New to taxes.?

Question

I live in California and just graduated from college. Got a new job for 52k a year and no dependents, just renting. I was wondering how much taxes will I be hit with? I used to make 13/hr and worked only part time so I hardly payed any taxes and even got a $300 dollar return. So I was also thinking if I should buy a house for a tax break or claim 2 dependents and just pay at the end of the year. That way I can get interest from the bank throughout the year. Just planning on getting the most out of my money. Looking for a little guidance since people have had to deal with taxes all their lives and it is new to me. Any other ways to get a tax break would be great, also how do you personally deal with it avoid paying taxes or getting a tax cut? Do you just live with it and let them take as they wish?

Answer 1

You didn't say how long in 2006 you earned $52K/year, so we have to assume a fully year. You'll have to use your actual earnings and actually use a tax table to find out the specific answer. If your only income is wages of $52K, you're single, and cannot be claimed by anyone else (parents?) as a dependent, you're entitled to a combined personal exemption/standard deduction of $8,450. Look up the difference in the Form 1040-EZ tax table, and your tax is $7,451. Compare that with what you had withheld, and you either owe or are entitled to a refund. Use the same tables if your earnings are less than $52K. That covers Federal, but you also have California state tax to deal with. The short form is Form 540A, and those forms instructions are also easy to find online. Use these links:

http://www.irs.gov/pub/irs-pdf/f1040ez.pdf

http://www.irs.gov/pub/irs-pdf/i1040ez.pdf

http://www.ftb.ca.gov/forms/06_forms/06_540a.pdf?refresh=55156

http://www.ftb.ca.gov/forms/06_forms/06_540ains.pdf

Part of your questions seems to say you'd rather not pay tax during the year, but pay it all with your return. You can do that, but you'll subject yourself to underpayment of estimated tax penalties, and they will likely be more expensive than the interest you can earn by keeping the funds in a bank. For a wage earner, it's really best to properly fill out Form W-4 and gauge your withholding to approximate your final tax liability. That way you don't get a big refund (essentially making an interest-free loan to the government), and you don't owe a big chunk at tax time. With a little proper planning and burying your head into the forms, instructions, and tables, you should be able to estimate your liabilities pretty closely. I've been listening to people complain about the pay-as-you-go method (either through withholding or quarterly installments) most of my 30+ years of experience, and it's those same people who complain most about the underpayment of estimate tax penalties that they incur.

The IRS and California don't just "take as they wish." Every person has the right to structure his/her tax situation to pay as little as possible, with legitimate deductions, credits, etc.

Sure, if you can afford to buy a house in California, the interest deduction will reduce your taxes. But don't stretch your budget by overbuying--I'm not sure what you can get in your market based on your earnings.

Answer 2

Congratulations on finishing school and getting a good job.

Your federal income taxes would be around $7500 a year, then you'd also have social security and medicare taxes, plus state and possibly local taxes.

Buying a house might help some, but probably not nearly as much as you've been led to believe.

If you claim more allowances on your W-4 than you have a right to, you could end up paying penalties for under-withholding at the end of the year which would eat up any interest you'd make on the money in the meantime. Plus it's illegal - note that just above the signature line, it says that under penalty of perjury, the info is correct to the best of your knowledge..

You're making a good salary, so you'll probably owe significant taxes. It's part of the cost of living.

Answer 3

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