Tuesday, March 30, 2010

Single mom wonders about tax withholding

With April 15 around the corner, most of us are focused on getting our returns in on time or on getting whatever refund we're owed. But right now's also a good time to think about preparing for next year's tax season by adjusting your withholding for the current year. That's what one friend asked me about recently:
I'm never quite sure how to fill out my W2 forms. I'm not sure what number I should put down for withholding, although I was told not to put down more than 2 to avoid owing the government. Also, for the state, I don't know whether it is better to claim an exemption for my dependent or myself.
My first piece of advice here is that whenever you're unsure about a tax issue, it's always best to consult with an accountant. That doesn't mean you have to go out and hire one, but most people either know someone personally or know someone who knows someone who prepares taxes for a living and asking that person for five minutes of their time costs nothing.

Now, here's my totally (non-legal, non-cpa) opinion: instead of just punching in a 0, 1 or 2 on your W-4 (that's the withholding form; the W-2 is the tax statement your employer sends you at the end of every year), read the actual instructions and follow them. the W-4 is more than a form, it's a worksheet designed to help you estimate in advance which deductions you're eligible for and to structure your withholding around those. In short, it's a way to make sure that you're keeping all the money you should keep all year long, instead of giving it to the government, which is what happens when you get a big tax refund every year.

As a single mother, it's entirely possible that you may be eligible for more than two deductions as you might qualify, for example, as head-of-household or for a child tax credit or earned income tax credit. You might also be eligible for a deduction for qualifying childcare expenses. Going through the worksheet and talking with an accountant or tax preparer might reveal that you should actually put a 3 or 4, instead of a 1 or 2.

Being concerned about owing the government is legitimate; in that case you could still do the worksheet and then subtract one or two from the number it suggests just to stay on the safe side.

Good luck.

image courtesy photoxpress

No comments: