Menu

Why does it seem so terrifying to adjust my W-4?

Home Tax Reduction Why does it seem so terrifying to adjust my W-4?

  • Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1848
    Joined: 03/01/2018

    Per IRS:

    How much am I required to pre-pay in order to avoid a penalty?
    You are generally required to pre-pay at least 90% of your tax either by having the tax withheld from your income, or by making timely estimated tax payments. A penalty will also not be charged if you pre-pay a “safe harbor” amount equal to 100% of the previous year’s tax. However, special rules exist for certain taxpayers:

    Qualifying farmers and fishermen are required to pre-pay only 2/3 (66.67%) of their tax, or the safe harbor amount, whichever is less. You are a qualifying farmer/fisherman if at least 2/3 of your gross income in either the current or previous year is or was derived from farming or fishing. See Farmers and Fishermen in Publication 505 for more information.
    The safe harbor amount for high income taxpayers is 110% of the previous year’s tax. You are a high income taxpayer if your previous year’s adjusted gross income was $150,000 or more ($75,000 or more if you were married, filing a separate return).
    You also will not be charged a penalty if your total tax due, after withholding, is less than $1,000, or if you had no tax liability for the previous year.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #213596 Reply
    Liked by Peds
    Avatar The Wiz 
    Participant
    Status: Other Professional, Spouse
    Posts: 40
    Joined: 05/01/2018

    Got it. Thanks for clarifying that. I wasn’t even thinking about penalties. I was just thinking about the sheer fact of having to pay money that I had not budgeted & planned for in the future.

    VP of Shoreside Operations for an inland marine company. Husband to an A/I Physician.

    #213628 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1848
    Joined: 03/01/2018

    helps to think about it in another way

    if you get a tax refund, you have essentially given the government an interest free loan; by contrast, if you only pay/withhold the safe harbor minimum, it is the government that has given you the interest free loan

    your goal should be to gain a better understanding of your taxes through education, become able to reasonably estimate your own tax liability, and then adjust withholdings and budget accordingly. It’s a satisfying feeling when completing your tax return, finding that your estimates were accurate, and writing a check to pay your remaining taxes due, without penalty

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #213632 Reply
    Liked by Peds, The Wiz
    Avatar The Wiz 
    Participant
    Status: Other Professional, Spouse
    Posts: 40
    Joined: 05/01/2018
    Disability Insurance

    Alright pulled the trigger and did it. I just need to do the wife’s now. I will re-evaluate it all on October 1st to make sure we are on track.

    VP of Shoreside Operations for an inland marine company. Husband to an A/I Physician.

    #213649 Reply

Reply To: Why does it seem so terrifying to adjust my W-4?

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

Notifications Mark all as read  |  Clear