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I love investing, I really do. At the start of this year I discovered Fooldom and I'm even more into it than ever.

What I hate are taxes. Suspect I'm not alone there. So, now that I'm investing and recently married and even own a house now... why the heck do I pay so much in taxes?

It used to be that I didn't own a home. All my friends did and loved April. "Look at my refund" is all I heard. Now I own a home... and I STILL end up paying and extra $1500-$2500 in taxes come April! Nope, my paroll deduction isn't wrong... it's 0. Z-E-R-0! What the heck am I doing wrong? I'm having the max deducted from my paycheck and I still owe? What's that about?

This includes no capital gains or anything like that. I itemize, deduct property taxes and state taxes, and still owe! Yikes!

I have no kids and my wife works. She claims 1 exemption on her W-4.

Anyone out there have a similar problem? I just got done with Quicken's tax planner so I'm slighty agitated. Thanks for letting me vent!

Fool On,

BostonBear


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bostonbear writes (in part):

Now I own a home... and I STILL end up paying and extra $1500-$2500 in taxes come April! . . .

. . . .

I have no kids and my wife works.


I reply:

That's very likely the reason; the standard tables underwithhold for two-income families. Your withholding form contains a worksheet that tells you how to calculate how much extra withholding to request. However, if you're paying enough taxes during the year to avoid penalties, you might consider leaving things as is, so that you, rather than the government, can earn interest on the money. --Bob
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bostonbear wrote:
<<What I hate are taxes. Suspect I'm not alone there.>>

Always look on the bright side - for the most you pay more taxes because you're making more money!

<<All my friends did and loved April. "Look at my refund" is all I heard. Now I own a home... and I STILL end up paying and extra $1500-$2500 in taxes come April!>>

As noted elsewhere, unless you're drawing penalties, leave it alone. All those happy friends are living proof of "Ignorance is Bliss". Because those refunds they are getting are most emphatically not found money. Fact is, they're just getting back money they already sent off to the government.

You have a situation many will envy. You get the keep the $2k in a money market fund, and thus keep the $50 or so it will throw off over the course of a year. So when it comes right down to it, you have reason to be happier than your refund-loving friends...

BTW, you might want to check for itemizable deductions. You may have been donating to public radio or to your church for years, with only warm fuzzies to show for it - but with a home mortgage, you probably itemize, and thus can probably deduct that type of thing. There are a number of little things like that that non-itemizers don't track because they aren't worth it, but itemizers can make worth it.

Just don't let the tax tail wag the taxpaying dog!

Later,
scott
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[[It used to be that I didn't own a home. All my friends did and loved April. "Look at my refund" is all
I heard. Now I own a home... and I STILL end up paying and extra $1500-$2500 in taxes come
April! Nope, my paroll deduction isn't wrong... it's 0. Z-E-R-0! What the heck am I doing wrong?
I'm having the max deducted from my paycheck and I still owe? What's that about?]]

I hate to be the bearer of bad tidings, but it is very possible that your W-4 form IS wrong. It is very possible that you'll need to claim M-0, have your wife claim M-0 and make a request to have yet MORE withholding taken from your check per pay period.

Remember that the number of exemptions that you claim has no bearing on your actual deductions. I have clients that are married, with no kids, but can each claim M-3 on their W-4 forms becuase their itemized deductions are massive.

On the other hand, I have other clients that are just like you. And each year we have to help them with their W-4 forms in order to arrive at a proper amount to withhold in ADDITION to what is being withheld by the tax tables.

But the key, as Bob78164 points out, is to not go overboard. You should KNOW what your liability may be at the end of the year, but you don't want to have to pay it in unless you absolutely have to in order to avoid any penalties. There is really no use having Uncle Sammy hold onto your money when you could be making much better use of it.

You might be interested in a three part post that I wrote a few weeks back regarding "The Marriage Penalty". You can find these posts in the Taxes FAQ area, in the "archives" listing. After reading those posts, you'll have a better understanding as to why a married couple will pay more in taxes than two single people with the same tax issues. Then you REALLY won't be happy.

But the only thing that you can really do to adjust your W-4 form is to visit the IRS web site and pull down the complete copy of the W-4 form. You'll find worksheets and tax tables that will help you compute your proper withholding and any additional withholding that you need to have taken on a pay period by pay period basis.

You might also want to check out the new Motley Fool Investment Tax Guide for other pointers regarding investing and taxes.

TMF Taxes
Roy

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Thanks, Roy.

It has become apparent that I will need to have more money deducted from the paycheck. Denial ain't just a river in Egypt, I guess. ;-)

I'll look into that marriage penalty, thanks for the tip. I've heard about it on the news of late... and November elections are around the corner... hmmmm.

And I think I will invest in a copy of the TMF tax guide. I'm particularly interested in how I can exercise my employee stock options without paying too much in taxes (e.g. would a cashless exercise potentially bump me into a higher tax bracket?).

I know taxes aren't as much fun as seeing DELL stock split over and over.... but we should all be Foolish about taxes.

Thanks again.

BostonBear
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[[And I think I will invest in a copy of the TMF tax guide. I'm particularly interested in how I can
exercise my employee stock options without paying too much in taxes (e.g. would a cashless
exercise potentially bump me into a higher tax bracket?).]]

Thanks, Bear. But I hope there is other stuff in the book that you can use other than just the option information. But you'll certainly learn more about ISOs and NQ, and the tax difference between them. Once you have had a chance to check out what was written in the book, feel free to post any strategy questions here. I'll be more than happy to try to help you out.

TMF Taxes
Roy
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I can see the point about having as little tax as possible withheld, and even if you owe, as long as there is no penalty involved, there's no loss. You can use the money, or better yet, invest it. However, many people are not that disciplined. They get it, they spend it, and they have nothing to show for it. Then, come tax time, they're scrambling to find the funds. Most people I know are like that. They aren't fools like me. So, let those type keep having extra withheld, and look forward to that big April check. This is just an opinion.
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