Tip # 25 on Saving, Spending, and Savoring Money

25Nov09

Actually, you should do this every few months, but absolutely, positively, toward the end of each year.

1.  Do a quick estimate of this year’s federal income tax.

2.  Consulting your most recent paycheck, compare the estimate you did to the total federal income tax you have had withheld to date.

3.  Ask your human resources department for or download an online Form W-4.  You will use this easy-to-complete form to adjust the number of allowances you  are claiming.

The more allowances you claim on your Form W-4, the less tax is withheld from your paycheck.  You can claim any number of allowances you wish, but I don’t recommend more than nine (doesn’t change much above that).  And you can change your Form W-4 any time you wish.

4.  Over-withheld? Raise the number of allowances you are currently claiming.

5.  Under-withheld?  Lower the number of your allowances.

This is one of those “yin and yang” things.  Do not use the IRS as a savings account.  But be conservative.  You don’t want to end up paying penalties or interest.

As Tim Gunn would say, “Make it work.”

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