Tax guys - need advice

[MrTed46]

I just purchased a home and will start paying mortgage August 1.

 

 

 

Now I want to update my W4 form so they can withhold less taxes from me. On the back of the W4 form do I put my salary from August 1 - Dec 31 (as the interest will be calculated like that) or do I put my yearly salary?

 

 

 

I am aware January 1 2008 I will update it again and obviously there it will be the entire year.

 

 

 

TIA

[yo mama]

I just purchased a home and will start paying mortgage August 1.

 

 

 

Now I want to update my W4 form so they can withhold less taxes from me. On the back of the W4 form do I put my salary from August 1 - Dec 31 (as the interest will be calculated like that) or do I put my yearly salary?

 

 

 

I am aware January 1 2008 I will update it again and obviously there it will be the entire year.

 

 

 

TIA

 

Ah, the dreaded W-4.

 

The schedule on the back is a joke. Its hard to understand, and never gets your withholding right, anyway. (Thank you, Nancy Pelosi). My suggestion - and what I do for myself in these situations - is to withhold a specific dollar amount. The form doesn't give you instructions on how to do that, but you can. You may have to lean on your payroll people to a little, but they'll work with you.

 

First, add up all the tax you've withheld to date in 2007.

 

Second, add up all the taxable income you've earned in 2007, then add a reasonable estimate of all the remaining taxable income you'll earn for the rest of 2007 (being sure to omit 401(k) contributions and stuff like that).

 

Third, do a mock Schedule A (itemized deductions) that will include all your mortgage interest, charitable contribution deductions, etc. Note: if your projected itemized deductions are LESS THAN your standardized deduction, then you may not want to change your current withholding levels. Just check first before you change anything.

 

Forth, do a (very quick) mock 1040 tax return on Excel (or whatever) to determine what your hypothetical net tax liability would be IF YOU WITHHELD NO FURTHER TAX THIS YEAR.

 

Fifth, take that hypothetical tax liability, divided by the number of paychecks you've got left in 2007, and - BLAMO - that's the amount you want to write in on the W-4.

 

Then do this exercise again in late December to readjust your withholding in advance of the 2008 calendar year.

 

Congrats on the new home!

Edited June 20, 2007 by yo mama

[KevinL]

I assume the back of your W-4 form has some sort of calculations worksheet?

 

You could start with an online calculator like this one.

 

Your deductions shouldn't be different for a whole year compared to a partial year. If you are paying $600 in interest per month (for example) and you are in a 33% tax bracket, you want to have $200 less per month withheld.

 

Of course this depends if you were already itemizing or if you were claiming the standard deduction. If you were claiming the standard exemption before, part (or all) of your home interest will be used to offset that.

 

Also, if you won't pay enough interest plus closing costs this year to offset the standard deduction, you may not want to change your withholding until January.

[KevinL]

I assume the back of your W-4 form has some sort of calculations worksheet?

 

You could start with an online calculator like this one.

 

Your deductions shouldn't be different for a whole year compared to a partial year. If you are paying $600 in interest per month (for example) and you are in a 33% tax bracket, you want to have $200 less per month withheld.

 

Of course this depends if you were already itemizing or if you were claiming the standard deduction. If you were claiming the standard exemption before, part (or all) of your home interest will be used to offset that.

 

Also, if you won't pay enough interest plus closing costs this year to offset the standard deduction, you may not want to change your withholding until January.

 

 

yo mama's explanation is more detailed than mine, go with what he says.

[MrTed46]

Ah, the dreaded W-4.

 

The schedule on the back is a joke. Its hard to understand, and never gets your withholding right, anyway. (Thank you, Nancy Pelosi). My suggestion - and what I do for myself in these situations - is to withhold a specific dollar amount. The form doesn't give you instructions on how to do that, but you can. You may have to lean on your payroll people to a little, but they'll work with you.

 

First, add up all the tax you've withheld to date in 2007.

 

Second, add up all the taxable income you've earned in 2007, then add a reasonable estimate of all the remaining taxable income you'll earn for the rest of 2007 (being sure to omit 401(k) contributions and stuff like that).

 

Third, do a mock Schedule A (itemized deductions) that will include all your mortgage interest, charitable contribution deductions, etc. Note: if your projected itemized deductions are LESS THAN your standardized deduction, then you may not want to change your current withholding levels. Just check first before you change anything.

 

Forth, do a (very quick) mock 1040 tax return on Excel (or whatever) to determine what your hypothetical net tax liability would be IF YOU WITHHELD NO FURTHER TAX THIS YEAR.

 

Fifth, take that hypothetical tax liability, divided by the number of paychecks you've got left in 2007, and - BLAMO - that's the amount you want to write in on the W-4.

 

Then do this exercise again in late December to readjust your withholding in advance of the 2008 calendar year.

 

Congrats on the new home!

 

 

 

Thanks!

[H8tank]

Do what I do, don't pay anything in, then when April 15th comes around, you get a big fat bill you can't pay, so you get penalties and interest added, it's awesome!

[TimC]

I find it's easier to pay politicians directly rather than paying taxes.

[Dragon]

Mock up a rudimentary tax worksheet in excel based on your situation. It shouldn't take more than half an hour.

 

Income, Interest / Dividends / Cap gains, Dependents, Itemized Deductions, Tax Credits and Tax Liability. Then figure out what your withholding s/b each Payroll.

[yo mama]

I find it's easier to pay politicians directly rather than paying taxes.

 

I find it's easier to pay creative tax professionals.