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Author: WesOrt One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121595  
Subject: Monitoring Taxes Owed thru Year Date: 3/21/2003 5:02 AM
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Hi,

I've read a few posts about fellow Fools tracking their taxes throughout the year to avoid under-witholding or over-witholding taxes by tax time.

I am setting up Quicken 2003 to do my finances and am curious if anyone can offer suggestions on how to determine my yearly tax commitment as I go thru the year and how I could use my financial software to monitor this tax figure?

If I understand what I'm reading some people actually monitor their taxes witheld as the year goes along and make periodic changes to the amount witheld?

Thanks,
Wes
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Author: TMFDj111 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 64596 of 121595
Subject: Re: Monitoring Taxes Owed thru Year Date: 3/21/2003 6:52 AM
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I've read a few posts about fellow Fools tracking their taxes throughout the year to avoid under-witholding or over-witholding taxes by tax time.

Welcome to TMF! Our purpose is to educate and amuse, and from time to time we even come up with lucrative financial advice.

I do this monitoring for my own taxes. The procedure I prefer is to use last year's tax forms to calculate this year's taxes. For example, when I get my pay stub for March, I'll figure out my pay for the year, and plug and chug with that number to ensure I'm okay for this year's taxes. If I'm too far out of whack, then I make an adjustment to my withholding to get back on track.

There are problems with this approach. For example, the tax code changes from year to year -- sometimes dramatically. Also, makeing changes to withholdings sometimes yields surprising results. However, this approach seems to be the least awful of several poor choices.

David Jacobs
TMFDj111

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Author: wintbill Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 64600 of 121595
Subject: Re: Monitoring Taxes Owed thru Year Date: 3/21/2003 11:46 AM
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WesOrt wrote: I am setting up Quicken 2003 to do my finances and am curious if anyone can offer suggestions on how to determine my yearly tax commitment as I go thru the year and how I could use my financial software to monitor this tax figure?

Quicken 2003 should come with a withholding calculator in the Tax Planning tabs. What you need to do is first make sure that you're entering your paychecks with all of the proper categories in a split (e.g. Tax-Fed, Tax-State, Social Sec., Med., etc...). The built in calculator will tabulate your salary and all of your withholdings to date and estimate those figures for the entire year and compare them with the required tax in your tax bracket.

I haven't been too impressed with the calculator, because I find I have to modify it frequently to make sure my 401(k) and IRA contributions are accounted for, as well as deductible home mortgage interest and other deductible expenses. I find that it's better for me to use Quicken's year-to-date tax summary report to generate all those numbers, and then I use the withholding calculator on the IRS's website, http://www.irs.gov

Happy planning,
Bill

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 64602 of 121595
Subject: Re: Monitoring Taxes Owed thru Year Date: 3/21/2003 1:13 PM
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The more irregular your income, the greater the need to track withholding or make estimated payments. If your income and marital status is consistent during the year a review done when you file taxes is likely to remain close for the current year.

As a previous post recommended the irs has a good calculator at www.irs.gov.

One major problem that makes estimates only an estimate is unpredictable mutual fund distributions at the end of year.

Debra

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 64603 of 121595
Subject: Re: Monitoring Taxes Owed thru Year Date: 3/21/2003 2:10 PM
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The IRS site is interesting, but not really of much help, as computing the Annualized Income Method in advance to pay the least amount of installment is quite difficult. The IRS doesn't even mention what to do with AMT or Credits, to name a few omissions. Worst of all is unless you can increase withholding later a low estimate of full year's tax could cause underpayment penalties in early quarters. There are calculators that do this exactly, i.e. track your withholding and/or compute your installment on the AI Method, which includes all the "safe harbors" automatically. The advantages of the AI are that you're using exact values, not estimates, and the AI Method "leverages" any deductions you can make in the first quarter to further reduce early installments. For instance, a $3,000 Capital Loss Carryforward annualizes to $12,000 for computing the AI tax. Also, those unexpected Mutual Fund distributions aren't entered at all until the last quarter.

Just enter "2210 tax calculator" into any search engine to find one. You just fill in the lines of a 1040 with that quarter's accumulated values and the rest is automatic. ed

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Author: WesOrt One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 64611 of 121595
Subject: Re: Monitoring Taxes Owed thru Year Date: 3/21/2003 9:30 PM
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Great Tips!!! Thanks

I'll try setting up Quicken 2003 with your suggestions and check out IRS site.

One more question.... How does one go about adjusting withholding amounts throughout the year? Is this something I should contact my Human Resources Dept about or is there something else I need to do?

Thanks Again,
Wes

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 64612 of 121595
Subject: Re: Monitoring Taxes Owed thru Year Date: 3/21/2003 11:14 PM
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Contact you HR Department to file an updated W-4 for federal. By default it is used for state but your HR department should also your state's withholding form.

Debra

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