to adjust your W-4 when you request to do so.
One of the ways to adjust your withholding, so there is more money in your paycheck and less given to the IRS, is to increase the number of allowances on the W-4 form.
The general rule is to claim an allowance for yourself, your spouse, and each of your children.
You are allowed to adjust your allowances to accommodate your tax situation.
Every allowance in the year 2009 is worth $3650 in tax-free income.
Be careful to be reasonable, because the IRS can penalize you for underpaying by declaring too many allowances.
If you get a sizable refund every year, you can probably add an allowance without any difficulty.
If you want to be certain about the allowances you are adding, the IRS has a special calculator on its website to help determine a safe number of allowances for your circumstances.
Many Americans still believe that if they keep their tax withholdings at a higher rate, they are investing their money wisely and that will give them a fat refund.
When is it the correct strategy? Is it appropriate to pay the taxman more and then wait for elite return?
In essence, however, much of this refund represent that your income taxes have been overpaid.
The Internal Revenue Service is paying back what they should not have collected in the first place.
Let's look at how this happens and what you can do about it.
When you receive your tax refund you should take a look at it and realize just how much interest free money you loaned to the Internal revenue Service that year.
Instead of helping Uncle Sam, you could have been helping yourself by using that money to pay down credit card and mortgage debt, or just buying groceries.
To help reduce your overpayment to the federal government, you can adjust the withholding on your W-4 form.
Your employer must allow you to adjust your W-4 when you request to do so.
One of the ways to adjust your withholding, so there is more money in your paycheck and less given to the IRS, is to increase the number of allowances on the W-4 form.
The general rule is to claim an allowance for yourself, your spouse, and each of your children.
You are allowed to adjust your allowances to accommodate your tax situation.
Every allowance in the year 2009 is worth $3650 in tax-free income.
Be careful to be reasonable, because the IRS can penalize you for underpaying by declaring too many allowances.
If you get a sizable refund every year, you can probably add an allowance without any difficulty.
If you want to be certain about the allowances you are adding, the IRS has a special calculator on its website to help determine a safe number of allowances for your circumstances.
Many Americans still believe that if they keep their tax withholdings at a higher rate, they are investing their money wisely and that will give them a fat refund.
When is it the correct strategy? Is it appropriate to pay the taxman more and then wait for elite return?
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