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Author: accuracy Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121599  
Subject: Federal/State Exemptions Date: 10/31/1999 1:52 AM
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Hi,

My wife and I just had twin boys and have some questions regarding tax exemptions. My wife is not working now, so after filling out a W-4 on a tax site, it came up with seven deductions. I used to be just a single with zero exemptions. Comparing seven to zero nets me about $350 more per month. If I claim the seven exemptions, does this mean I'll be owing the IRS come tax time or is this simply a "benefit" of having children. You'll have to excuse my tax ignorance, but I tend to dislike some of this stuff. Thanks!
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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20252 of 121599
Subject: Re: Federal/State Exemptions Date: 10/31/1999 2:25 AM
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accuracy: "My wife and I just had twin boys and have some questions regarding tax exemptions. My wife is not working now, so after filling out a W-4 on a tax site, it came up with seven deductions. I used to be just a single with zero exemptions. Comparing seven to zero nets me about $350 more per month. If I claim the seven exemptions, does this mean I'll be owing the IRS come tax time or is this simply a "benefit" of having children."

Congratulations on the twins! I will pass on your actual question, but make sure that you get social security numbers for the "boys" promptly; you will need then come tax time.

Best wishes, JAFO


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Author: hghcpa Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20257 of 121599
Subject: Re: Federal/State Exemptions Date: 10/31/1999 7:33 AM
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accuracy: "My wife and I just had twin boys and have some questions regarding tax exemptions. My wife is not working now, so after filling out a W-4 on a tax site, it came up with seven deductions. I used to be just a single with zero exemptions. Comparing seven to zero nets me about $350 more per month. If I claim the seven exemptions, does this mean I'll be owing the IRS come tax time or is this simply a "benefit" of having children."
========

The calculation of the new withholding you performed simply means that you will pay less each month towards your yearly tax liability. Since your bride just bore you a new dual legacy uncle sam will allow you two new "exemptions" for them which will save you some in taxes but not a great deal. The most in tax savings this would generate will be approximately $2300 per year - if you were in the top brackets. (The diaper bill will wipe that out!!)

Think of it this way... if you win the lottery next week (we all are praying) you may owe 50 grand in taxes on april 15th. Changing your withholding simply means you pay more or less on a monthly basis towards the total tax liability.

BTW - I forgot to mention that you will be eligible for the child tax credit - saves you $800 in taxes in addition to the savings from the exemptions mentioned above, assuming your gross income is less than 100k.


Pete




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Author: FLInvestor Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20269 of 121599
Subject: Re: Federal/State Exemptions Date: 10/31/1999 7:54 PM
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A lot of those tax sites, including the actual IRS site can lead you a stray. Quite frankly, reading the actual IRS form W-4 can lead the average individual to claim too many allowances. I wouldn't ever claim more allowances than people you're supporting (including yourself), unless you have taxes being paid in through some other source like estimated tax payments. If anything, its better to err on the side of caution. By doing this, in the worst case scenario, you end up getting a nice refund at yearend as opposed to possible penalties for underpayment of taxes.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20312 of 121599
Subject: Re: Federal/State Exemptions Date: 11/1/1999 11:40 AM
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Wow, Twins. Congratulations!

We actually figure out our federal taxes a couple of times a year to determine how much witholding to do. (Now before I start getting lots of posts telling me I'm doing too much, let me say that we live in an insolvent US Territory. If you overpay your taxes you don't get it back until it is applied to the next year's taxes!)
We just look at our previous tax filing and plug in current estimates. My husband actually has set up a spread sheet to make it easy.

We have found this to be a much more accurate way than filling out the W-4 estimate form. However, it doesn't reflect changes in the tax law and we were nicely surprised by the tax credit for kids last year.

Don't panic about the increased exemptions. I once went from 0 to 8 by getting a (huge) mortgage.

Good luck.

InParadise

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Author: foolishtomtom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20315 of 121599
Subject: Re: Federal/State Exemptions Date: 11/1/1999 1:38 PM
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accuracy wrote:
My wife and I just had twin boys and have some questions regarding tax exemptions. My wife is not working now, so after filling out a W-4 on a tax site, it came up with seven deductions. I used to be just a single with zero exemptions. Comparing seven to zero nets me about $350 more per month. If I claim the seven exemptions, does this mean I'll be owing the IRS come tax time or is this simply a "benefit" of having children. You'll have to excuse my tax ignorance, but I tend to dislike some of this stuff. Thanks!


A couple of points:
1. Congratulations on the birth of your twins!!
2. There is no excuse for your tax ignorance. Learning this stuff is surely less demanding than giving birth to twins! If you can deal with twins, you should be able to deal with the IRS. Best way to learn is go get TurboTax and figure out your 1999 taxes now... this will answer your question.
3. Don't be intimidated by the IRS wording in the W4's. As long as you have correctly estimated your withholding, there will be no penalty. The government prefers ignorant tax payers so they can get away with stealing more of your money and using it interest free for a longer time period.

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20340 of 121599
Subject: Re: Federal/State Exemptions Date: 11/1/1999 8:52 PM
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A lot of those tax sites, including the actual IRS site can lead you a stray. Quite frankly, reading the actual IRS form W-4 can lead the average individual to claim too many allowances.]]

Sometimes...yes. But overall, the W-4 Form instructions are really very good. And the "private", commercial services are really nothing more than a restatement of the official IRS instructions and guidelines.

[[ I wouldn't ever claim more allowances than people you're supporting (including yourself), unless you have taxes being paid in through some other source like estimated tax payments. If anything, its better to err on the side of caution. By doing this, in the worst case scenario, you end up getting a nice refund at yearend as opposed to possible penalties for underpayment of taxes.]]

That might work for you, but I would rather have my nice refund NOW...during the year...rather than giving Uncle Sammy a tax free loan. Heck...I'm always dissapointed if I receive a refund from Uncle Sammy...means that my tax planning was crappy. At the very least, I want to owe him just a little less that $1,000 at the end of the year...the amount that I can legally owe without paying penalties.

And, if things work out right, I may owe Uncle Sammy a SUBSTANTIAL amount of money without penalty...by using the safe harbor technique that is legal AND honest. You can read more about estimated taxes and safe harbors in the Taxes FAQ area (http://www.fool.com/school/taxes/taxes.htm)

In addition, remember that withholding allowances (what you report on your W-4 form) and exemptions/dependents (what you report on your tax return) have no direct correlation. You can certainly have many more withholding allowances than dependents and be legal.

For example, I have a client, only the husband works, has a wife and 3 children, and because of his tax situation, claims 8 withholding allowances on his W-4 form.

On the other hand, I also have a client, husband and wife both work (zapped with the marriage penalty), have 3 children, and must BOTH claim SINGLE - 0 on their W-4 forms in order to make things work out at the end of the tax year.

So don't confuse "withholding allowances" with either exemptions or dependents. They are mutually exclusive.

TMF Taxes
Roy

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