I currently claim 0 on my W-4. My husband is self employed. If I was to claim 1 will our taxes change much?

Answer 1

If you claim 1, you will have less withheld. The government would love to have the money, it is essentially an interest free loan to the government and come tax time you will get the money back (if you qualify.) Personally I think it is wiser to claim the most you can so you have less withheld which you can invest. When tax time comes you may owe a little bit but, that money you paid to the government will have had a full year to gain interest. This is what is called leveraging your money.

One warning with this is... you HAVE TO BE DISCIPLINED to do this. You can't go out and buy a Wii or that big screen TV with this money because if you do end up owing at tax time you need to have the money to do it

The more important question I have for you is.... does your husband have a corporate entity (LLC, C-Corp, S-Corp) in place to take full advantage of the tax code? It may cost $200-$300 but, your tax savings and the protection of your personal assets from litigation more than make up for it.

Answer 2

The prior post was OK up until he said "$20" per pay period. Taxes withheld are based on your income in the pay period not on some sliding absolute scale.

That is to say if you earn $100,000/year changing from 0 to 1 will have far more impact than if you only earn $20,000/year.

Oddly enough the taxing is done by charts [Circular E] promulgated by the IRS based on pay period. These charts essentially assume you earn the same amount every pay period. This why when you have something like a bonus or extra overtime your withholding goes up so that you are not just paying the same percentage as you did on other pay periods.

For example if you earned $100/week then your annual salary by such charts is $5,200. If however you got a $50 bonus one week the chart would tax you in THAT week as if your annual salary was $7,800 and take a bigger bite. (Of course when you do your tax return at end of year you'd do it based on actual pay and get a lot of that extra withholding back.)

The main reason why you would WANT more withheld is because you're ending up having to pay more at tax filing time. If you have to pay more than 5-10% of your taxes at tax filing time you're not having enough withheld and can be penalized for it by the IRS.

Also if your husband is self employed he still has to pay before the end of the year. He should be doing estimated taxes each quarter (every 3 months). That is also true if you have a large taxable item (e.g. sale of stocks creating a capital gain) that would increase your tax dramatically.

Answer 3

Your W-4 doesn't affect your taxes. It affects the amount of tax withheld towards those taxes.

If you change your W-4 from 0 to 1, less money is withheld and more money could be owed at tax time. The amount is probably on the order of $20 a pay period.

Let's see married 0 verus married 1.
TP makes $30,000 a year or $1150 every two weeks.
Married zero under % method, $97 withheld.
Married 1 under % method, $78 withheld.
Difference is about $20 per biweekly pay period.
Or $10 if weekly, $40 if monthly.

My point was one allowance isn't that much money per check.

Answer 4

Your taxes won't change at all. What you owe when you file your return will. If you claim 1 instead of zero, they'll take out less through the year - around $780 if you're in a 25% bracket for just your income, or around $510 if you're in a 15% bracket. If you have a refund coming, it would decrease by the amount of the extra you got during the year - if you owe, you'll owe that much more.