So its that time of the year...TAX TIME!!!! Yayyyy.

[mjb2124]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

What are the advantages to claiming 0?

I've always been told to claim 1 (myself) because I'll get more money each paycheck and therefore can allocate that money how I see fit and make it gain interest (ie: money market, IRA, CD etc...). By claiming 0, you'll give that money to the government and it won't gain interest for you.

Is there some sort of advantage that I'm unfamiliar with?

[Stu]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

What are the advantages to claiming 0?

I've always been told to claim 1 (myself) because I'll get more money each paycheck and therefore can allocate that money how I see fit and make it gain interest (ie: money market, IRA, CD etc...). By claiming 0, you'll give that money to the government and it won't gain interest for you.

Is there some sort of advantage that I'm unfamiliar with?

No, you're right. we just weren't sure how our married status would effect us and didn't want to get screwed at the end of the year. My wife gets a lot of bonuses which they never seem to tax enough so she ended up owing at the end of last year while claiming 1.

I usually use HRBlock's online service to actually do my taxes.

[jdros13]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

No, you're right. we just weren't sure how our married status would effect us and didn't want to get screwed at the end of the year. My wife gets a lot of bonuses which they never seem to tax enough so she ended up owing at the end of last year while claiming 1.

I usually use HRBlock's online service to actually do my taxes.

If this is your first year married, prepare for a shock.

If you own a house it will help, but my wife and I owed quite a bit the year we got married. Your incomes get combined which is the problem....for example if you make $50k and your wife makes $50k, you both get taxes taken out at the $50k level. When you fill out your return however, you owe taxes at the $100k income level, which is a higher percentage.

If you claimed "0" exemptions that will soften the blow, but don't expect to get much back.

I use taxact online as well. Been doing my own taxes since I was 16 (father is a tax attorney, so I have him as a resource if I'm ever not sure).

[Chief Illinimac]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

What are the advantages to claiming 0?

I've always been told to claim 1 (myself) because I'll get more money each paycheck and therefore can allocate that money how I see fit and make it gain interest (ie: money market, IRA, CD etc...). By claiming 0, you'll give that money to the government and it won't gain interest for you.

Is there some sort of advantage that I'm unfamiliar with?

If you claim 0 dependants on the W-2, I believe it just doesn't take into account the 3,400 exemption when your taxes are withheld from your paycheck. Hence, you get less money, but you are less likely to owe.

If you end up owing more than 10% of your overall tax (or $1,000; whichever is less), you could end up paying fines/interest on it, so while it is nice to have more money to invest throughout the year, make sure you're earning more on it than the government charges.

[Stu]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

If this is your first year married, prepare for a shock.

If you own a house it will help, but my wife and I owed quite a bit the year we got married. Your incomes get combined which is the problem....for example if you make $50k and your wife makes $50k, you both get taxes taken out at the $50k level. When you fill out your return however, you owe taxes at the $100k income level, which is a higher percentage.

If you claimed "0" exemptions that will soften the blow, but don't expect to get much back.

I use taxact online as well. Been doing my own taxes since I was 16 (father is a tax attorney, so I have him as a resource if I'm ever not sure).

I thought they did away with the Marriage Tax penalties?

[Pete1210]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

I used TaxAct last year and plan on using it again this year.

[jdros13]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

I thought they did away with the Marriage Tax penalties?

They aren't as bad as they were in the past I guess, but the tax bracket reality still exists. Your taxes are taken out at the rate of your pay. Same with your wife. Put them together and you should be paying a higher amount.

If you don't have a house or kids, you may be in for a shock...I'd at least do the math early so you don't get surprised when they are due.

[Chief Illinimac]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

They aren't as bad as they were in the past I guess, but the tax bracket reality still exists. Your taxes are taken out at the rate of your pay. Same with your wife. Put them together and you should be paying a higher amount.

If you don't have a house or kids, you may be in for a shock...I'd at least do the math early so you don't get surprised when they are due.

But it's only the excess money that puts you into the higher tax bracket that is taxed at that high rate. Not all of your money is taxed at the highest rate. So, yes, this exists, but it's not nearly as bad as it sounds.

[Trevytrev11]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

They aren't as bad as they were in the past I guess, but the tax bracket reality still exists. Your taxes are taken out at the rate of your pay. Same with your wife. Put them together and you should be paying a higher amount.

If you don't have a house or kids, you may be in for a shock...I'd at least do the math early so you don't get surprised when they are due.

I don't believe this is true at all. If it is, then you can just file "married filing seperately" and get near the same advantage that you would being single. (though only one can claim mortgage interest, child credits, medical expenses, property taxes, etc.).

But the brackets take this into account to begin with.
In other words:

-If you are single and make $50K, you are in the 25% tax bracket ($31,850-$77,100).
-If you are married and file jointly and each make $50K (combined $100K), you are still in the 25% tax bracket ($63,700-$128,500).
--You're tax bracket is the same. I guess if you both made more than $64,250, you would be impacted, but not much as only the portion about $128,500 would be taxed at the higher rate.

See here:

http://www.moneychimp.com/features/tax_brackets.htm

Also, the tax brakcets are incremental, which is a big misunderstanding with most people.

In other words, if you are single and make $77,100, you are at the tail end of the 25% tax bracket. However, if you get a raise and now make $80,000, you are now in the 28% tax bracket.

All this means, is that your income above the $77,100 is taxed at the higher rate, not the whole amount. The whole income isn't taxed at that higher rate.

It breaks down like this if you are filing single:
0-7,825 (10%)
7,825-31,850 (15%)
31,850-77,100 (25%)
77,100-160,850 (28%)
160,850-349,700 (33%)
349,700+ (35%)

So if you make $100K and are in the 38% tax bracket, you taxes are not $38,000 ($100,000 x 38%), though this is how most assume it works.

They are:
$7,875 x 10% = $757.50 ($7875-0=$7,850)
$24,025 x 15% = $3,603.75 ($31,850-$7,875=$24,025)
$45,250 x 25% = $11,312.50 ($77,100-$31,850=$45,250)
$22,900 x 28% = $6,412.00 ($100,000-$77,100=$22,900)
Total Taxes = $22,085.75 (which means you have an effective tax rate of 22.085%)

[Trevytrev11]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

TurboTax. It's free and easy to do. I'm sure I'll owe this year as well. I opened another Roth IRA so I'll have to pay taxes on that.

Unless you are cashing out a Roth IRA early, you should not have to pay any additional taxes since your contributions to the Roth IRA are already taxed. The whole benefit of the Roth IRA is that you pay the tax now on the your contribution and pay no taxes down the road when you withdraw (assuming you wait until you are 59 1/2).

The possible way you are losing out is that you just can't deduct the contribution that you could with a traditional IRA, but that is fine because you've already paying taxes on $4,000 instead of paying taxes on say $10-$15,000 down the road like you would with a traditional IRA.

[23]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

Alright all of you number crunchers

I have a pretty good memory about what happened the last time, but tell me, what will this Bush Tax stimulus package or rather how will it affect us when we file?

[Trevytrev11]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

Alright all of you number crunchers

I have a pretty good memory about what happened the last time, but tell me, what will this Bush Tax stimulus package or rather how will it affect us when we file?

It won't/shoudln't impact how you file. In a few month's, you'll just receive a check in the mail ($600 if your single, $1,200 if your married + $300 for each child). You may get less if you make more, though.

File like you normally would and wait for your check.

[thegoat30]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

I don't believe this is true at all. If it is, then you can just file "married filing seperately" and get near the same advantage that you would being single. (though only one can claim mortgage interest, child credits, medical expenses, property taxes, etc.).

You will not get the same benefit by filing "married filing separately" as you would if you were single. You get to the higher brackets quicker if you are married than if you are single - thus there is still a bit of a "marriage penalty" in place.

As you noted the brackets for single people are as follows:
0 - 7,825 10%
7,825 - 31,850 15%
31,850 - 77,100 25%
77,100 - 160,850 28%
160,850 - 349,700 33%
349,700 - …. 35%

But if you filed married - filing separately:
0 - 7,825 10%
7,825 - 31,850 15%
31,850 - 64,250 25%
64,250 - 97,925 28%
97,925 - 174,850 33%
174,850 - …. 35%

As you can see, you get to the 25%, 33%, & 35% bracket quicker than you would as a single person. And the fact that if one spouse itemized, both would have to, can also be detrimental as well.

The bottom line is that many people feel they would get an advantage by filing separately, but it is normally not the case at all. The separate brackets are simply the joint brackets cut in half.

[Trevytrev11]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

You will not get the same benefit by filing "married filing separately" as you would if you were single. You get to the higher brackets quicker if you are married than if you are single - thus there is still a bit of a "marriage penalty" in place.

As you can see, you get to the 25%, 33%, & 35% bracket quicker than you would as a single person. And the fact that if one spouse itemized, both would have to, can also be detrimental as well.

The bottom line is that many people feel they would get an advantage by filing separately, but it is normally not the case at all. The separate brackets are simply the joint brackets cut in half.

Yeah, I knew they were slightly off, that's why I said near the same instead of exactly the same, but the ranges you posted show it exactly.

[Stu]

Re: So its that time of the year...TAX TIME!!!! Yayyyy.

Looking at this info, it wouldn't matter either way for us. We both would've been in the same bracket single as we are filing jointly. The big advantage for us to file jointly is that we can deduct any student loan interest paid which you can't do if you're married and file separately.