tax exemptions - what to claim?

[sofarindebt]

Since we are not filing til June, should I tell my husband to lower his exemptions so we take home less pay? Or do they take this into consideration when calculating your expenses vs. take home pay.

[HHM]

Just the opposite, you want to claim the max exemptions and maximize your take home pay. (1) by not claiming your max exemptions, you are giving the government an interest free loan, (2) the trustee is going to nab your tax refund anyway, why give the trustee more than you should.

[SinkingFast]

Hubby was already withholding at 6 on his paystubs. During our 341, the Trustee said he wanted to take a look at our taxes when we file in the spring. If we get a refund, attny says generally $1K or more, the Trustee will take a pro rated portion of the refund.

We were the last case for our attny for the day. As we're walking out, the attny asks to see paystubs I'd offered him before the 341. Our attny looked at them for a few minutes and then told us to up our Exemptions as high as we could. Get our taxes withheld as close to Zero as possible for the rest of the year.

Hubby immediately changed his withholdings to 10. That didn't get us anywhere close to Zero. So I told Hubby to submit new forms claiming 15. Hubby tells payroll that he wants to change to 15 on his Exemptions. As the gal is handing him new blank paperwork to fill out, she tells Hubby, "When you go above 10, it triggers an IRS investigation. The IRS will call us about you."

We decided we did not need 2 branches of the Federal Gov't looking at us at the same time so we left it at 10. I mentioned it to our paralegal one day at the attny's office when I was returning a form from the Trustee. She said, "Smart move. We don't want 2 branches of the Federal Gov't looking into you at the same time."

Also, Exemptions do come into play with some Trustees. A couple of people have reported this problem. If you have 6 people in your family and you're claiming 2-3 Exemptions on your paystubs, some Trustees factor that into your disposable income. They have a tax calculator I guess, or maybe they call the IRS. Who knows??!! But you can suddenly go from Zero disposable income/mo to having $100+ or more in disposable income as far the BK Court is concerned.

How ever many people you claim as dependents on your income taxes when you file, claim at least that many on your paystubs for the year, leading up to the time you file BK. Get every penny you can in pay and account for it in your expenses on Schedule J. If the Trustee asks to review your income taxes next Spring, maybe up your Exemptions to 10 for the last quarter of the year before you file the next spring.

[lrprn]

Check out this IRS document that helps you adjust your tax withholding to minimize the amount of refund you will get - http://www.irs.gov/pub/irs-pdf/p919.pdf . We found this really helpful.

[FilingOnMyOwn]

Just the opposite, you want to claim the max exemptions and maximize your take home pay. (1) by not claiming your max exemptions, you are giving the government an interest free loan, (2) the trustee is going to nab your tax refund anyway, why give the trustee more than you should.

This is mostly accurate, but MAKE SURE ENOUGH IS GETTING DEDUCTED TO COVER YOUR TAX LIABILITY. Meaning, be sure to have enough deducted so you don't end up OWNING anything come tax time.

[no_it_all]

Since we are not filing til June, should I tell my husband to lower his exemptions so we take home less pay? Or do they take this into consideration when calculating your expenses vs. take home pay.

Your <take home pay> isn't calculated at all. What is calculated is your gross pay minus your federal and state tax liability. Your <net pay> is a function of the number of exemptions you claimed on your W-4 form, and not a function of your actual tax liability. The advice of matching your tax liability with your <net pay> by adjusting your W-4 exemptions is good advice.

[HHM]

This is mostly accurate, but MAKE SURE ENOUGH IS GETTING DEDUCTED TO COVER YOUR TAX LIABILITY. Meaning, be sure to have enough deducted so you don't end up OWNING anything come tax time.

I don't disagree with that for most people...especially for people who frequent this board (i.e. people with financial challenges). Most people, even if they max their exemptions, are not at risk of having too little with holding. Look at it this way, if you have to pay, out of pocket, then you have the benefit of a no interest loan from the government that you can put to work for yourself. But realistically, that level of financial planning is probably not within reach, at the present time, for most people who frequent this forum. So, if you have room to up your exemptions, try to claim enough where you will recieve little or no refund, but will not have to pay taxes, out of pocket.

[no_it_all]

<snip> Look at it this way, if you have to pay, out of pocket, then you have the benefit of a no interest loan from the government that you can put to work for yourself. But realistically, that level of financial planning is probably not within reach, at the present time, for most people who frequent this forum. <snip>

Oooh, Ooooh!! I did that!!! Took that extra pay and started <day trading>....yeah, that worked really well!