General Question

livelaughlove21's avatar

What tax precautions should we be taking?

Asked by livelaughlove21 (15608points) December 19th, 2013 from iPhone

Since I just got a post-college job, my husband and I will be bringing in two incomes for the first time since we’ve been married. I don’t know a whole lot about taxes, so I’m hoping some nice jelly that knows a thing or two could give me some tips so we can avoid owing at the end of the year, but we don’t get gouged in the meantime. We’ll discuss this with our tax lady in February when we file, but getting some basic information now wouldn’t hurt.

We file a joint return. He makes about $40,000 gross and I’ll be making $36,000 gross. We bought our home in September of 2012. We do not have children.

I’ll be happy to answer any additional questions that would be helpful. How many withholdings should we put on our W4s? What else could we do as far as tax precautions?

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10 Answers

gailcalled's avatar

I always call my tax person before the end of the year to discuss this. We had our chat last week; my issues were how much capital loss from stock sales I was carrying forward from last year.

Give your lady a buzz and ask her this question.

JLeslie's avatar

One trick is to pay your property for two years in one calendar year if it will help you reach the minimum to itemize. When you itemize you can include the mortgage interest you pay and your property taxes and some other things. Usually counties allow property taxes to be pai from Oct-March more or less, so if it will help, you can pay 2013 in the beginning of 2014, and pay 2014 in the end of 2014 and make you deduction really good for tax year 2014. It might not be beneficial for you, it only helps if the numbers are going to total up to about $10k or more. You can even split your taxes paying a certain amount now, and the balance next year. Some states give a discount if you pay the taxes early, so you have to take that into account.

Adirondackwannabe's avatar

Don’t follow the instructions on the W-4. At least for the first year. If you do, you’ll get a bill when you do your tax returns. You probably should go married 0 or 1 if you want to be sure to have enough withheld. Your student loan interest will help, and you can probably itemize.

LuckyGuy's avatar

And don’t forget to open an IRA to take advantage of the tax deduction. You can do that up until the day the taxes are due.

Wealthadvisor's avatar

This is a difficult question to answer exactly, because no two individuals tax situation is exactly the same.

From your question, it does not sound like your taxes will be complicated. Tax is not calculated on gross income, it is calculated on taxable income after all adjustments and deductions have been taken.

You will be filing as married, filing jointly. You will be able to tax deduct your mortgage interest and any medical expenses in excess of 10% (new percentage for 2013,) of adjusted gross income. This means if your AGI is $60,000, you will need in excess of $6,000 in medical expense to take the deduction.

As mentioned, an IRA would help. You each can put up to $5,500 each, but an $11,000 contribution might be a bit steep on $76,000 of income. You may want to see if you owe and then open an IRA with just enough to eliminate the amount you owe and get a small refund.

The tax on $76,000 is about $11,000, but again, you are not taxed on gross. The tax on $65,000 is about $8,800. This will give you a range on what your tax bill might be.

The recommendation of paying two years property tax on one year will not work in most cases as the lost opportunity cost on the money over time will be greater than the tax saved. I can explain lost opportunity cost later if you need an explanation. My recommendation is never give the government more than you have to in any one year.

You want to make sure when indicating withholding on the W-4 that you don’t have too much withheld. You don’t want the IRS holding your money all year. You can each select 1 and then when you do your taxes ask your tax preparer what he thinks the number should be. You can always change the withholding amount and also indicate an additional amount to be withheld in necessary.

KNOWITALL's avatar

Like they said, open your IRA, start your 401k if you haven’t yet, write off charitable donations, your tax accountant will help you, if you have enough to itemize. We rarely owe but rarely get a lot back either. Like one accountant we no longer use told me, have a kid or two to get the most money back (rude huh?) :)

livelaughlove21's avatar

@KNOWITALL Perhaps rude, but I plan on reaping those benefits on my 2015 tax return if all goes as planned. :)

KNOWITALL's avatar

@livelaughlove21 Good luck, doll, you’re both so cute you’ll make beautiful babies!

JLeslie's avatar

How much you get back depends on how much you overpay during the year. Back when I was younger getting back money was really not financially wise. It means you have let the government hold your money instead of you having it in your savings account earning interest. Now, savings accounts don’t earn much, but when I was younger savings earned between 4–10% deoending on what year you pick. When I was really little I had CD’s making 12%. I used to try to owe a little to the IRS at the end of the year to make money on my money. It doesn’t apply now, but if we ever have high inflation again and high interest rates it will. You just have to be willing to set aside the money so you for sure have the money to pay at the end of the year. It’s also why I pay my property tax at the end of the year in a lump sum, and don’t have it collected by a mortgage company.

hearkat's avatar

When I finished grad school over 20 years ago and started working 3 days a week, no one warned us to look at our combined income and set withholding based on that. We wound up owing several hundred dollars, and with a toddler and student loans, that was a hard hit.

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