Author Topic: Struggling with minimizing tax refund  (Read 2723 times)

Crystal1588

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Struggling with minimizing tax refund
« on: September 15, 2016, 11:14:14 AM »
Every year I struggle with this.  Basically, our income keeps changing (Mostly up, but sometimes down). We keep having more kids. We keep giving more away in charitable contributions. So, I think I have our tax situation figured out and think we'll get close to breaking even (not owing or getting money back) but then something changes and it just gives me a headache.

We got a $2,000 refund last year. This year the following changed that will impact our taxes
- My income increased 15k
- Husbands income increased 5k
- We're having our 3rd child in November
- I maxed out my 401k (up from a 7k contribution last year)
- Hubby maxed out IRA (up from 0 last year)
- We increased charitable contributions to church by almost 10k
- Due to a giant purge of crap, we gave a metric crapload of stuff to Goodwill.

I have no idea how to minimize our tax refund (I am embarrassingly bad at tax math) but I estimate it will be closer to 4k this year, which is completely ridiculous.

Plus, once I figure it out, it won't even matter!
Because next year, our tax situation will change drastically again!
-I'm going down to 2 days/week at work, decreasing my income by 20k
-401k contributions will drop to about 8k/year for me (due to income going down. I'll only make about 18k next year)
-There will be much less in the way of contributions to Goodwill.

Any advice? Sorry for the rambling, I just can't figure it out. I'm totally fine with putting our refund into my IRA next year, but there has to be an easy-ish way to figure this out.

MyCircus, MyMonkeys

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Re: Struggling with minimizing tax refund
« Reply #1 on: September 15, 2016, 11:29:48 AM »
I'm trying to do the same thing right now. I found this website:

https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Forms/Fatten-Your-Paycheck-and-Still-Get-a-Tax-Refund/INF12107.html

I hope this helps.

ShoulderThingThatGoesUp

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Re: Struggling with minimizing tax refund
« Reply #2 on: September 15, 2016, 11:35:02 AM »
Don't worry about it that much. As long as your tax refund is small compared to your overall stache, the missed income from not having it is very minimal.

john6221

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Re: Struggling with minimizing tax refund
« Reply #3 on: September 15, 2016, 11:35:40 AM »
IRS income tax calculator will tell you how to adjust your allowances so as to minimize overpayment.


Catbert

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Re: Struggling with minimizing tax refund
« Reply #5 on: September 16, 2016, 11:27:27 AM »
I've given up trying to estimate my taxes b/c like you things keep changing.  My variations are due to cap gains, Roth conversions and rental income variation, much of which is difficult to predict early in the year.  I just set tax deductions so that we pay 100% of what we owed the previous year to avoid penalties.    Not the most efficient, but it keeps me sane. 

lthenderson

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Re: Struggling with minimizing tax refund
« Reply #6 on: September 16, 2016, 11:31:11 AM »
Don't worry about it that much. As long as your tax refund is small compared to your overall stache, the missed income from not having it is very minimal.

I've learned to just not worry about it. Just avoid owing too much and having to pay a penalty. The missed opportunity of trying to minimize your refund isn't worth the stress of constantly having to adjust things.

MsPeacock

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Re: Struggling with minimizing tax refund
« Reply #7 on: September 16, 2016, 01:22:02 PM »
IRS income tax calculator will tell you how to adjust your allowances so as to minimize overpayment.

This. Take your quarterly or mid year income, multiply to estimate your annual income, use the calculator, then adjust your withholding Accordingly a couple times per year. If you've been overpaying, ratche down the amount withheld, and via versa. Should get you in the ballpark (mine is less than 1k owed or due back) by end of year.

catccc

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Re: Struggling with minimizing tax refund
« Reply #8 on: September 16, 2016, 01:43:23 PM »
You can estimate your tax liability by with some simple calculations. 
Add up your expected taxable income. 
Take away expected exemptions and deductions.
You are left with taxable income.

Use the tax tables to calculate your total taxes.  It will be something like:  flat dollar amount, plus some percentage of your income over a certain amount.  Then take away expected credits (child tax credit, dependent care credit, whatever...)  YOu are left with your tax liability.

Compare your tax liability to your YTD withholdings and your expected withholdings.  Adjust your withholding accordingly.  You can undershoot the number of exemptions and ask your employer to use x exemptions + flat dollar amount additional withholding to get it pretty spot on.

I do this project a couple of times towards the end of the year.  Once you drop the guise of complication of the forms, for most people, taxes are pretty straightforward.  It's relatively easy.  Just make sure you aren't underpaying too much- safe harbor depends on your income level, but is generally something like 90% of current year's taxes, or 100% of prior year's taxes.