Taxes and Student loans. How many exemptions should I have?

I never knew paying off a student loan lowers your taxes?? I’ll be interested in the answers. You can write off the interest I think, just like a house mortgage. That isn’t a reason to keep the loan though. If you can pay it off pay it.

Paying off your student loans doesn’t really affect your taxes much. The only thing you can deduct is the interest paid, so really it just means you’ll have one less deduction in future years. But the interest paid is almost always larger than the deduction, so that’s no reason to hold onto the debt. As for exemptions, I recommend taking as few as you can afford. The more exemptions you take, the smaller your refund (and the higher the chance you actually have to pay taxes at the end of the year instead of getting money back).

But that’s the safe approach. You could also try to figure out exactly how many exemptions you can take without owing anything to the IRS at the end of the year. Or you could take as many exemptions as possible and just plan to owe money on tax day. That way, your money is gaining interest in your bank account (or stock portfolio) instead of the government’s. It all depends on how well you understand finance/economics, how good of a planner you are, and how much time you can devote to it. Personally, I have better things to do with my time.

It would be extremely irresponsible of me to provide this sort of information in a vacuum, without knowing more about you or seeing your overall picture. Nobody should rely on your question and tell you how many withholding allowances you should claim. I say this as someone who’s been a tax CPA for 30+ years.

Claim zero (0) exemptions. They withhold more money that way. Likewise, the more exemptions, the less they withhold. Depends on just what you plan to do to pay off your debt after that.

^^No matter what you claim, at the end of the year you pay the same amount. You either owe, or you get it back, but the amount is the same.

@JLeslie, but underpayments might generate penalties. It’s a pay-as-you-go system. If a taxpayer doesn’t cover objective thresholds during the year, either through payroll withholding or quarterly estimates, there’s a monetary slap on the hand. It isn’t quite as simple as pay now or pay later.

True, you need to meet thresholds, but for most people the thresholds aren’t difficult to meet even if you put in two extra exemptions. A person can figure out the math if they want to bother to. Or, an accountant obviously can help.

If someone is getting money back every year, they obviously can change their exemptions to be at least one more if they want to hold onto their money more throughout the year.