Is it better to claim one tax exemption during the year ?

Question

My husband carries one exemption during the year but claims four tax time? Which is better to do claim one or four during the year? What's the best way to get most of your money back when you file taxes?

Answer 1

The total taxes you pay will be the same either way. You can get the money through the year by claiming more exemptions, or you can give the government an interest-free loan through the year, and get your overpayment back as a refund, by claiming fewer exemptions than you're entitled to. It's your call, but neither saves you any taxes - it just depends on whether you want your own money sooner, or later.

If you requested that your employer take out an extra $500 each month, then your refund would go up $6000, and you'd get the $500 times 12 months back.

Answer 2

Judy's correct. I work in taxes, and in the end you basically end up paying the same thing. I'm single with no children, so on my return I claim single and 1, but during the year I claim single and 0 for tax purposes. I have more taken out of my paycheck each period, but at the end of the year I've already contributed enough to have a small refund. As my income increases, I might have to have additional tax taken out to avoid having to pay much at the end of the year.

If you're like me,and you don't think you will have the money to pay in full come April 15, you'll want to continue to claim less than your actual exemptions. If you are unable to pay, an extension will only extend the time to file, not the time to pay, so you will end up paying more in the form of penalties and interest if you don't have all of the money and have to find a way to come up with it.

In addition, if you're receiving a large refund right now, and want to get some extra money throughout the year by increasing your exemptions, you might want to seek some advice and have someone run some numbers to see what to claim so that you get as close to breaking even as possible. Hope this helps!

Answer 3

The way to pay less taxes (net) is to itemize (Schedule A) and have more itemized deductions listed on the Schedule A Itemized Deduction form (like mortgage interest payments, business expenses etc.). The exemptions you claim are meaningless in respect to the amount of tax you end up paying, since you can elect to either get the "refund" back a little at a time on your paycheck during the year or all at once at the end of the year. Since the first option pays you interest on your bank accounts during the year, it is recommended by professionals as the best option, but then you don't get that big refund check at the end of the year.
Other areas to save tax dollars are by avoiding paying the tax on earned interest and dividends and using your retirement accounts to save tax free for retirement. In general, any kind of real estate, business equity or investment equity growth is inflation protected and income tax advantaged which is another big factor to consider.

Answer 4

In order to claim you as a qualifying relative (the word relative is a joke), they have to meet the tests. 1. You lived with them all year. 2. You had income of less than $3400. 3. They can show that they provided more than half of your total support. The fact that you pay them $2600 a year for living expenses (which I bet they aren't claiming as rent) is roughly proof that they are NOT providing you your support. Their assurances that they won't claim you as a dependent, but somehow can get money back if they only knew your SSN is contradictory.