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Payroll exemptions question

Old 08-12-04, 03:12 PM
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Payroll exemptions question

I need some payroll advice. I'm thinking about buying a condo and was advised that I should bump the number of expemptions I have from 2 up to some other number. My company's HR website has a modeling feature where I can see how much my net would increase if I bump the number of exemptions up.

How do I figure the right number of exemptions? The only advice I've found so far tells me to go talk to my accountant.

Suggestions?
Old 08-12-04, 03:15 PM
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I thought the W-4 form had some instructions on it as to how much each exemption was worth.

Figure out how much your interest expense and property tax will increase your deductions and then deduct that from last year's net taxable income (and take into account any other significant changes this year). I've taken 40 exemptions and still had too much withholding.
Old 08-12-04, 03:16 PM
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Lotta good info on this embedded in this thread.
Old 08-12-04, 03:36 PM
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The W4 instructions are one way. I have always found them confusing.

I think a better way is to download the 1040ES instructions, which have a better tax estimating worksheet. Then download the withholding tables. It is Publication 15, but I think 15E is just withholding, 15 is a lot of other crap. You can see the formulas that will be used to calculate withholding. Trouble is, your company has about three choices that differ on rounding. See which one is being used now, by calculating each, one should agree with your paystub.

Estimate your tax, plus what your withholding will be with current exemptions, then see how withholding changes as you add exemptions until you get it as close as possible.
Old 08-12-04, 03:53 PM
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Re: Payroll exemptions question

Originally posted by ChiTownAbs, Inc.
I need some payroll advice. I'm thinking about buying a condo and was advised that I should bump the number of expemptions I have from 2 up to some other number. My company's HR website has a modeling feature where I can see how much my net would increase if I bump the number of exemptions up.

How do I figure the right number of exemptions? The only advice I've found so far tells me to go talk to my accountant.

Suggestions?
As suggested, the simple advice:

Did you itemize last year? Do you own now and adding a condo, or renting and this is your first purchase?

Find out what your itemized deductions would be (property/school tax, interest expense on the mortgage, state taxes, etc) and the difference between your new itemized deductions and your deduction last year (standard or lower itemized deduction) MULTIPLIED by your tax rate would be what your would be saving on your next tax return (income staying equal).

So you could then use your employers web calculator to change your w-4 accordingly to get that difference in your check now.
Ofcourse it'll be different for this year (since you have less than 1/2 the year remaining) vs. next year.
Old 08-12-04, 04:21 PM
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take the lump sum
Old 08-12-04, 04:55 PM
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Follow briank's advice and come up with an estimate as to what your itemized deductions will be for 2004. Then hop over to this website:

http://www.irs.gov/individuals/page/0,,id=14806,00.html

It's the IRS's 2004 Online Federal Withholding Calculator. Have your itemized deduction estimate and your most recent paystub handy and follow along with the interview. I just got married and I had to figure out what the impact on my tax burden would be.... turns out I'll be saving a bundle as I was able to increase my exemptions by FIVE, resulting in over $100 less being taken out per paycheck between now and the end of the year.

IMPORTANT!!! The results you get are good for figuring out your withholding amount only for the rest of the calendar year. You will have to re-do this on 1/1/05 or risk being significantly under/over withheld for next year.
Old 08-12-04, 05:09 PM
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Thanks a LOT.

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