Can you file exmept on your payroll, take the money you keep when filing exempt, and open an IRA. How much less will it be when paying taxes?
2007-06-10 10:58:58 · 5 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
It depends on whether you end up owing any taxes or not. If you do, you'll have to pay not only what you would have owed in the first place, but also, depending on how much you owe, penalties for underwithholding. Plus filing exempt when you aren't is illegal, so there could be additional trouble for you there.
If the IRA deduction would put you in a position where you had no tax liability, then you'd be OK to file exempt if you meet the other requirements for doing so.
2007-06-11 10:36:55 · answer #1 · answered by Judy 7 · 0⤊ 0⤋
Claiming exempt is something that's done on a W-4 that you file with your employer. It doesn't mean that you are exempted from paying tax, just that the employer wouldn't withhold income taxes from your paychecks, so you'd have to pay it all at the end. You are not legally entitled to claim exempt on your W-4, since you are only allowed to do that if you do not expect to owe any tax for the year, and you will have tax liability. If you claim exempt anyway, you'll have to pay the whole amount at the end of the year, plus penalties for underwithholding and possible additional penalties for illegally filing a W-4 as exempt. Yes, you'd still get your W-2 early the next year, showing your income for the year and zero as federal taxes withheld. Repeat - this does NOT exempt you from paying tax. All you do is cause trouble and extra expense for yourself.
2016-05-17 04:07:42 · answer #2 · answered by ? 3 · 0⤊ 0⤋
If your tax liability for the year is more than $0.00, claiming exempt on your W-4 is a FEDERAL CRIME. If you have no tax liability, the IRA contributions will not reduce your taxes.
That aside, without significantly more information, it is not possible to guess the effect of an IRA contribution on your total taxes.
2007-06-10 11:24:43 · answer #3 · answered by STEVEN F 7 · 1⤊ 1⤋
Depending on what kind of IRA you are opening will depend if you can take a deduction for the contributions. If you contribute to a traditional IRA, you should be able to deduct up to $5000 a year from your earned income. The tax savings depends on your tax bracket. If you open a Roth IRA, then you won't get any deductions. However, your earninggrow tax free when it comes time to withdraw it.
2007-06-10 11:08:43 · answer #4 · answered by Steve 6 · 0⤊ 3⤋
5 - 10 in the slammer
You may only file exempt if you are a full time student and are returning to school after summer break. You are only exempt for earnings up to $10.000 after which is taxable.
2007-06-10 11:06:51 · answer #5 · answered by Michael P 2 · 0⤊ 6⤋