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Thanks for all the great responses! Some were duplicate and I'll try to answer as many questions as I can.

how much did the two of you pay in 2004 (combined)? If less than $5300, there would be no penalty.

Unfortunately, we paid $6354 last year. Some of it was due to myself working more than one job, and some of it was due to a bonus I got last year. My wife had to pay almost $500 last year and didn't change her withholdings this year.

if you can crank up the withholding such that your underwithholding is under $1000, there is no penalty and you can pay the difference by April 17, 2006

Can I pay the amount necesary to get my underwithholding down to $1000 in one lump sum by december 31, kinda like the quarterly payments done by the self-employed? I'd like to avoid changing my withholdings twice in 2 months if possible.

With underwithholding of $1700, your penalty will be about $50. Is this worth losing sleep over? Since the penalty is 6%/yr...

Well, a penny saved is a penny earned. I get 1700 * .06 = $102. Am I missing something?

Be aware you won't get an IRA DEDUCTION, or a very limited one, at your income level, as each of you is covered by a qualified plan.

D'oh! Goodbye IRA, I never even knew ya. I was debating between a traditional and a Roth, but I guess that issue is solved. On a related tangent, if I had contributed $4000 early in the year as a single guy and then got married at the end of the year, must I pay a penalty for contributing to an IRA that I'm not qualified for?

And remember you will have a full year's worth of mortgage interest and property taxes, when you figure your deductions. (Depending how the property tax system in your area works.)

Gotcha. That is the plan- no surprises for this forester next year.

Since you won't get to itemize this year, you might want to look at what you can push into 2006 to maximize your itemizations next year.

I'm definitely plannning to bunch our deductions.

And I see from your profile that you are a fellow Wolfpacker. Go pack!

Awesome! Yep, classes of 01 and 03. Go Pack!

Have you checked your state withholding? My state has a reputation for underwithholding

Our state withholding is generally close enough to suit me, but we'll check it just to be sure. Thankfully the 3 allowances my wife took were only on the fed w-4.

Do you have other deductions for 2005 that might make itemizing of value? The common deductions are real estate taxes, state taxes or sales tax, and chartible deductions. Also if you prepaid interest (points) you have the option of prorating them for the life of the loan or deducting all of them the first year.

All the deductions I could come up with amounted to around 7500, and our standard deduction is 10000 for married filing jointly.

Thanks for all the help so far!
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