Adjusting Withholding via W4 Exemptions
One of my friends recently asked the following question about adjusting the withholding on his paycheck in order to minimize overpaying his income tax:
We recently just bought a house. We’ve never itemized my taxes before because we didn’t have enough to come close to the standard deduction. Now, however, clearly we will. We’ll have approximately $30k in write-off’s between the property tax and mortgage interest. The difference between this and the standard deduction (~$10k) is ~$20k. Using the 25% tax bracket, this means we’ll get back $5k in taxes (compared to last year). How much should I adjust my w4 exemptions so that we can get this money in our pay checks instead of a big check from the fed’s at the end of the year?
The gist of the scenario is that the difference between this year and last year is that this year he will be able to include $30,000 in itemized deductions rather than take the $10,000 from the standard deduction. How should he adjust his Form W-4 exemptions so that he doesn’t unnecessarily overpay his taxes through withholding?
The simple, for me, answer is to turn to the IRS’s 2008 Withholding Calculator because that’s the official answer (but that would be too easy!). The “rule of thumb” is that each of the exemptions on your W-4 represents a dependent deduction and each dependent deduction is worth approximately $3,400. The purpose of the W-4 was so that you could indicate how many dependent children you had and so you can repurpose this to cover all the other deductions you have on a basis of ~$3,400 per exemption. Based on the rule of thumb, the answer appears to be 9 exemptions.
Now comes the question of whether the couple both puts 9 or if one person puts 9 and the other puts 1. Since you’re adjusting your total tax liability between two people, I believe the answer is that one person puts 9 and the other puts in 1 but I’m not 100% sure. If both were to claim 9 exemptions (total of 18!), you would double counting and thus underpaying by 9 exemption’s worth. I’m not a tax expert but a few readers are, so hopefully someone can chime in on whether this is correct.
Ultimately, to be 100% sure, I’d check the IRS 2008 Withholding Calculator and then speak to a professional tax accountant.

Sometimes you do your taxes on April 14th or 15th and you discover you owe the IRS (you actually owe the United States Treasury, the IRS is just there to bust your kneecaps if you don’t) more than what you can get your hands on in one day. Maybe you put too many exemptions or you underpaid your estimated taxes, whatever the case, you’re in a pickle and you need some help. The IRS sympathizes. They aren’t heartless automatons there just to suck the marrow from your bones, they’re willing to lend you a hand and let you pay off what you owe in installments. Here how you set that up. (and investigate why you had this shortfall so you don’t have to do it again next year!)
SVB had a post on Thursday about how she would be
Procrastination usually doesn’t usually have concrete and actual added costs in your personal life. You put off rolling over an IRA or changing your 401(k) contribution, you don’t feel any costs (you may lose potential gains or avoid potential losses, but it’s never that concrete) However, in the case of tax preparation there is a real cost to putting it off.