Back in the day, the gov’t used to ask nicely
Wouldn’t it be great if we had cartoons like this today? What do you think they’d be about? They’d probably be telling us how we should give all our money to lenders who were irresponsible for the past 10 years.
Fixing your state withholding
If you got a big state tax refund this year as well as a big federal return, you probably will want to adjust your state withholding as well. This can once again mean big money in your regular paycheck.
Unfortunately, there isn’t a great ‘all in one’ calculator for determining how to fix your state tax withholding, making this a more advanced tactic. Virginia’s withholding calculator is actually pretty lousy. If you aren’t comfortable here, you should definitely consult a tax professional to figure out how to set this up. If you’re in a state like California, which has a pretty good withholding calculator you will probably be able to handle this on your own. Still, this is at your own risk – don’t come crying to me if you over-withhold and end up owing the government money next year.
Your goal once again is to get as close to a $0 tax refund from the state as possible. If you’re in a state where each exemption is $250 in paid tax, and you received an $800 return last year, you’ll probably want to take three additional exemptions this year, unless you’ve got a life changing event coming up. But I think it’s worth the risk to give yourself a raise.
Fixing your W2 withholding for fun and profit…
Did you get a refund on your 2008 federal tax return? Was it more that $500? If you did, or you are planning something that is going to dramatically change your 2009 return (buying a house, having a kid, etc), it may be time to play the W2 game.
What the heck is the W2 game? Basically, when you overpay your taxes to the federal government, you are giving them an interest free loan. I don’t want to give them a loan, I want my paycheck to be as large as I can so I can invest it (or in my case, pay down my mortgage). The goal is for your refund (or tax payment, if you’re brave) to be within $250 of what you paid in over the year. That means your refund check should be no more than $250, and should limit your downside to a $250 payment if you lose.
But even if you lose, you win, because you get to hold on to that money in a savings account and earn interest on it. While you can’t just pay all your tax at once (that’ll get you in trouble with the feds), not overpaying your taxes can significantly increase your means.
When I bought my house, I all the sudden had a huge tax deduction that wasn’t already accounted for by my W2. When I went in, used the IRS calculator, and then changed my withholding as directed, I started receiving an extra $100 in my paycheck. Just by playing this little game.
If you are close to getting in the black, this is a great way to get over that hump.
If you are uncertain how this will affect your tax liability, consult a tax professional before making any changes.
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So, you want to know what's up with the brackets in the name? "Curly brackets (also called braces, or "squiggly brackets") are sometimes used in prose to indicate a series of equal choices" and "Square brackets are mainly used to enclose explanatory or missing material usually added by someone other than the original author, especially in quoted text." So basically, if you really want to be wealthy in life, you have to figure out how to get happy. Since that whole spiel would make a crappy name for a blog, I decided to do something a bit creative with some brackets.
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