Should we change our deductions on his paycheck?

Question

My hubby and I are building a new home this year. We are paying for our closing cost at the time of closing. We also have a capital loss carryover ($2500)and some medical deductions($3350 or the limit) by the end of the year we will also have our intrest and closing cost that we can deduct. We claim 4 for withholdings but should we cange it to 5 for the rest of the year since we know we will have so many deductions and then change bak to 4 begining of next year? We dont really care about getting a hugh refund every year, this year we got 4600 back and only had the capital loss carryover. Would it be that much of a difference on his paycheck each week and on the refund next year?

We are married with 3 children and last years income was around 57,000 but this year is exspected to be more around 70,000 to 75,000...I should have put that in before!

Answer 1

You didnt mention your income range but it sounds like with the number of deductions, you may be looking at the alternative minimum tax in the next year or so. I think its worth talking to a tax expert so you can plan your taxes for this year and beyond. You may also look at maxing out a 401K or some other tax advantaged account. Good luck.

Answer 2

With a $4,600 refund this year, I'd kick it up by at least 2 or maybe 3 withholding exemptions even without the home purchase factored in. With a refund that large, FAR too much tax is being withheld as it is.

Your better bet would be to fill out the 2 worksheets on page 2 of Form W4 to arrive at the best number to claim. There has to be something else going on with your tax situation as a $3,000 capital loss won't generate anywhere near $4,600 in tax savings even at the highest tax bracket.

I'd probably hold off on bumping it for the home purchase until you actually close. If you have less than a full year of mortgage interest payments you may be looking at far less benefit from it in the first year than you anticipate. Also keep in mind that the only closing cost item that you can normally deduct is the points paid on the mortgage. Escrow deposits have no tax consequences and the other non pre-paid closing costs can only be used to adjust your cost basis in the house which will reduce your gain when you eventually sell.