I recently just adjusted my w4 withholding with my employer. Since I am considered an expat worker I am able to qualify for the Foreign Earned Income Exclusion. I am able to adjust my withholding so that I don’t have to give the federal government an interest free loan. For 2014 I am qualify up to $99,200 tax-free and I also include my 401k which is tax defer of $17,500. That will bring me up to a total of $116,700 once my gross income get close to $116,700 I will readjust my w4 so that the federal taxes will be taken out of my paycheck.
So what I normally do for every 1st of the year is to file an exemption on my w4, this will block my federal taxes until a certain amount it will vary each year. Once I hit my $116,700 including 401k, I will adjust my withholding to start paying federal taxes. Also I factor in social security taxes, by the time I get around $117,000 for 2014, I would be maxing out my SS tax for that year and don’t have to pay into it anymore until next year roll around. My home state is in Louisiana, so I allow the state tax to tax me every year, but I am consider adjusting my state tax allowance. I wish my home state was either Texas or Florida that way I don’t have to pay any state taxes.
The reason why I do this is because I already pay enough taxes already and I want to keep more money for myself to invest in. The more money you allow the federal government to hold the more time will be wasted on investing. I can probably stick it in a saving account or investment and make a bit of money then having to wait until next year to get my money back. Also if you have any debt you can use that extra money and pay off some of your debt. That’s the way to maximize your taxes and bringing more money in your pocket.
I try not to get too much back every year if I can, I still do get some money back when I do my taxes, but I try not to overpay too much in the system. You want to get back enough but also you don’t want to owe them anything, with the way my income fluctuates it’s hard to determine the withholding sometimes, so I have been tweaking every year or so.
My first year in which I was not familiar with all of these rules and exemption, I file single and allow them to take taxes from my pay. When tax time roll around I got back about $15,000 between federal & states. That’s money I could have invested and at least get some returns. I decided to do some research and was able to tweak my numbers a bit legally and get some return but don’t have to owe that much. I will have to readjust my withholding again, for my 2013 tax I had a big refund from my state than my federal. So I will have to adjust my state withholding.
“I’m not a tax expert so seek professional help if needed.”
Have you check your W4 lately?
Do you normally adjust your withholding or allowance every year?
Let me know would like to hear what you do differently with your withholding.