2007-12-30 23:25:28 · 5 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ Other - Taxes
I have a client that tried a scheme like this on the advise of a fellow employee. After three years she owes the IRS a little over $100,000 in tax, penalties and interest. be very careful about these "great tax avoidance plans".
2007-12-31 02:45:54 · answer #1 · answered by ? 6 · 0⤊ 0⤋
The IRS isn't stupid. If you owe money at tax time (and apparently you will) and they notice it's because you never seem to have any money withheld on your W-4, they will send a lock-in letter to your employer. It often says you are to treated as single/1 unless you elect to file single/0 and you can't change it to anything else unless you get permission from the IRS.
2007-12-31 02:57:54 · answer #2 · answered by Anonymous · 0⤊ 0⤋
It's not just your tax money that you'd have to put into your 403(b) and charitable contributions, it's your whole income, and both have limits that wouldn't let you do that. These items are subtracted from your income before your taxes are calculated (contributions only if you itemize), not subtracted from your tax.
Investments don't affect your tax bill unless you sell the item at a gain or a loss.
2007-12-31 02:14:25 · answer #3 · answered by Judy 7 · 1⤊ 0⤋
You must be talking about your W4 form at work. Exempt means if you had no tax liability in a prior year and do not expect a tax liability in a current year. Exempt was designed for low income earners such as students working for a few weeks of the year. If you underpay your taxes throughout the year, you may face a big tax bill and a penalty when you do file your income tax returns.
2007-12-31 00:31:16 · answer #4 · answered by Gary 5 · 1⤊ 0⤋
Won't help. Charitable donations are limited to 50% of your AGI at most. What's more, donating money just for the tax break is dumb as it only reduces your taxable income. If you're in a 15% tax bracket a $1,000 donation only saves you $150 in taxes. Your retirement plan has limitations as well. And there's no deduction for putting money into investments.
File your W-4 properly and avoid the hassles and penalties of trying to beat the system. Use the worksheet on page 2 of Form W-4 to figure out the proper number of allowances based upon your situation.
If you can't meet the 2 conditions plainly spelled out on Form W-4 for claiming EXEMPT, then you may NOT claim EXEMPT. PERIOD!
2007-12-31 00:30:24 · answer #5 · answered by Bostonian In MO 7 · 1⤊ 1⤋